We cannot allow the pandemic to rule our lives, our economy and our direction as a nation. Even while we are battling Covid-19, we can dissect where we were and learn from it to where we are today and redo our fundamentals and where we want to be by co-creating, co-designing and collaborating to come out from the pandemic into a stronger and wiser nation.
Note: This column originally appeared in The Manila Times on February 9, 2021.
The pandemic has a way of rebooting the economy. Economic contraction is prevalent and no country has escaped this track since the pandemic has a way of balancing the world order. The mighty United States is focused on its domestic health and economy. Co-creation, co-managing and collaboration are the new order in diplomacy. Multilateral is the way to go. Central planning seems to be what is working well with China and Vietnam being able to respond well to Covid-19 because there is command and control while the United States is debating whether wearing masks is a violation of individual rights. Then, we have Myanmar marching to the beat of reconsolidation and military control, following the footsteps of Thailand. Each country to its own elements, and learning to be resilient defines leadership.
Women leaders are also at the front of the stack with emotional quotient being the litmus test for governance: reaching out, caring more and working the ground from household to communities. An intriguing remark regarding, “Men are more stable,” got everyone to react, and those ready to shoot actually cleared the bar for women candidates come 2022. That will take another column in the future. Meanwhile, let’s focus on the economic building blocks to Philippines 2021 and beyond, and that is anchored on the passage of two critical measures: Corporate Recovery and Tax Incentives for Enterprises or the Create bill, which passed the Senate in November 2020, and the Resolution of Both House No. 2, which recently sailed in the House of Representatives this month.
The pandemic has caused the retraction of the economy at 16 percent of gross domestic product (GDP) in the early part of strong lockdowns in March, April and May 2020. United Overseas Bank in its report concluded, “the Philippine economy continued to post a contraction, albeit narrower decline of minus 8.3 percent y/y in 4Q20 (3Q20: revised upward slightly to minus 11.4 percent from minus 11.5 percent) after prolonged movement restrictions, a series of typhoons in October-November and lower income weighed on household spending, investment, tourism-related industries, and agriculture and fisheries output. The 4Q20 GDP reading came in line with our estimate (minus 8.2 percent) but below Bloomberg consensus (minus 7.9 percent), sending the nation’s economy into a minus 9.5 percent tailspin for the entire year of 2020 (2019: 6 percent).”
“The pace of growth recovery may continue to be constrained by a prolonged period of movement restrictions and practising of [physical] distancing given the rise of [the] new coronavirus variant and uncertainty surrounding the inoculation. We maintain our 2021 full-year GDP growth target at 7 percent, partly aided by favorable base effects, further improvement in [the] export sector and continued policy support,” continued the report.
With this defining the landscape, pump priming in terms of the government’s Build, Build, Build program and intervening in the domestic market as the country rolls out its vaccine plan in a moving timeline with the worst case scenario being the vaccine coming into the country by September 2021 still, the policy environment is ripe to do the restructuring of the economy by attracting more foreign direct investments (FDIs), new capital remaining in the country and not just earning and taking it out of the country, which has characterized the FDI behavior in our capitals market. FDIs will grow and remain in our shores if there are improved incentives menus, maximizing “desirable economic outcomes [such as] job creation, value-added and technology transfer.”
The version of the Senate mandates the lowering of the corporate income tax from the current 30 percent to 25 percent for all enterprises and to 20 percent for qualified micro, small and medium enterprises with a net taxable income below P5 million and total assets below P100 million. Though this rate does not bring the country to the level of percentage in the Association of Southeast Asian Nations, it strengthens the country as an investment area and enhances competition domestically.
Currently under bicameral, the Create bill of the Senate is more investor-friendly. Apart from retaining the incentives scheme of registered enterprises, some changes have been made on incentives to be granted for both exporters and “critical” domestic market enterprises and for general domestic market enterprises. The National Economic and Development Authority is now designated to determine which domestic industries should be classified as “critical.” While the value of investment projects would have to go through the approval of the Fiscal Incentives Review Board (FIRB) and the different investment promotion agencies (IPA), respectively. Investments with a value above P1 billion would go through the evaluation and approval of FIRB while those that fall below the P1 billion threshold would be evaluated for approval by the IPAs.
Other key features of the Senate version are: “reduction of the 2 percent minimum corporate income tax to 1 percent effective July 1, 2020 until June 30, 2023 after which the tax rate shall be raised back to 2 percent; repeal of the imposition of the improperly accumulated earnings tax; setting of the deductible interest expense at 20 percent; reduction of the 3 percent percentage tax to 1percent effective July 1, 2020 until June 30, 2023 after which the tax rate shall be raised back to 3 percent; and reduction of the 10 percent special tax rate on proprietary educational institutions and hospitals, which are nonprofit to 1 percent effective July 1, 2020 until June 30, 2023 after which the tax rate shall be raised back to 10 percent.”
The other policy concern that would bring in more investments and jobs and position the Philippines in rapidly changing times would be amending the 34-year-old Constitution to lift the economic provisions by introducing a simple amendment of adding the phrase “unless otherwise provided by law.” Under these economic provisions, only Filipino citizens can control, own and/or lease alienable lands of public domain, natural resources, public utilities, educational institutions, mass media companies and advertising companies in the Philippines. The House committee on constitutional amendments and revision of laws dropped the previous proposal on foreigners owning private lands. The impact of the amendment would empower lawmakers to legislate a law to lift the current prohibitions on foreign investors.
During the congressional hearing, the study by the UP Research and Extension Services Foundation-Regulatory Reform Support Program for National Development indicated that easing the constitutional provisions that bar foreign ownership of certain industries would cut down unemployment by 40 percent to a rate of 5.1 percent from the 8.7 percent recorded on October 2019. The House committee on ways and means, chaired by Albay Rep. Joey Salceda, in its study also concluded that the passage of the economic amendments will create some 6.6 million jobs in 10 years as well as take in P330 billion in annual foreign direct investments.
We cannot allow the pandemic to rule our lives, our economy and our direction as a nation. Even while we are battling Covid-19, we can dissect where we were and learn from it to where we are today and redo our fundamentals and where we want to be by co-creating, co-designing and collaborating to come out from the pandemic into a stronger and wiser nation.BLOG COMMENTS POWERED BY DISQUS