The Asian Voice

Tax havens and the damage they can do: Inquirer columnist

In his commentary, the writer questions tax concessions for local businesses when the original intent was to attract foreign investments.

   Under the Philippine Economic Zone Authority law, Congress itself identified the cities and municipalities where economic zones are allowed to be established.
Under the Philippine Economic Zone Authority law, Congress itself identified the cities and municipalities where economic zones are allowed to be established.PHOTO: AFP

MANILA (PHILIPPINE DAILY INQUIRER/ASIA NEWS NETWORK) - There's a disturbing trend that's escaping scrutiny in our country.

We have a people reeling from rising consumer prices resulting from increased taxes.

We have a government scrambling for foreign loans because of perennial budget deficits. But in the midst of these problems, we are allowing the unrestricted growth of virtual tax havens in our country.

These tax havens are sprouting all over our nation, and they're providing shelter to big businesses that are enjoying huge tax incentives and other privileges that are denied ordinary Philippine enterprises.

The tax havens are growing courtesy of business process outsourcing (BPO) companies (usually call centres) and online gambling firms. And there's an emerging trend of granting tax haven privileges even to shopping centres, beach resorts, casinos and hospitals.

The Philippine Economic Zone Authority (Peza) has been issuing permits allowing the following: the classification of buildings as "information technology centres" where BPOs are sheltered; the declaration of beach resorts, shopping centres and casinos as "tourism economic zones," and the certification of hospitals as "medical tourism centres."

On the other hand, the Philippine Amusement and Gaming Corp. (Pagcor) has been issuing licenses to Philippine offshore gaming operators, which operate internet gambling businesses.

While ordinary businesses are subject to corporate income tax rates as high as 30 percent, Peza- and Pagcor-accredited enterprises are merely taxed at 5 percent of their gross income.

This special tax rate is perpetually enjoyed by these privileged companies.

The objectives of Peza, as originally conceived by Congress, are commendable.

These are to attract foreign investments and to encourage businesses to locate outside of our cities.

But reviewing how the government's executive branch has been applying the law under the presidencies of Gloria Macapagal Arroyo, Benigno Aquino III and Rodrigo Duterte, there's a need for Congress to thoroughly examine if the Peza law is being implemented in a bastardised way.

Under the Peza law, Congress itself identified the cities and municipalities (all outside of Metro Manila) where economic zones (ecozones) are allowed to be established.

But the executive branch has arrogated unto itself the power to permit the establishment of ecozones inside Metro Manila, more specifically allowing stand-alone buildings to be entitled to ecozone privileges.

The executive branch has justified this arrogation of power by making a manipulated interpretation of the Peza law.

There are now 155 stand-alone buildings within Metro Manila that are enjoying ecozone privileges as "I.T. centres."

There are also 19 shopping centres and beach resorts declared as "tourism economic zones," and two hospitals declared as "medical tourism centres."

But these initial numbers are expected to multiply.

In contrast, there are merely 74 "manufacturing economic zones" established pursuant to locations approved by Congress.

It's true that the establishment of ecozones in expanded locations help generate much-needed employment in Metro Manila and in other cities.

But if we allow the executive branch to have an unlimited exercise of its arrogated power, we can become a nation pockmarked with thousands of tax havens consisting of shopping centers, beach resorts, hospitals and other businesses.

This is a huge revenue loophole in the making.

Moreover, why are enterprises owned by big-time Filipino businessmen being given tax haven privileges when the purpose of the Peza law is to attract foreign investments?

Among many others, these businesses include Misibis Resort and Embarcadero, both in Albay; Pamalican and Pangulasian resorts, both in Palawan; and SM Seaside City and Megaworld's Mactan Newtown, both in Cebu.

Unless Congress flexes its muscles to regulate the executive branch, we may be on our way to becoming a country with business giants fattened with tax-immune profits, and a people withered by an oppressive tax burden.

The writer is a columnist with the paper. The Philippine Daily Inquirer is a member of The Straits Times media partner Asia News Network, an alliance of 23 news media entities.