Economic reforms being sidelined

BIZLINKS - Rey Gamboa - The Philippine Star

As the pandemic rages, pushing forward the agenda of economic reforms in Congress is getting more and more sidelined in favor of the popular political promises that the President made while campaigning for office four years ago.

Before the President delivered his State of the Nation Address (SONA) last Monday, allies were calling for  charter change to pursue the Supreme Court’s decision in May 2019 which declared that local governments’ share of the internal revenue allocation (IRA) should be based on all national taxes rather than on just the national internal revenue collections.

The House Committee on Constitutional Amendments wants to open discussions that will amend the 1987 Constitution based on proposals of about 1,500 town mayors belonging to the League of Municipalities of the Philippines. Mayor Luis “Chavit” Singson, Sr., LMP president, is also pushing for an unlimited five-year term for local executives.

With national elections coming up less than two years away, this could be a noisy political move from supporters and critics, and would deflect lawmakers’ attention from more important matters such as deliberating and passing important economic reforms.

Economic agenda in a contagion

The pandemic is certainly not helping push forward the economic agenda.

During the first half of this year, Congress was already constrained from pursuing many of its deliberations as it adjusted to the handicap of operating in a contagion. Aside from the Bayanihan to Heal as One Act and the expanded Tobacco Tax Reform Law, no other major economic bill was able to graduate from the legislative mill.

The list of economic measures, including those deemed urgent by the President during his last SONA and in the Philippine Development Plan, had either been left untouched during the last 12 months, or had been insufficiently discussed by either of the two Houses.

Many of the measures have  been refiled year after year during the 18th Congress simply “to keep the ball rolling.” In fact, a good number of them had been inherited from previous congresses.

CTRP woes

It is appalling that most of the packages being pushed by the Duterte government’s economic team under the Comprehensive Tax Reform Program (CTRP) continue to be ignored in Congress. Of the eight packages, only three have been certified into law, with the Tax Amnesty Law in a watered-down form because of line vetoes by the President when he affixed his signature to the document in February 2019.

The first package of the CTRP, or the Tax Reform for Acceleration and Inclusion Law, was passed in 2017. It was seen as a popular move that would reduce personal income taxes of wage earners, but in reality was a tax generation measure hitting hard on a number of sectors.

Under Package 2+ of the CTRP, a law was passed early this year to increase excise taxes on alcohol, vapes, and e-cigarettes. This supplemented an earlier tax law on sin products, and further hiked government collections to support the financial burden of the Universal Health Care Law.

Of the remaining five packages, the economic team is moving hell and high water to see the passage of the recalibrated Corporate Recovery and Tax Incentives for Enterprises Act (CREATE).

The rest – the proposed taxation reforms on mining, real property valuation, passive income, financial services, and transactions, and the motor vehicle users charge – will likely need a new champion at another time, not necessarily under Duterte’s term.

Leveraging on the pandemic

With Congress resuming session this week, the economic team is now riding on an urgency created by the pandemic – and time that is running out.

To make it more acceptable, the recalibrated CREATE law compromises on its original version, the Corporate Income Tax and Incentives Reform Act (CITIRA). Meant as a revenue-neutral measure, the initial drafts met with a lot of protests and criticism from the business sector and certain government agencies, most notable being the Philippine Economic Zone Authority (PEZA).

While corporate income taxes were to be reduced to 25 percent from the current 30 percent, a number of tax incentives were to be removed or modified. This, of course, did not sit well with affected businesses, many of them operating in PEZA territory.

The pandemic, however, has presented the perfect opportunity for the updated CREATE bill to pass this year. It is being leveraged to support a second economic stimulus installment of the Bayanihan law, which the President endorsed during the SONA.

Businesses affected by the lockdowns have been asked to rally support for the reminted CREATE bill that is expected to immediately allow them to retain the reduced five percent  income tax starting this month to help keep their operations going.

For non-large taxpayers, a five-year extension of the applicability of the net operating loss carryover (NOLCO) for losses incurred in 2020 from the current three years, would also be a good move.

The best part, however, will be an offered compromise on the controversial five percent gross income incentive given to locators in economic zones. A status quo will be maintained for up to nine years, with the sunset period prolonged by two years.

Business is asking for more economic reforms, like in the 84-year-old Public Services Act, Foreign Investments Act of 1991, and Retail Trade Liberalization Act of 2000. Unfortunately, we cannot expect much, especially since the political agenda will soon push deliberation on economic reforms to the back burner.

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Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected]. For a compilation of previous articles, visit www.BizlinksPhilippines.net.


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