Aid, stimuli fuel recovery
If the recession takes long, there will be no investment coming from corporations even as they enjoy the tax reduction bonanza
The coronavirus disease 2019 (COVID-19) pandemic has significantly slowed down economic activity, with the ramifications reversing expected growth in various industries such as tourism and transportation, particularly in the case of the hardest-hit micro, small and medium enterprises (MSME).
Losses incurred during the quarantine which started midMarch has led to several calls for the government to come up with and swiftly approve economic stimulus and business relief measures as part of a bid to ramp up economic activity again.
Understandably, coming up with the perfect relief or stimuli package to address a perfect storm has also seen pitches from various economic and business sectors to craft packages that will properly address the country’s needs to deflect the adverse impacts of the pandemic.
These packages include the Accelerated Recovery and Investments Stimulus for the Economy (ARISE) bill, the P1.3trillion stimulus package seeking to allot interest-free loans and provide education, training and assistance to pandemic-hit MSME.
Formerly known as the Philippine Economic Stimulus Act (PESA), the stimulus package is expected to create jobs through infrastructure projects as well as assist MSME get back on their feet again.
Green-lighted by the House of Representatives in its third and final reading on 4 June, ARISE is also seen by lawmakers and business groups alike to help exporters heavily impacted by the pandemic, which particularly suffered from weak demand from the overseas market, as well as disruptions in supply chains especially in the availability of raw materials and packaging.
The stimulus proves a must considering that government data showed Philippine exports goods in April plunged 50.8 percent to $2.8 billion in April from $5.7 billion in the same month last year, dragging year-to-date exports down to 16.7 percent to $18.5 billion.
Pump priming set
Among top business groups that pushed for the swift passage of the measure include the Philippine Chamber of Commerce and Industry (PCCI), American Chamber of Commerce of the Philippines, the European Chamber of Commerce of the Philippines and the Management Association of the Philippines.
Meanwhile, economist and national scientist Raul Fabella, who also voiced support for a stimulus package amid a crash in consumer spending in the face of lockdown restrictions, said the government should focus on demand-side stimulus such as spending in infrastructure to create employment, help consumer spending recover, and help prop up businesses’ earnings.
He also said measures to reduce corporate income tax should be postponed until better times, as corporations often invest tax savings only in a growing economy.
“If the recession takes long, there will be no investment coming from corporations even as they enjoy the tax reduction bonanza. Spending on infrastructure is real stimulus, it really creates jobs and creates income,” Fabella said in an earlier webinar.
This comes in parallel with business groups and industry stakeholders’ such as the Philippine Exporters Confederation Inc.’s call for the passage of the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE), the repackaged version of the Corporate Income Tax and Incentives Reform Act (CITIRA) which last year made headlines due to its provisions.
CREATE seeks a slash in corporate income tax to 25 percent from the current 30 percent, — the highest in Southeast Asia — to attract more investors and help increase cash flow for MSME. This is seen as an improvement from CITIRA’s proposed gradual reduction.
Status quo sought
But while this revised provision met general support, investments promotion agency Philippine Economic Zone Authority (PEZA), with support from business groups and economists from the country’s universities, appeals for a status quo under another provision under CREATE which involved a proposed new incentive regime that will scrap some of the perks being given by PEZA to exporters.
Instead of a new incentives regime under CREATE, PEZA is lobbying for status quo on its existing tax incentives for export companies, as well as the enhancement of the incentives through a stimuli package.
“Due to the COVID-19 pandemic and world recession, export companies are now infusing and consolidating their operations and investments, transferring their production quota to more investor-friendly countries that offer lower cost of doing business and a generous incentive package,” PEZA director general Charito Plaza earlier on said.
“Definitely, the Philippines has been branded as a country with high cost of doing business and unstable economic and trade policies. That has always been the complaint of our investors who despite these uncertainties still brought their investments to the Philippines because the efficiency of PEZA and its globally-competitive incentive package compensated for the high cost of doing business in the country,” she added.
Strong sectoral backing
Meanwhile, the Philippine Chamber of Commerce and Industry, the biggest umbrella group of business organizations, representing about 30,000 MSME nationwide, had earlier on voiced support for CREATE.
The PCCI noted that savings from the lower CIT, which if dropped to 25 percent will bring the country closer to the ASEAN median of 23 percent, will help fund the resumption of businesses’ operations and attract more multinational firms eyeing alternative sourcing markets and manufacturing base.
The PCCI is also requesting a net operating loss carryover (NOLCO) provision under the CREATE to be extended to all firms regardless of size to protect employment, as well as more flexibility in granting fiscal and non-fiscal incentives.
PCCI said the extension of the applicability of the NOLCO provision to five years from the current three years will enable firms to deduct incurred losses from tax payments for a longer period and allow them more room to manage their finances.
“When we did a survey on our membership, about 60 to 70 percent of small businesses — I was surprised by the result — are still confident that they can restart their businesses. They said they still have capital left... they just want to be given proper opportunity and proper support for their business to succeed,” PCCI president, Amb. Benedicto Yujuico said earlier.