Dominguez still optimistic on 2nd tax reform package
FINANCE Secretary Carlos Dominguez III has expressed confidence that the second package of the Duterte administration’s comprehensive tax reform program (CTRP), which calls for rationalizing fiscal incentives and reducing the corporate income tax (CIT) rate to benefit hundreds of thousands of small and medium enterprises (SMEs), will pass the legislative mill within the year. Dominguez said he is also optimistic that the more controversial component of this tax reform package—the rationalization of fiscal incentives—will be approved by the Congress despite the headwind it has thus far encountered, as the public gets clarified on the key points of this reform proposal that will make the current set of investment perks more attractive to investors, rather than eliminating these incentives. “To be clear, we are not eliminating fiscal incentives. But we want to keep granting incentives for the right reasons--and we want these incentives to be performance-based, time-bound, specifically targeted and fully transparent. This will encourage truly competitive investments to enter our economy,” Dominguez said Wednesday during the 2019 Inaugural Meeting and induction of new officers of the Financial Executives Institute of the Philippines (FINEX) at the Shangri-La The Fort in Taguig City. He said that as the financial sector adapts to the disruptive change to businesses brought about by new digital technologies, the Philippines’ rapid growth--alongside the more robust flow of foreign investments into the country, renewed enthusiasm in the equity market, and growthinducing policies of the Duterte administration-will make all sectors of the economy “very busy in the coming period.” “Despite the headwinds presented by global factors last year, we continued to grow
economy at an impressive rate. We expect 2019 to be an even better year,” Dominguez said.
He told the business community that the government is still maintaining a 7 percent GDP growth rate “as a fighting target” for 2019 even with major multilateral institutions having adjusted global growth projections.
“We are building on our own momentum and on the massive economic investments we have programmed for this year. We fully expect to be a growth leader in this dynamic region,” Dominguez said.
He said not enough credit is given to the no-nonsense leadership of President Duterte “in making possible the new economic powerhouse that is the Philippine economy.”
Dominguez assured the business executives present at the event that “the President and his team are determined to push the reforms and bring about the strong and inclusive economic growth our people deserve.”
The Finance chief said the economy will benefit from the phased reduction of the CIT rate from the current 30 percent to 20 percent as proposed under the Tax Reform for Attracting Better and High-quality Opportunities (TRABAHO) bill approved last year by the House of Representatives.
Along with the rationalization of fiscal incentives, the lowering of the CIT to reflect the average rate in the region will “encourage our enterprises, particularly the hundreds of thousands of SMEs to invest in expanding their businesses and hire more workers.”
He said a recent independent survey conducted among SME owners during last year’s series of “Sulong Pilipinas” workshops in Luzon, Visayas and Mindanao showed that more than 90 percent support Package 2 of the CTRP.
“We are confident the second package of revenue reforms will pass the congressional mill within this year,” Dominguez said.
The remaining CTRP packages are: 1) Package 1B, which consists of the proposed tax amnesty program; 2) Package 2 plus, which contains additional excise taxes on tobacco and alcohol products as well as an increase in the government’s share from mining; 3) Package 3, which covers reforms in property valuation to make the system more equitable, efficient and transparent; and 4) Package 4, which proposes to rationalize capital income taxation to address the multiple rates and different tax treatments and exemptions on capital income and other financial instruments.
These tax reform packages, Dominguez said, are complemented by other pieces of legislation that establish a national identification system to enhance the delivery of services and facilitate transactions, and the Ease of Doing Business Act of 2018 that will help cut red tape and encourage business startups.
Pressing concerns such as the elevated inflation rate caused by agriculture and food supply issues in the latter part of 2018 have been decisively addressed by the Duterte administration, which resulted in a rapid deceleration in the closing months of that year, Dominguez said.
“We expect further deceleration with the shift to tariffs in place of the quantitative restrictions on rice imports. Within this year, we expect the inflation rate to fall to within our target range of 2 to 4 percent,” he added.
The vigorous inflow of foreign direct investments (FDIs) in 2017 at a record $10 billion, as well as in the first 10 months of 2018 when FDIs reached $8.5 billion, reflects stronger investor confidence in the Duterte administration’s decisiveness in pushing ahead with its economic reform agenda, supports its overall strategy of shifting to investments-led growth to foster inclusive economic development, and dispels concerns that tax reform is scaring away investors, Dominguez said.
He likewise reiterated the Duterte administration’s commitment to either complete or begin implementation of the 75 strategic projects under the “Build, Build, Build” program, which will create more jobs and open new areas for investments.
Infrastructure spending, Dominguez noted, reached P728 billion in the first 11 months of 2018, or 50 percent higher than the same period in 2017.