Second tax package to create more jobs

By: Ben O. de Vera, Philippine Daily Inquirer, May 26, 2018

The proposed second tax reform package is expected to create not only more but also better jobs as the government would grant incentives to investments generating employment opportunities, the think tank Action for Economic Reforms said.

“The government’s push to reform the fiscal incentive regime will encourage businesses to hire more people and upgrade the skills of existing workers by building backward and forward industry linkage as among the criteria to qualify for fiscal incentives,” AER senior economist Jo-Ann Diosana said in a statement, noting that the pending bills before the Lower House provided for double tax deductions to be granted to businesses that will hire marginal labor yearly as well as train current employees.

“The rationalization actually intends to have a clear set of criteria as a condition to receiving incentives and one of the criteria is the generation of full-time, regular employment,” Diosana said.

As such, AER said that “the fears raised by some sectors that rationalizing incentives will cause some firms to close shop and kill jobs” was unfounded.

“Majority of firms do not enjoy incentives; those that do are mostly profitable firms that cater to a growing domestic market or are resource-seeking, and therefore would invest in the Philippines regardless of whether they receive incentives or not. These firms are involved in the aviation, mining, housing and gambling industries,” AER pointed out.

In an earlier statement, AER said that it “believes that with enhanced targeting, design and administration, we can make our fiscal incentives regime work better for industry, the economy and the country.”

“We want a level playing field for our investors that is tied to the strategic investment priority programs and will provide fair, just and equal opportunity for our micro, small and medium entrepreneurs,” it added.

Also, the AER said that it proposed a clear set of measurable performance criteria as primary condition to qualify for incentives.

“Aside from the amount of investments, these criteria include generation of full time, regular employment; adoption of inclusive business activities and value-added production; use of cleaner, energy-saving, and other relevant new technology; installation of adequate environmental protection systems; addressing gaps in or moving up the supply/value chain or product ladder; stimulation of forward and backward linkages, and commercialization of ideas and innovation,” it added.

As for tax incentives, the AER said that these “should include the following: double deduction for research and development; double deduction for training, including training of new hires, as well as those accepted for internship, apprenticeship or immersion of senior high school, college or technical and vocational students enrolled in public institutions; 50-percent deduction for incremental direct labor expense and accelerated depreciation.”

These incentives are directly geared toward lowering the costs of establishing the business (such as additional labor and capital equipment), and encouraging investment in activities (such as research and development, training) that will welcome innovations and enhance competitiveness, according to the AER.

Last Tuesday, the Department of Finance reiterated its push for a staggered and conditional reduction in corporate income tax rates under the proposed second tax reform package as the government could not stand to lose more revenues due to the massive physical infrastructure and social services programs that the Duterte administration wanted to fund.

During the House committee on ways and means hearing that tackled pending measures aimed at slashing the 30-percent tax slapped on companies’ incomes—the highest in Asean at present—while rationalizing the fiscal perks being enjoyed by investors, Finance Secretary Carlos G. Dominguez III said that the DOF proposal was “pro-business, pro-investments and pro-incentives.”

“The second package of our tax reform program aspires to build a more competitive and transparent business environment. It seeks to rationalize our incentive systems to reduce overlaps, hidden subsidies that benefit a few, and loopholes that unfairly distribute business advantages. We seek reforms that will deliver a more even playing field, simplify collection procedures, bring greater transparency and reward genuine efficiency,” Dominguez told the committee.

“The second package continues to acknowledge the important role fiscal incentives play in attracting efficiency-seeking investments that otherwise would not have gone into our country in favor of more cost-effective destinations. Package two, however, requires that every peso given up as an incentive must benefit the society in the form of better jobs, faster innovation and countryside development. Some of the incentives granted, however, were entirely unnecessary given the inherent attractiveness of our market size, our natural and human advantages and our freshly gained competitiveness. Whatever incentives are granted should be performance-based, tightly targeted, time-bound and transparent,” Dominguez added.