Formulation of a Proposed Framework and Quantitative Tool for the Conduct of Macroeconomic Analysis with Cost Benefit Analysis to Determine the Economic Impact of Investment Incentives on the Philippine Economy

Sector: Governance and Public Finance

Country: Philippines

PRIMEX provided the services of a Lead Economist/Team Leader, a Computer Programmer/Software Developer, a Financial Analyst/Accountant, and Economist/Tax Incentive Specialist. The Lead Economist/Team Leader was tasked to: (i) develop a framework to analyze the costs and measure the benefits of tax incentives and determine the latter’s impact on the economy as well as to identify data and other information needed, in consultation with the investment promotion agencies (IPAs) and the Department of Finance (DOF); (ii) develop a quantitative tool that can undertake: (a) cost benefit analysis; (b) micro-simulation to assess the impacts on households, industries and fiscal performance; and (c) macro-simulation to assess the impacts on real GDP, inflation, employment and poverty; (iii) conduct a study, using the tool developed, which quantifies the costs and benefits of the incentives by sector and by other parameters (e.g., locations) as well as on their impact on the economy; (iv) conduct consultations (i.e., visits/meetings), as needed, with IPAs in developing outputs 1 through 3; (v) train NEDA’s Trade, Services, and Industry Staff (TSIS) personnel assigned as counterpart staff of this project in developing, testing, and maintaining the tool; (vi) preparing a manual on the development, use and maintenance of the quantitative tool and a guide on the use of the software for on-line submission; (vii) producing the final framework and quantitative tool to NEDA and relevant stakeholders in a workshop; and (viii) writing the inception, interim, draft and revised final report of the project. The Computer Programmer/Software Developer was responsible for: (i) review and assessment of the required software design, ICT infrastructure, set-up, and systems integration; (ii) development of a prototype program for the build-up of a database; and ((iii) development of a prototype program for the application. A Financial Analyst/Accountant was tasked to: (i) review available reports, studies, and plans, and gather all data relevant for the financial analysis; (ii) provide relevant sections on financial analysis, including assessment of poverty reduction impact; and (iii) review financial analysis undertaken at appraisal and recalculate relevant financial and economic indicators, including but not limited to financial internal rate of return (FIRR). An Economist-II/Tax Incentive Specialist: (i) compiled an inventory of administrative and legislative laws that create or potentially create tax incentives/expenditures (TI/Es); (ii) identify benchmarks and assess the impact of deviations from benchmarks; (iii) ensure that complete information from the inventory of laws and issuances on TI/Es are lodged in the database such that the database is validated and useful for possible simulations and policy analysis; (iv) compile detailed data on taxpayers availing of TIs, by firm, sector, and type of tax; (v) develop tax calculators and logics required to estimate incentives availed and possible revenue impacts; (vi) utilize existing, or develop new, methodologies for estimating TI/Es; (vii) ensure continuous improvement in the quality of data used to estimate TI/Es by obtaining the appropriate statistics required to facilitate TI/Es; (viii) obtain data from sources other than taxpayers’ returns, import entries, and TE reports that will enable or facilitate TE estimation or verification; (ix) define the TE benchmark for all TI/Es and be aware of other TI/E benchmarks from other comparative countries; (x) identify ways to enhance transparency of TI/Es and always ensure TI/E accuracy; and (xi) come up with studies and analysis of the micro data sources identified in the project; and develop TI/E models for fiscal purposes, making use of, but not limited to, the available TI/E data specific to the project.