Path to prosperity post-pandemic
The lawmaker explained that under the MSME regularization program, the Internal Revenue Commissioner must have the power to relax revenue regulations and waive applicable registration and similar fees on MSMES registering and renewing their license. The program, he said, should be implemented for a period of not more than 18 months.
Likewise, Salceda recommends giving the Trade Secretary the power to relax rules and regulations governing the registration of MSMES. He also recommends that the local government units be encouraged by the Department of the Interior and Local Government and the Bureau of Local Government Finance to waive similar local registration and processing fees.
Expensive option
SALCEDA said the government should also waive non-tax fees and charges to reduce friction costs in doing business and barriers to regularization while all national government agencies shall waive non-tax and non-duty fees and charges on all MSMES for a period of six months.
The lawmaker also called for temporary bridging loans for MSMES where each borrowing enterprise or corporation, duly registered with the appropriate regulatory agency, may borrow not more than P100 million.
The borrower shall service only the interest for the first 12 months of the loan, after which the principal and the interest shall be serviced for the remaining period of the loan tenor, which shall not exceed five years, Salceda said.
He added the loan shall be issued without collateral. Where applications exceed the funds available, priority shall be given to the aviation, tourism, transport, and hospitality sectors as defined jointly by the Department of Trade and Industry (DTI) and the National Economic and Development Authority (Neda).
On wage subsidies, Salceda said a wage subsidy should be given where it is cheaper to subsidize a job than to create a new one.
“In the medium-term and longterm, contracting an otherwise going-concern company is more expensive for the economy than keeping it operating at current capacity,” he said.
“A payroll support program will be necessary to support MSMES that will face liquidity issues in the wake of the ECQ, as well as their workers, who are at risk of being terminated if these MSMES are unable to pay their wages and maintain operations,” he added.
Temporary relief
APART from supporting business, Salceda said the transitional measures would also provide relief to formal economy workers, entrepreneurs and self-employed individuals, who typically belong to the middle class.
Income support will also be necessary for freelancers and those in the gig economy who were unable to earn income due to the ECQ, he added.
Citing Bureau of Internal Revenue (BIR) data, the lawmaker said MSMES employ around 4.1 million formal economy workers and some 380,000 entrepreneurs are sole enterprises.
He cited the 2018 Global Freelancer Insights Report that estimates about 1.5 million Filipinos as freelancers.
“Together, these sectors have a combined workforce of 5.98 million workers.”
“The average monthly minimum wage is around P9,500 per month. We propose a wage subsidy that covers around a quarter to a third of this amount,” Salceda said. “The cost of supporting their income, at P2500 to P3000 per month for two months, is P44.85 billion to P53.82 billion.”
Yielding no income SALCEDA’S view is shared by the National Tripartite Industrial Peace Council (NTIPC), a consultative body composed of representatives from the labor sector, employers’ organization and government.
Nagkaisa Labor Coalition Chairman and FFW President Jose G. Matula said that during the discussion, employers and labor representatives pushed for “guaranteed income and support for SMES.”
Matula said the “guaranteed income” should be at the minimum wage level and should be extended by the government up to May 15, 2020 to prevent massive permanent displacement due to Covid-19.
The labor leader said SMES, with an average of 10 workers to 15 workers, are unlikely to afford the payroll of employees as they shuttered operations, yielding no income, during the ECQ.
“They are now down so they will really need to survive in the next six months through the assistance of the government. Labor unions will also support to survive,” Matula said.
Meanwhile, Trade Union Congress of the Philippines (TUCP) Spokesman Alan Tanjusay said they support the new “life-saving stimulus” package from the government.
“Government subsidy must be targeted at industries that provide critical and essential services to the economy,” Tanjusay said.
Relief for businesses
FOR structural measures, Salceda said government interventions are needed for the following: implementation of negative interest loans (NIL); creation of a National Emergency Investment Corp. (NEIC); credit refinancing and mediation service (CRMS) for MSMES; and, enhanced “Build, Build, Build”—salceda calls it Bbbplus—infrastructure projects.
The net fiscal cost of the proposed structural measures, particularly the NIL, NEIC, CRMS would be P25 billion, the lawmaker said.
According to Salceda, the net fiscal implication of these structural adjustment proposals includes high initial-cash outflow and primarily outright or convertible loans, which would address the issue of moral hazard.
He said the NEIC is expected to assume obligations of firms that under normal circumstances would have been viable, but underwent difficulty during the pandemic. This would make it a potential revenue earner under less difficult conditions.
“Debts assumed by NEIC and CRMS can be counted as national government debt directly instead of being part of the year’s deficit,” he said.
With these measures, he said the government also has the capacity to restructure privatesector obligations at an advantageous negotiating position with banks, as the government is a lower-risk borrower.
Opportunity for repairs ADDITIONAL proposals by the PCCI include the resumption of the state’s “BBB” infrastructure program to take advantage of the travel restrictions in place that cleared roads of the usual Metro traffic.
