Environmental Valuation & Cost-Benefit News

A study by the Department of Trade and Industry (DTI) showed that the benefits from the incentives granted to both foreign and local investors over a seven-year period outweigh the revenues foregone by the government.

To allay the fears of the Department of Finance (DOF) about the alleged increase in revenues forgone by the government as a result of fiscal incentives extended to investors, the DTI through the Board of Investments (BOI) studied the cost of incentives vis-à-vis net benefits of registered-enterprises.

The study covered, however, only 735 companies that have registered 1,056 projects worth P663 billion from 1995 to 2001 or an average of P95 billion per year over seven years. There are more than 6,000 investment projects that have registered with the BOI since 1987.

Based on annual investments of P95 billion, the difference between the revenues foregone by the government and the revenues generated from these investments amount to P7.62 billion. This after total revenues foregone by the government amounted to P9.4 billion while revenues generated during and after the incentive period or 15 years amounted to P17.02 billion.
For every peso worth of incentive granted, a total of P10.08 worth of investments had been registered with the BOI. Furthermore, for every peso worth of incentive extended by the government would generate P1.54 worth of revenues in 15 years or during and after incentive period.

The revenues generated on the first seven years from BOI-registered companies come from local taxes, license fees, and withholding taxes from employees. Revenues after the incentive period come from income tax holiday, as well as other forms of taxes. Furthermore, the investments resulted in $5.44 billion worth of export earnings at the same time generated employment for 34,000 direct workers.

“With this actual cost-benefit analysis, the issue therefore on whether fiscal incentives are revenue foregone is now rendered moot and academic,” the BOI study stated. The study further stated that fiscal incentives incur costs “but it is too simplistic to conclude that all these costs are in the form of foregone revenue.” “Foregone revenues may be variable costs arising from fiscal incentives in the same that even if granted, if no investment occurs, no revenue foregone can arise in the first place,” the study added.The BOI earlier said the Philippines could not stop providing incentives as the country competes for capital in a region. Thailand, Malaysia, Indonesia, and China offer very generous incentives notwithstanding their world-class infrastructure.

The DTI and the DOF are debating on the proposed rationalization of fiscal incentives through changes in Executive Order 226 otherwise known as the Omnibus Investments Code of 1987, as well as the repeal of other incentives law to have a simplified, consistent, and stable administration of investment incentives policies of all promotion agencies.

by Lawrence Agcaoli