Title
Tax Incentives Transparency Act
Law
Republic Act No. 10708
Decision Date
Dec 9, 2015
The Tax Incentives Management and Transparency Act (TIMTA) aims to promote fiscal accountability and transparency in the grant and management of tax incentives in the Philippines, requiring registered business entities to file tax returns electronically and submit annual reports, while government agencies are tasked with monitoring and analyzing tax incentives, and noncompliance may result in fines or cancellation of registration.
tax incentives
transparency
fiscal accountability

Policy intent and government objective

  • Republic Act No. 10708 declares the State policy to promote fiscal accountability and transparency in granting and managing tax incentives.
  • The Act requires developing means to promptly measure the government’s fiscal exposure on tax incentive grants.
  • The Act requires enabling government monitoring, review, and analysis of the economic impact of tax incentives.
  • The Act directs government to optimize the social benefit of tax incentives.

Key definitions: IPAs, tax incentives, registrants

  • “Investment Promotion Agencies (IPAs)” are government entities created by law, executive order, decree or other issuance, tasked to promote investments, administer tax and non-tax incentives, and/or oversee operations of economic zones and freeports in line with their charters (Section 3).
  • The term “IPAs” expressly includes BOI, PEZA, BCDA, SBMA, CDC, JHMC, PPMC, BTPI, CEZA, ZCSEZA, PIA, APECO, AFAB, TIEZA, and other similar authorities that may be created by law in the future (Section 3).
  • “Tax incentives” mean fiscal incentives in the form of income tax holidays (ITH), exemptions, deductions, credits, or exclusions from the tax base provided by law to registered business entities (Section 3).
  • “Registered business entity” means any individual, partnership, corporation, Philippine branch of a foreign corporation, or other entity incorporated and/or organized under Philippine laws and registered with an IPA (Section 3).

Coverage: required reporting by registrants; incentives monitored

  • All registered business entities must file their tax returns and pay tax liabilities on or before the deadlines under the National Internal Revenue Code (NIRC), as amended (Section 4).
  • Filing and payment by registered business entities must be done using the electronic system for filing and payment of taxes of the Bureau of Internal Revenue (BIR) (Section 4).
  • For incentives administered by IPAs, registered business entities must file an annual tax incentives report with their respective IPAs (Section 4).
  • The reporting covers income-based tax incentives and value-added tax and duty exemptions, and deductions, credits, or exclusions from the tax base as provided in the charter of the concerned IPA (Section 4).
  • The Act authorizes government assessment consistent with existing revenue laws: the BIR and BOC retain their assessment powers under the NIRC and the Tariff and Customs Code of the Philippines (TCCP), as amended, respectively (Section 4).

Tax incentives reports: timing, content, and submissions

  • Registered business entities availing of IPA incentives must submit to their respective IPAs a complete annual tax incentives report within thirty (30) days from the statutory deadline for filing of tax returns and payment of taxes (Section 4).
  • IPAs must submit to the BIR, within sixty (60) days from the end of the statutory deadline for filing the relevant tax returns, their respective annual tax incentives reports based on the list of registered business entities that filed the reports (Section 4).
  • The details and format of the tax incentives reports are set through the implementing rules and regulations (IRR) of the Act (Section 4).
  • All tax returns and payment obligations remain governed by the deadlines in the NIRC and must be filed using the BIR electronic system (Section 4).

