Fiscal Incentives Revisited

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This short paper attempts to clarify some of the issues and provide suggestions for reforms in the fiscal incentive system. In particular, it focuses on the Investment Incentive System embodied in the Omnibus Investment Code. The paper attempts to provide some estimate of revenues forgone, specifically from income tax holiday under different assumptions. It urges that the government should be aware of these costs, be very choosy in granting incentives, and should make sure that social benefits from preferred activities compensate for the costs. Toward this end, the paper proposes a two-tiered approach for reforms--generic and special incentives.