Yes, lower corporate taxes will help our MSMEs recover
This is the answer I gave to someone who asked me whether tax breaks or reductions will be necessary for businesses to recover from pandemic losses.
We have to protect as many jobs and sustain as many of these business as we can, as our economic growth depends on it. Lower corporate taxes will definitely help especially for the 900 or so micro, small, and medium enterprises that employ about 60% of all workers, especially in the Visayas and Mindanao.
Having hurdled the House of Representatives, it will now be up to the Senate to pass the new tax reform package known as the enhanced Corporate Recovery and Tax Incentives for Enterprises Act (CREATE), previously known as Corporate Income Tax and Incentives Reform Act or CITIRA bill.
This second tax reform bill is a comprehensive package of new corporate tax reforms to create new incentives for investors, allow current investors to lengthen their present incentives, and help current businesses recover from the losses through the Net Operating Loss Carryover (NOLCO), lower corporate income taxes from 30% (the regions’ highest) to 25%.
These reforms develop incentives that can attract new businesses, especially manufacturers of necessary products that we often import and lure companies seeking greener pastures for their businesses to thrive. It will not only help us recover, but will allow us to distribute industries to the countryside especially the Visayas and Mindanao.
A case in point is rubbing alcohol where we only have one producer in the Visayas and Mindanao based in Cebu. That means an entire half of the country, if needed, can only get rubbing alcohol from one source. You can imagine how ought that was.
As I have written before, lower corporate income taxes across the board, and not only for export oriented companies can drive investor interest to do two things:
One, produce goods for local consumption, which is something we badly need in order to substitute some imports (like face masks, for instance) since PEZA related incentives both in the original EPZA decree of 1972 and the revised PEZA charter are not allowed for local production, only exports.
This puts local production at a possible disadvantage since it has to pay the old (or current) 30% corporate income tax while the export company, while barred from selling his products in the local market, may find it cheaper to produce the same product and sell abroad, which we, in turn will import, subject to obvious restrictions and possibly, higher prices.
The second major advantage is that targeted incentives can encourage new investment areas in the south, and not be concentrated in the traditional investment areas such as Southern and Central Luzon.
Lower labor and living costs in the Visayas and Mindanao, and the lack of large-scale violent activities, stable electric power in the last two years, and a large 40 million strong market has encouraged investors to look at these areas. Targeted incentives will sweeten this proposition.
The Davao Gulf is already home to PEZA zones and Northern Mindanao has the Phividec Industrial Estate with their own seaports where investments can quickly plug in and operate. Zamboanga has its special economic zone.
With these tax reforms hopefully passed, these lower taxes and NOLCO provisions will help us chart a way forward to recovery, and investment promotion officers and local business groups in various regions can pitch their areas more effectively to investors. The resilience and transformation of our businesses and local economies can begin.
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