Monitoring and database: DOF, DBM, BESF/TII, oversight use

  • The BIR and the BOC must submit to the Department of Finance (DOF) the tax and duty incentives of registered business entities as reflected in filed tax returns and import entries, and actual incentives as evaluated and determined by the BIR and BOC (Section 5).
  • The DOF must maintain a single database for monitoring and analysis of tax incentives granted (Section 5).
  • For transparency, the DOF must submit to the Department of Budget and Management (DBM) aggregate data on a sectoral and per industry basis, consisting of:
    • the amount of tax incentives availed;
    • the estimate claims of tax incentives immediately preceding the current year;
    • the programmed tax incentives for the current year; and
    • the projected tax incentives for the following year (Section 5).
  • The sectoral/per-industry data must be given to the Oversight Committee created under Section 9 (Section 5).
  • The DBM must reflect this data in the annual Budget of Expenditures and Sources of Financing (BESF) in a section called Tax Incentives Information (TII) (Section 5).
  • The TII must be limited to aggregate data related to incentives availed by registered business entities, based on submissions of DOF and IPAs, categorized by sector, by IPA, and by type of incentive (Section 5).
  • Nothing in the Act diminishes or limits, in any manner, the amount of incentives IPAs may grant pursuant to their charters and existing laws, and nothing prevents or delays investment promotion, processing of IPA applications, or evaluation of entitlement of incentives (Section 5).

Cost-benefit analysis by NEDA

  • The National Economic and Development Authority (NEDA) is mandated to conduct cost-benefit analysis on investment incentives to determine the impact of tax incentives on the Philippine economy (Section 6).
  • Heads of IPAs must submit to NEDA the aggregate tax incentives (based on registered business entities’ submissions under Section 4) and aggregate investment-related data (Section 6).
  • The investment-related data may include, among others: investment projects, investment cost, actual employment, and export earnings (Section 6).
  • Submission duties apply on a sectoral or per industry basis (Section 6).

Penalties for noncompliance and official sanctions

  • If a registered business entity fails to comply with filing and reportorial requirements with the appropriate IPAs, and/or fails to show proof of filing tax returns using the BIR electronic system, the entity is penalized with escalating sanctions (Section 7).
  • For a first (1st) violation, the penalty is a fine of PHP 100,000.00 (Section 7).
  • For a second (2nd) violation, the penalty is a fine of PHP 500,000.00 (Section 7).
  • For a third (3rd) violation, the penalty is cancellation of the registration of the registered business entity (Section 7).
  • If failure to show proof is not due to the fault of the registered business entity, the failure is not a ground for suspension of the ITH and/or other income-based tax incentives availment (Section 7).
  • Any government official or employee who fails, without justifiable reason, to provide or furnish the required tax incentives report or other data or information required under the Act faces penalties after due process (Section 7).
  • The penalty for the official/employee is a fine equivalent to basic salary for one (1) month to six (6) months or suspension from government service for not more than one (1) year, or both, in addition to any criminal and administrative penalties under existing laws (Section 7).

Funding source

  • The amount necessary to carry out implementation of Republic Act No. 10708 is sourced from the current General Appropriations Act (GAA) (Section 8).

Oversight committee: composition and role

  • A Joint Congressional Oversight Committee is created under Republic Act No. 10708, referred to as the Oversight Committee (Section 9).
  • The Oversight Committee consists of the respective Chairpersons of the Committees on Ways and Means of the Senate and the House of Representatives, plus four (4) additional members from each House (Section 9).
  • Within the four (4) additional members from each House, one is the Chairperson of the Senate Committee on Trade, Commerce and Entrepreneurship and the other is the Chairperson of the House Committee on Trade and Industry, to be designated by the Senate President and the Speaker of the House of Representatives, respectively (Section 9).
  • The Oversight Committee monitors and ensures proper implementation of Republic Act No. 10708 (Section 9).

Implementing rules: timeline and effect of delay

  • The Secretaries of the DOF and DTI, in coordination with the NEDA Director-General, BIR and BOC Commissioners, and heads of concerned IPAs, must promulgate the IRR within sixty (60) days from effectivity (Section 10).
  • Failure of the Secretaries of DOF and DTI to promulgate the IRR within the prescribed time does not prevent implementation of the Act upon effectivity (Section 10).

Separability, repealing, and effectivity operation

  • Separability Clause: If any provision of Republic Act No. 10708 is declared invalid or unconstitutional, the remaining provisions not affected remain in full force and effect (Section 11).
  • Repealing Clause: All laws, acts, presidential decrees, executive orders, issuances, presidential proclamations, rules and regulations, or parts thereof contrary to or inconsistent with any provision of the Act are repealed, amended, or modified accordingly (Section 12).

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