“PCCI strongly supports the initiative of the Department of Transportation to resume railroad projects and maintenance works of the Metro Rail Transit,” the PCCI statement issued on April 12 read. “With travel restrictions limiting the use of roads, rails and ports, the ECQ period is the best opportunity for government and private sector partners to undertake the rehabilitation of existing infrastructure.”
In resuming the Duterte leadership’s infrastructure binge, the PCCI suggests that priority be given to public works projects that would enhance agriculture and manufacturing supply chains.
In doing so, “a fiscal stimulus program focused on infrastructure spending will help bring the economy back on track,” on top of the P275-billion war chest that is largely for subsidy to affected households.
Need for incentives
ON the other hand, Philippine Economic Zone Authority (Peza) Director General Charito B. Plaza told the Businessmirror that Peza should be allowed to keep its menu of fiscal incentives once the pandemic is over. Peza’s tax perks will be overhauled if lawmakers push through with passing the Corporate Income Tax and Incentives Rationalization Act (Citira) bill.
The Citira bill, which awaits the approval of senators, is the second package of the Duterte administration’s comprehensive tax reform program. On one end, it will lower corporate tax to 20 percent by 2029, from 30 percent at present, but will rationalize incentives granted to investors on the other.
“Investors in Peza say, despite the high cost of doing business— lack of logistics and transportation hubs, high power rate, low density of Internet infrastructure, lack of raw materials—in the Philippines, Peza’s package of incentives, ease of doing business and one-stop shop and other best practices of Peza compensate other efficiency factors lacking in the Philippines,” Plaza argued.
Peza’s investments have suffered a steep decline in the first quarter, crashing nearly 28 percent to P16.49 billion, from P22.9 billion during the same period last year. Not a single peso was tallied in March, the start of the lockdown, as board members were unable to convene.
Ensuring access
UNDER his proposed negative interest loans measure, Salceda said the maximum loanable amount shall be 50 percent of the company’s direct labor costs. The loan shall be payable for three years to five years with a rate from 5 percent to 9 percent.
“To ensure that eligible micro, small, and medium enterprises will have access to negative interest loans, the Landbank [Land Bank of the Philippines] and DBP [Development Bank of the Philippines] shall open an ‘SME safeguard facility’ dedicated exclusively to these enterprises,” he said.
Also, to ensure that MSMES can fulfill obligations under more favorable terms of credit, he said the Small Business Corp. (Sbcorp) can provide an “MSME Credit Mediation and Restructuring Service.”
This service, Salceda said, will help MSME negotiate more favorable credit terms with banks, lending institutions and financial intermediaries; provide technical advice and assistance with credit mediation and offer loans with favorable terms for refinancing the obligations of MSMES.
The PCCI is also keen on government adapting flexible arrangements in facilitating loans for MSMES.
The group argues that “most MSMES do not have the expertise to tap into formal credit facilities.”
The PCCI also asks the Bangko Sentral ng Pilipinas, Sbcorp. and banks to simplify their loan procedures.
Bailout company
TO minimize permanent damage to the economy by bailing out firms that could go bankrupt because of current Covid-driven difficulties, Salceda points to the NEIC.
The lawmaker said the NEIC will be supervised by the Department of Finance as the DOF does so for the Government Service Insurance System and the Social Security System.
Under Salceda’s proposal, the NEIC will perform the following functions:
n Consolidate troubled businesses and decide simultaneously how these would be resolved in a common procedure
n Offer loans in exchange for equity of the same value in corporations that would otherwise have continued operations but are at risk of bankruptcy due to the impacts of Covid-19
n Assume in exchange for equity of the same value the financial obligations of corporations that would otherwise have continued operations but are at risk of bankruptcy due to the impacts of Covid-19
n Evaluate the performance and ensure good corporate governance in the corporations it is invested in
n Perform due diligence activities inherent in its nature as a capital allocation firm of the Government
n Perform such other functions as may be inherent or necessary to dispense of its role as a capital allocation firm from which reasonable returns are expected.
“Upon fulfilling all assumed obligations, the NEIC may either be dissolved, or may perform an institutional function as the government’s bailout company for similar emergencies,” Salceda added.
More health issues
CAINGLET said they anticipate more health-related issues will be included in future negotiations between employers and workers in Collective Bargaining Agreements (CBAS).
“We will also demand hazard pay should workers be asked to work during events such as pandemics. Where applicable we will demand clearer guidelines and benefits due workers under telecommuting or work from home arrangements,” Cainglet said.
Prior to the Covid-crisis, Cainglet noted health-related issues were seldom discussed in CBAS, which usually focus on wage benefits.
But Magtubo said rather than ask the labor sector, the question on the future of the Philippine economy rests largely on the shoulders of government.
“To date, we are looking seriously at the national action plan [that] the government would undertake to address the effect of Covid-19 on employment, workers’ income and recovery of affected industries,” Magtubo told the Businessmirror.
“Unfortunately, we see no concrete plans yet from the government,” he added. “This is where labor unions–the organized force of the working class– should engage the government.”