Tax ideas for COVID-19 and beyond

One of the dumbfounding realizations for me is that we can stay home, not have travel time, no dinners out, no golf, and no malling, and yet still be incredibly busier than normal times. But being busy is a good problem, and nowadays, it’s really a problem you would rather keep – to keep your sanity.

There are a number of totally sane or sensible things, taxwise, that the government can consider during ECQ and in anticipation of eventually creeping back to economic normalcy, and hopefully to a not-too-slow road to recovery.

Revisit CITIRA and boost fiscal incentives

The pandemic gives us a good excuse to look at something we have crafted before the lessons of the pandemic. Today, our export industry will be reeling from recessive foreign markets, where the struggles that our exporters had during normal times do not even begin to compare. We, as an economy, would have our domestic market as refuge but even we are not spared from potential recession. Our very insufficient medical facilities and slow turnaround time to build new ones mean that the workforce can only take very little risk and even lesser purchasing power to push domestic demand.

Japan says it will pull out “Japan Inc.” from China while our neighbors such as Thailand and Singapore have been looking at what they can do to attract foreign investments, post-lockdowns. Our job is pretty much cut out, which is to retain or even boost fiscal incentives, and not the other way around as we need all the help we can get.

Reduce income tax rates immediately as fiscal stimulus

The case for accelerated reduction of income tax has been set for us by this force majeure. The government should accelerate reduction of income tax to 25 percent as a fiscal stimulus and in my view, it can stay at that rate and does not matter for now whether that goes down to 20 percent. Those who do business in the Philippines to benefit from domestic market opportunities will find that those opportunities are still compelling if they pay a reasonable tax rate, even if it isn’t the lowest tax rate in the region. For our income tax rate to lag closely behind our neighbors is manageable if day-to-day dealings with government agencies will be transparent, straightforward, and helpful rather than burdensome or disruptive to operations.

Create a low tax regime for MSMEs

Even the Corporate Income Tax and Incentives Rationalization Act (CITIRA) bill in its currently approved version does not have lower tax rates or a different tax regime for MSMEs. Granted, before anything else, that we need to define the size of a company to be called an MSME. But it’s no secret now that small companies only have two to three months of runway, and some even shorter. That is why it is a no-brainer that they could not keep up with the tax rates paid by the bigger boys. If they can’t survive paying the same high rates, then they cannot comply, and then they will get harassed. Now the government is trying to look after them because MSMEs employ an estimated 65 percent of the 45-million strong Philippine workforce. So if the government is morally and economically compelled to save them when they are at the brink, why not have a policy that helps them everyday, like a much lower tax regime?

Provide additional compensation to our frontliners by allowing tax credit to medical institutions

We thank our frontliners to high heavens but words of appreciation won’t mean a thing if they continue to be paid cheaply for laying down their lives everyday. We are not even allowed to go out of our homes while they literally stare mortality in the face everyday, every moment. From a story told by a nurse friend, they as nurses entered into a compact to already accept their fate that they will get infected – spoken from the heart of the brave. The saddest part is that “Life is cheap” has taken on a literal meaning on account of our poorly paid fallen heroes and heroines.

All of our frontliners deserve meaningful extra bonuses, at the very least, or a trust fund for the priceless service they are giving and will continue to give as long as COVID-19 clings to our daily life. Legislation should be passed to allow hospitals or medical institutions to claim as tax credit or reduction from any of their tax liability the additional compensation or incentive they give to their people in the frontlines. This way, the benefit to frontliners will be instant and direct, and it can be government-funded.

Government should publish an accounting of how “COVID-19” funds are spent to encourage earlier tax payment

We may know, vaguely at best, about the funds made available to the President before his emergency powers and the reallocated funds after that. No suggestions here of misuse at all – but all citizens, especially all taxpayers who paid for those funds, deserve reasonably detailed accounting of which went where, and what, and how, and when.

This utmost transparency will not only build trust but will also encourage the private sector to pay tax earlier than the extended deadlines, especially if they have the means to pay online and if they have the money to do so anyway. Because really, who wouldn’t want to help the government if that really means helping our people?

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Alexander B. Cabrera is the chairman and senior partner of Isla Lipana & Co./PwC Philippines. He is the Chairman of the Integrity Initiative, Inc. (II, Inc.), a non-profit organization that promotes common ethical and acceptable integrity standards. Email your comments and questions to [email protected]. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.