THE Duterte administration’s economic team has drafted its plans for the country’s recovery from the coronavirus disease 2019 (COVID-19) pandemic in the second half of the year, which include proposals such as a P130 billion to P160 billion economic stimulus package, and flexible tax incentives including lowering of corporate income tax rates to 25 percent by July.
Carlos Dominguez, Department of Finance (DOF) secretary, said during the Sulong Pilipinas virtual press briefing yesterday the proposed stimulus package, part of which will be for additional bank capital, will have a multiplier effect, with actual economic activity to be valued at around P800 billion to a trillion pesos.
Karl Kendrick Chua, acting socioeconomic planning secretary, said in the same briefing the economic team will be proposing three instruments to Congress.
“The first is on spending and capital support which will be the Bayanihan II. The second is to give firms, especially the small ones, tax incentives, and we call that CREATE (Corporate Recovery and Tax Incentives for Enterprises Act). The third is to prepare the 2021 GAA (General Appropriations Act) so that we can respond to the virus better,” Chua said.
Dominguez was asked about details on another stimulus package in Congress, but he said: “I don’t know what is this stimulus package of Congress in detail. However, when we look at it, it looks like one version is a stimulus package that will increase our fiscal deficit by 2 percentage points. I don’t know the exact number but that’s what it looks like.”
“What we are proposing is a stimulus package with far larger effects, that will increase our fiscal deficit by nine-tenths of one percent. I think it’s around P130 billion or P160 billion. But if you put it in the right place, the actual value, the actual economic activity that that kind of investment can make is probably P800 billion to a trillion pesos, because of the multiplier effect that you can get by putting it as bank capital, and as capital of Philguarantee (Philippine Guarantee Corp.),” Dominguez said.
The finance chief was referring to measures under the Bayanihan II, focused on spending and capital support.
“(We will help firms) by using the financial sector to provide liquidity (and) to prevent insolvency. For the micro firms, we will ask microfinance, cooperatives, rural and thrift banks to lend them and we will use our government banks to act as wholesalers to buy some of their loans so that they can be freed up of more capital to lend, and help the small businesses,” Chua said.
Dominguez said they are proposing for the Land Bank of the Philippines and the Development Bank of the Philippines to have an additional capital of P50 billion, to be divided roughly 70:30 between the two state-banks, respectively; and another P20 billion to Philguarantee.
“For small and medium enterprises, we will use credit guarantee through Philguarantee and continue some wage subsidy to provide support; and for the large firms who are in need of support, and we have to be very targeted in this, we will provide equity support to match the bank lending,” he added.
As for the tax incentives, Chua said for the first time, the DOF is proposing to reduce taxes across the board.
“So currently from the 30 percent corporate income tax, we will reduce it immediately to 25 percent to help small businesses in particular,” Chua said.
“We will enhance net operating loss carry over from three to five years so your losses today can be credited to the future, and effectively lower your tax payments,” he added.
Chua said for new investors, the government will actively seek them out and ask them what they would need as incentives to contribute to job creation in the Philippines.
“For existing investors, we will not change anything in the next four to nine years, so that they can adjust because of COVID-19,” Chua said.
“For countryside, we will have targeted incentives, so that we can support the Balik Probinsya, Bagong Pag-asa program. And finally, we will have to improve the management and governance of tax incentives, through the Fiscal Incentives Review Board, so that when we do grant a tax incentive… it will be performance-based, targeted, time-bound and transparent,” he added.
Lastly, Chua said the 2021 GAA will prioritize health, the “Build, Build, Build” program, agriculture, food value chain and all other “new normal” priorities.
