The Philippines should adopt economic reforms, in addition to its infrastructure program, to attract more investments and to help the country in its recovery from the coronavirus disease 2019 (COVID-19) pandemic, the Department of Finance (DOF) said yesterday.
Among others, the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, Financial Institutions Strategic Transfer (FIST) bill, Passive Income and Financial Intermediary Taxation ACT (PIFITA), as well as amendments to the Commonwealth-era Public Service Act and the Retail Trade Liberalization Act can help the country weather and recover from the impacts of the COVID-19-induced crisis, according to DOF’s latest economic bulletin.
“Furthermore, improvements in ease of doing business… will also be important in adapting to the new normal,” the DOF said.
It added that good macroeconomic fundamentals have cushioned the impact of the coronavirus pandemic.
“A prudent, calibrated reopening of key sectors of the economy will be key to the recovery of the economy in general and trade in particular,” the DOF said.
The proposed CREATE seeks to lower the corporate income tax (CIT) from the current 30 percent to 25 percent, which means tax breaks for 99 percent of business enterprises – the micro, small and medium enterprises (MSMEs), Carlos Dominguez, DOF secretary, earlier said.
“The small and medium enterprises in this country have never had a tax break. It’s the big ones that go and register with Philippine Economic Zone Authority (that are given tax) incentives,” Dominguez said at a recent briefing by the Development Budget Coordination Committee before the House appropriations committee.
Dominguez said the passage of CREATE, which will align the corporate tax rate with the Asean average, will make the Philippines the only government to provide tax breaks to MSMEs.
Under the current system, the DOF said about 3,000 big companies enjoy incentives that let them pay discounted tax rates of between six and 13 percent of net income only, while small enterprises that make up 99 percent of local businesses and employ majority of Filipino workers pay the regular CIT of 30 percent, which is the highest in the region.
The FIST bill will allow banks to dispose of their non-performing assets (NPAs) through newly formed asset management companies, similar to the special purpose vehicles created in the 2000s in response to the 1997 Asian financial crisis.
Dominguez said clearing the books of banks of roughly P1 trillion of bad loans and other NPAs will, in turn, enable them to lend another P3.5 trillion to private businesses, most of them MSMEs.
“Without the FIST bill, the economy is going to be worse off and the worst hit is going to be the small and medium enterprises,” Dominguez said.
“Allowing banks to clear their books allows them, actually, to have more money for the small and medium enterprises,” he added.
The PIFITA meanwhile is seen to make the country more attractive for long-term investments through reforms in the financial sector.