The bigger questions

THE SENATE recently conducted its first hearing on the proposed TRABAHO (Tax Reform for Attracting Better and Higher Quality Opportunities) bill. This is the executive’s second reform package for lowering corporate income tax rates and rationalizing the fiscal incentives for investors — comprising some of today’s biggest economic issues.

We’ve momentarily suspended deliberations, pending a study from the Department of Labor and Employment (DOLE) and the Department of Finance (DOF) on the measure’s impact on people’s jobs.  It’s ironic that based on the DOLE’s admission during the hearing, a measure named TRABAHO could in fact lead to job losses.

Such matter should be taken seriously, considering the private sector has cautioned that any withdrawal of incentives would severely impair their operations. In fact, the Semiconductor and Electronics Industries in the Philippines Foundation, Inc. (SEIPI) said in a statement that member-companies would be forced to lay off as many as 140,000 workers, if the bill is enacted in its present form. Hence, extra steps are needed to ensure that no Filipino family loses their livelihood because of the proposed reform.

The measure does have its merits. Many have argued that since the Philippines has among the highest corporate income tax rates in ASEAN, lowering them via the TRABAHO bill would boost our attractiveness to investment — and hence, broaden the opportunity for more jobs.

Many also agree though that the more contentious aspect of the measure is its proposed rationalization or streamlining of fiscal incentives—a matter first brought to Congress for discussion as far back as the 1990s.

Supporters have repeatedly decried how our fiscal incentives system lacked cohesiveness or strategic direction. Today, up to 14 investment promotion agencies (IPAs) and 946 “ecozones” and freeports are authorized to give out fiscal incentives of whatever design in line with 236 investment and non-investment laws. With so many agencies and laws, it’s easy to imagine how the grant of tax perks and other fiscal incentives could end up serving parochial rather than national interests.

The DOF also emphasized at the Senate that ours is among the most generous of regimes, granting fiscal incentives in lieu of all taxes for long periods of time — some in perpetuity without conditions.  By their estimates, up to P344 billion worth of fiscal incentives were given out in 2015 alone, representing significant foregone revenues that could have gone to better roads, bridges, schools, hospitals, or even higher teacher salaries.

But while these points should not be discounted, neither should the successes under the current regime be dismissed.  For instance, many during the hearing highlighted how the Philippine Economic Zone Authority (PEZA) has played a decisive role in ushering more job-creating investments into the country — not just through the incentives it granted but through its position as a one-stop-shop for locators and would-be investors.

Per PEZA’s presentation, up to 4,228 locator-companies now operate in economic zones across the country, directly employing up to 1.417 million Filipinos.  Between 1995 — the year the Special Economic Zone Act or PEZA law was enacted — and 2017, up to P3.614 trillion in economic zone investments was generated.

Clearly, to move forward on this issue, we will need to conduct our studies thoroughly, see if the pros outweigh the cons, and make sure that all discussions on these big issues are constructive (even if they tend to get long-winded).

But before we even unpack corporate income tax reform and fiscal incentives rationalization, there must be some consensus on what the country’s growth strategy ought to be. How can we create more jobs without killing the ones present today? What industries should we incentivize? What should we do today so that we boost our competitiveness now, while preparing for growth opportunities tomorrow?

Answering these would greatly provide some context and rationale to the ongoing discussions on the TRABAHO bill.  More importantly, it would provide the basic ingredients for a solid plan — a unifying economic vision even — around which all stakeholders can rally and coordinate their own efforts.

John Echauz, a World Economic Forum fellow, delivered a presentation during the Senate hearing on some findings that I believe could be a first step to crafting this economic vision. This is the bigger issue that I aim to discuss in a later column.

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Senator Sonny Angara was elected in 2013, and now chairs the Senate committees on local government, and ways and means. (Email: [email protected]| Facebook, Twitter & Instagram: @sonnyangara)/PN

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