^

News Commentary

Taxation: The power to CREATE

Joey Sarte Salceda - Philstar.com
tax
Stock image of folders
Stock Up/Sarah Pflug

The landmark US Supreme Court case McCulloch v. Maryland (1819) articulates exactly why taxation is a subject fraught with political and indeed existential difficulty. “The power to tax includes the power to destroy,” wrote Chief Justice Marshall, the most influential American jurist ever. So well established is the destructive power of taxation that any discussion of the topic elicits a kind of knee-jerk repugnance from the public that is not seen in any other policy debate.

I knew that taxation was a heavily-mined field of policy debate when I took on the invitation to chair the House Committee on Ways and Means during the second half of President Duterte’s term. I also knew that it was the crucial lap – if we could not deliver on tax reform in this final semester, we would not have been able to during his term. Quickly but fairly was the balance we were trying to achieve.

What has become evident in recent months, however, is the other side of the taxing power: the power to create. During the deliberations on the Corporate Recovery and Tax Incentives for Enterprises or CREATE law (even during its days as CITIRA or the Corporate Income Tax and Incentives Rationalization Act), I made a bold promise: I will cut my finger off if there is investor flight once the reform is enacted. The official 2021 Foreign Direct Investment (FDI) statistics show how my digits are still intact.

First, 2021 was the country’s best FDI performance ever. There is very little room for interpretation there, other than the conclusion that CREATE worked to ease investor uncertainty. This feat is more remarkable in the context of a global pandemic that has generally depressed investor sentiment.

Second, the bulk of those investments went into manufacturing; electricity, gas, steam, and air-conditioning; financial and insurance; and real estate. These are basic sectors for a country with a promising future.

Third, reinvestment of earnings rose by 34.7% to US$1.3 billion compared with the previous year’s value of US$ 944 million. That signifies that not only are companies staying; they are digging in for the long haul, probably partly with tax cuts received from CREATE.

I could point to more data points, from BPO sector growth to the quick profitability turnaround among major companies. The overarching point is this: CREATE worked. Tax reform worked. Tax policy demonstrated a capacity to create, rather than destroy.

Still, we could harness the reform’s creative powers better. This week, the Department of Trade and Industry informed me that our conversations on the Strategic Investment Priorities Plan (SIPP) bore fruit, and the priority list of industries under CREATE will likely be issued in the coming weeks, and definitely before President Duterte steps down. What that means is more industries can upgrade their tax incentives, and we will be able to attract more high-tech and high-value investments.

The framework we agreed upon with the DTI is the “Interim-Transitional-Comprehensive” framework. The one PRRD is set to sign is the “transitional” SIPP, the interim one being the 2020 Investment Priorities Plan carried over after CREATE. Still, we must pursue a more comprehensive SIPP as a potent instrument of industrial policy. Here are my thoughts on how that list should go:

First, it must contain not only our areas of focus, but also what we want those areas to look like once we make the necessary tax and non-tax interventions. For example, the list must demonstrate that although we incentivize socialized housing now, we want the industry to eventually go towards master-planned, resilient, and affordable housing. The SIPP must show how tax and non-tax incentives will get us there.

Second, it must demonstrate how tax incentives will act along with other interventions. For example, while income tax holidays might be the proper intervention at the initial stage of capital-heavy investments, enhanced tax deductions for certain behaviors along with government research partnerships might be the best way to keep them innovating. Scientist visas and other forms of facilitation may also be more important than tax incentives at this stage. That is certainly the case for areas such as semiconductors, where a global race for efficiency is the name of the game.

Third, it must set out to align industrial priorities with national priorities. For example, if we are to pursue credible maritime defense, we must incentivize the kind of industrial ecosystem – from defense shipbuilding to spare parts manufacturing – that would enable us to support protracted maritime military engagement.

I will continue to work with the DTI and the Fiscal Incentives Review Board – within this Congress and during the next – to ensure that the comprehensive SIPP we need for our national ambitions. This time, however, we are no longer working with the promise of hypothetical benefits from a complex reform. We now know that tax reform includes the power to create. It is up to us – policymakers and the public, especially during the next administration  – to reach for whatever that power holds for our country.

 

Joey Sarte Salceda, chairperson of the Committee on Ways and Means of the House of Representatives, is the principal author and sponsor of the CREATE Law, and a guest author of think tank Stratbase ADR Institute.

TAXATION

Philstar
  • Latest
Latest
Are you sure you want to log out?
X
Login

Philstar.com is one of the most vibrant, opinionated, discerning communities of readers on cyberspace. With your meaningful insights, help shape the stories that can shape the country. Sign up now!

FORGOT PASSWORD?
SIGN IN
or sign in with