TRAIN 2 and boosting investment in the south

AS the Tax Reform for Acceleration and Inclusion Package (TRAIN) 2 now starts deliberations with sponsors in both houses, what occupies the minds of many here is the hope that this new law can rationalize incentives and make them work to achieve two things: Level the playing field for MSMEs, and bring more investments to areas like Mindanao.

A look at these three objectives bears analysis.

The truth is that of the more than 900,000 establishments in the country, micro, small, and mediumscale enterprises account for 99.57% of the total establishments. Large enterprises make up less than half a percent. MSMEs employ almost 2/3 of all employees.

Under the current and old incentive regime, MSMEs often fail to qualify for the same incentives and breaks such as income tax holidays. Only a minority or about 3,000 or so mostly foreign-owned companies availers enjoy these incentives.

A related truth is that these foreign companies enjoy such breaks indefinitely, even after they have recouped their investments and already retain earnings to make them part of the country’s top 5,000 corporations. You can take a look at that list and compare them with those receiving such incentives.

Sadly, many of our local manufacturers do not enjoy the same incentives. Many are MSMEs that will never make the top 5,000 list. Many of them are outside the Greater Manila Area. Is it not time we grant them the incentives, too?

Which brings us to another truth worth examining – that a vast majority of Foreign Direct Investments, especially the job-generating manufacturing sector, are concentrated in the Metro Manila area.

These incentives merely improved upon the natural advantage of these areas’ proximity with our main port and trade routes. Thus, instead of spreading to other regions, our old incentives have heightened the concentration of investments, making Calabarzon and Central Luzon the expanded manufacturing heartland of the country, leaving others behind.

This also created the expanded urban sprawl that spawned horrendous traffic and a housing shortage that created colonies of informal settlers where farms once stood.

Another area is agriculture, where whatever incentives given from the 1990s onwards are far inferior to those enjoyed by the industrial locators in the Greater Manila Area. It has to contend with land ownership controversies and the new threat of climate change.

It is no surprise why our agriculture and food-producing capability did not show positive growth until 2016.

This growth needs to be expanded to meet new challenges of inclusive growth in the countryside, particularly in the Visayas and Mindanao. Current programs may not be enough. Better incentives are needed here.

Regrettably, this situation reinforced an inequality across regions that was allowed to fester. It is time that this is corrected. We hope TRAIN 2 delivers in this respect.

In particular, we hope Section 292 of TRAIN Package 2, that grants “superior non-fiscal incentives” to least developed areas or areas recovering from conflict or disaster will not be touched in the deliberations, and that it can be strengthened.

It is time we all acknowledge that fiscal and non-fiscal incentives are privileges we grant certain investors in exchange for economic benefits. They are not inalienable rights.

When they do not serve the purpose or deliver on objectives they have to be scrapped since the taxes lost to these are offset by the taxes you and me have to pay. And pay we did. Don’t those that have benefitted and recouped from the incentives need to start paying, too?

This is why we need to take the proposed incentives review board proposed TRAIN 2 seriously. At certain points in time particular incentives will be needed and some reviewed. All with the need to use these incentives to achieve certain objectives in line with priority needs.

In the hearings that will be held for TRAIN 2, we hope that local chambers of commerce and community business groups, not just the foreign chambers of commerce will be heard. It is time that more of the 99%, and those from the south of this country, are heard. For reactions: