Too many incentives spoil
The Philippine Star
01/17/05

Granting fiscal incentives to investors – which usually are in the form of tax exemptions, income tax holidays or reduced taxes – is again a hotly contested topic in the light of the urgent need to arrest government’s deteriorating fiscal situation. Recent data suggest that government may have been giving away too much in exchange for too little. During the last five years, for example, the incentives granted amounted to P741 billion, with P175 billion of this given away in 2003 alone. The Senate even has a higher estimate, with perks given in 2003 reaching a whopping P229.4 billion or 5.3 percent of GDP. Fiscal incentives likewise outpaced the country’s production, growing 61 percent from 2002 to 2003, whereas GDP only rose by a measly nine percent.

Our propensity for giving incentives has gone to the extent that the foregone revenues are almost enough to wipe away a year’s budget deficit.

Less Appreciated Offering

Do we really need to give away so many tax perks to attract investors? Or, are we unable to provide what investors really want and cover it up by dangling more monetary incentives instead?

We may be giving away enticements even if they are not on the top of investors’ wish list. Doesn’t it say in recent surveys that investors are simply asking for a less corrupt government, stable economic policies, and better infrastructure?

In fact, fiscal incentives do not necessarily encourage long-term investments. Records show that many investors move in and out of our export processing zones at the drop of a pin after enjoying the benefits of not paying taxes.

Confusing Act

Yet, while the government continues to give away incentives to attract would-be investors, it is poised to increase taxes, i.e., value-added and corporate income taxes, on existing, long-been-tested businesses.

Also, the government intends to do away with the tax exemptions and at the same time increase VAT from 10 percent to 12 percent, but it also has announced the intention to lengthen the years of income tax holidays and net operating loss carry over (NOLCO).

Conflicting laws and their provisions give businesses and would-be investors the runaround and often test their patience. To date, there are 124 provisions of several laws granting tax and duty free privileges to both government and private entities.

There are also too many government bodies not necessarily linked with one another that handle the administration and issuance of investment promotion programs, i.e., the Board of Investments, the Philippine Economic Zone Authority (PEZA), the Subic Bay Metropolitan Authority (SBMA), the Clark Development Corp. (CDC), and several others. A confusing incentive system and a case too many government bodies dishing out incentives are definitely a major cause for the huge tax leakage being experienced by the government.

Getting Organized

As proposed in a bill by several administration senators, we should perhaps start with the repeal of all fiscal incentive provisions in various laws. This may go a long way in helping raise revenues for the government. Lawmakers place this at P5 billion initially.

After all the controversial and often times conflicting provisions are repealed, only industries listed in the country’s Investment Priorities Plan may qualify for fiscal incentives. The IPP, by the way, should be limited to industries with high comparative advantage that offer new products and services, or those that produce exports. This IPP should be valid and reviewed every three years to take stock of changes in the economy.

Pro-Active Incentive System

There has to be more safeguards in place to ensure that incentives granted continue to generate added value to the economy. There are many instances when the industry or sector enjoying these incentives no longer contributes positively or has attained a level of profitable operation where incentives are no longer needed.

A pro-active and effective incentive system must be able to recognize this situation and initiate a process as quickly as possible to shift these incentives to other sectors or industries that can deliver the added value in excess of the costs of incentives. The process must be well defined, transparent and adequately protected against political lobbying.

There must be a limit to the amount of incentives that an industry or firm can avail of. The perks too should be time-bound. Some sectors become free riders and these incentives, in the process, result in inequity. And at whose expense? The poor overburdened salaried workers and consumers.

Unlike businesses that can lobby to get various tax incentives, our salaried workers have suffered in silence for so long, surrendering to government a huge chunk of their salary month on month, year after year.

For this reason alone, government should be more responsible in giving away tax money that should otherwise have gone to the improved education of our youth, better medical facilities for our sick, or for those farm-to-market roads and bridges.

Is NLRC Turning Its Back To Labor?

Operating with limited resources, National Labor Relations Commission (NLRC) has managed to survive the past 30 years. However, several thousands of long pending cases are now buried in the files of NLRC. And for the complaining workers, justice delayed is justice denied.

Cases of unfair labor practices are piling up and not included in the statistics are numerous unreported cases occurring particularly in the remote rural areas where workers are not formally complaining for fear oflosing their job and whatever meager income they are receiving

Tagged earlier by business sector as too biased to labor, NLRC is now the object of increasing complaints from disillusioned employees who reportedly felt that arbitrators were having too cozy relationships with big business who can afford to retain influential law offices to deal with labor problems. Most common complain is the slow pace of case resolution to such as extent that the worker who, recognizing his dwindling resources, is eventually forced to accept whatever the arbitrator awards.

There is the perception that NLRC is like a cemetery where cases get buried. And that it is also likened to a marketplace where decisions are for sale.

What protection do employee complainants have against corrupt labor arbitrators? Are labor arbitrators also subject to life-style checks? Is the alleged swing of bias towards big business a reality or perception? Or, are arbitrators merely tempering what some investors are grumbling as the "pro-labor" bias of our labor laws?

The above questions and more will be discussed on "BREAKING BARRIERS" with Amb. Roy Seneres, National Labor Relations Commission chairman, on Wednesday, 19th January, on IBC-TV13 (11 p.m. every Wednesday). Watch it.

Should you wish to share any insights, write me at Link Edge, 4th Floor, 156 Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at reygamboa@linkedge.biz. If you wish to view the previous columns, you may visit my website at http://bizlinks.linkedge.biz.

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