With corporate levies cut, Duterte gov't looks to state firms for revenues

MANILA, Philippines — After reducing corporate taxes, the Duterte administration is turning to its own backyard to raise more revenues and partially counter a looming revenue erosion, particularly by asking state-run firms to contribute more to government coffers. 

The national government wants a larger share of earnings from its over 200 government-owned and –controlled corporations (GOCCs) to raise cash and help fund the bureaucracy through a costly pandemic that dramatically increased public needs for social protection against limited state resources unable to be increased without a commensurate deficit bloat.

The plan would mean that from the current 50% of annual earnings, GOCCs may soon be asked to declare 75% of their income as dividends, Finance Secretary Carlos Dominguez III said in an online forum on Monday.

If pursued, the finance department may only be left to issue specific orders and guidelines since under Republic Act No. 7656 that mandated the declaration of dividends by GOCCs, companies are already mandated to remit “at least 50%” of their earnings— a wording that provides leeway for Executive adjustments. 

It was not clear, however, how and when the change will essentially be implemented, but GOCCs have increasingly pitch in more revenues over the past decade that makes any hike in dividend sharing increasingly fiscally relevant. It also speaks of how government would want GOCCs to be fiscally responsible since while they contribute dividends, they also get subsidies funded by taxpayers’ money.  

Toward this end, there has been signs of success over the past decade. Last year, despite dismal operations of the likes of the Manila International Airport Authority and Philippine Ports Authority due to travel restrictions that cut through their earnings, state companies contributed a record P160.62 billion. That was up from P69 billion in 2019, P40.5 billion in 2018 and over five times the P30.5 billion given in 2017.

“We are fully determined to restore the vigor of the Philippine economy at the soonest possible time,” Dominguez said.

“We will make sure that the programs we have pursued will be irreversible and form the foundation of an inclusive, sustainable, and investment-driven economy for the Filipino people,” he said.

Any additional revenues from its own corporations would help offset losses from lower corporate income taxes due to the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act signed last March. CREATE automatically lessens corporate levies to 25% for large firms with assets over P100 million and taxable income of at least P5 million. Anything lower than those rates, which are estimated to account for 99% of local firms that are small and medium enterprises, will get charged a lower 20%.

Before CREATE, the rate was 30% across-the-board, and official estimates put revenue losses at P44.6 billion just this year. The government is hoping tax savings will be funneled by companies in hiring or investments.

Finding new revenue sources is especially crucial with a growing pandemic bill that already forced the government to incur debt to boost health systems, finance cash subsidies to the poor, and even purchase vaccines. As of April 8, separate finance agency data showed foreign liabilities because of these already reached $12.2 billion.

The task has become more politically sensitive since the outgoing administration has also chosen not to introduce new taxes ahead of an election year. That is even as calls for a bigger stimulus mount from the public and legislators. GOCC revenues, therefore, are one segment it is looking at to help “wind down” a debt pile that hit a new record-high of P10.4 trillion in February.