Phl’s missed opportunity
FULL DISCLOSURE - Fidel Abalos (The Freeman) - June 1, 2020 - 12:00am

Most parts of the country are now on general community quarantine. It simply means that we are starting to reopen the economy. In this respect, we can only surmise that, as infections continue to rise day-by-day, COVID 19-related statistics are, probably, set aside in this decision.  Simply put, this is purely an economic-driven decision. 

As LGU executives are given the authority to quarantine barangays or sitios as they may deem appropriate, then, the IATF must have pinned the country’s hopes, health-wise, in their hands.   

Whatever are in the minds of our health experts that led to such decisions, we don’t have to delve deeper into it. Let’s leave that to them. They are the experts, aren’t they? Instead, we shall focus on our current economic situation, in general, and everyone’s livelihood, in particular, as we try to mend our lives.

For one, it is a fact that not all businesses can open. Those that may open (except the essential ones) cannot also operate at 100% of their capacities. Worse, some businesses may not be able to open at all due to financial concerns. Therefore, we must accept the fact that, while some may be able to resume, a few will continue to be out of work temporarily. Sadly though, others will be losing their jobs permanently.

It is in this light that new investments could have been a big help to those who may lose their jobs permanently. Skeptically though, no sane investor will pour in fresh money at this point in time. By a stroke of luck though, there are huge companies operating in China whose owners were urged by their respective countries to pull out and relocate to other Asian countries.

Unfortunately, however, not one of them reached our shores. Indonesia, Vietnam, Thailand and Malaysia took them. Frustratingly, a country that brags about its citizens’ English proficiency cannot entice even one of them to relocate in its territory? It doesn’t sound right, isn’t it? Is it not also surprising that with a good number of foreign companies operating in our economic zones now, there is no one at all among their owners convinced them to relocate here?

The answer is no, not surprising at all. It all started with the second package of the TRAIN law. Renamed “TRABAHO” (or Tax Reform for Attracting Better and High-Quality Opportunities) bill after the first package was blamed when inflation shoot up after its implementation, they wished to deliver a positive message to our countrymen that this bill is intended to create more jobs. 

As both houses adjourned, the bill was refiled in the new congress and they called it CITIRA (or Corporate Income Tax & Incentive Rationalization Act). Then, recently, they changed the acronym to CREATE (Corporate Recovery and Tax Incentives for Enterprises Act).  Three changes but the objective remains the same. That this bill (among other perks) will help businesses recover or have more funds for reinvestment with reduced income tax rate (from 30% to 20% by 2027), thus, help generate more employment.   

 

With this reduction, the government hopes to replace lost taxes through better tax administration or higher collection efficiency. Moreover, the government wishes to recover more by limiting the income tax holiday presently enjoyed by, mostly, investors in the economic zones.  

Having in mind, again, that this bill intends to generate employment, will these incentives be enough to entice prospective foreign investors? Well, that remains to be seen. If it doesn’t work, then, forget about additional job generation coming from foreign direct investments.

Probably, however, we can, at least, surmise what could be the probable responses from prospective foreign investors by looking into the reactions of the existing ones in the economic zones. As we all know, most existing registered companies in the zones enjoy a 5% income tax rate on its gross profit (sales minus direct costs). With this bill, such incentives will only be enjoyed the next couple of years.  Purportedly, just to give them enough time to adjust to the new tax scheme. Henceforth, they shall be slapped with the new scheme. 

In unison, the existing companies enjoying these incentives cried foul. The common question is, why is this government changing the rules at the middle of the game? Worse, most of these companies have insinuated that they will be transferring their operations to another country. 

Inevitably, therefore, if they make true their threats, not only that we shall be starving for new investments and, therefore, new jobs, we shall also be losing existing ones. These job losses plus those coming from companies that shall either be partially operating or entirely closed down because of COVID-19 and from exporters due to waning exports brought about by the ongoing trade war between China and the rest of the world, hundreds of thousands more maybe be rendered jobless. 

Indeed, a missed opportunity.

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