Questions (TRUE or FALSE)

1) Tax incentives are the most important determinant of investment location

FALSE

2) If a good produced by an investor generates a positive externality, then its price to society is
higher than its price to the firm. There then exists a rationale to subsidize it production.

TRUE

3) If taxable income is 100 million pesos this year but the firm avails of an income tax holiday this
year, the tax expenditure on the ITH is 25 million pesos under CREATE.

TRUE

4) Suppose the price of capital is 1.05 (it is an index), the present value of depreciation allowances
is 0.57, the interest rate is 0.07, the corporate income tax rate is 0.25 and economic
depreciation rate of capital stock equals 0.03, the rate of tax credit = 0. Is the user cost of capital
equal to 0.13?

FALSE

5) Tax expenditures arise when zero-rated VAT imports are used to manufacture VAT-taxable
output.

FALSE

Since full VAT is paid upon selling the final good.

6) The most important determinants of investment are access to customers and political and
economic stability.

TRUE
7) If a customs duty exemption is granted on an exporting firm’s imports, the tax expenditure
equals zero.

FALSE

8) If a customs duty exemption is granted on a non-exporting firm’s imports, the tax expenditure
equals the value of the imports times the applicable duty rate.

TRUE

9) VAT-zero rated export sales are tax expenditures.

FALSE. Because VAT is a destination based tax and the good is exported.

10) A firm’s option to invest can lead to delays in investment

TRUE