MANILA – Game-changing reforms instituted by the Duterte administration elevated the country among the leaders in Asia and allowed it to have the financial capacity to weather the virus-induced pandemic.
These reforms include the enactment of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, amendments to the Retail Trade Liberalization Act (RTLA), Public Service Act (PSA), and Foreign Investment Act (FIA).
“Had we not pursued them on time, the impact of the pandemic would have been worse. Our 2020 GDP (gross domestic product) would have plunged deeper by 13.3 percent instead of 9.6 percent. This just only proves that in any battle or emergency, preparation is always the best strategy,” Finance Secretary Carlos Dominguez III said in his speech during the Philippine economic briefing on Tuesday.
For one, the CREATE law, which became in effect on April 11, 2021, reduced corporate income tax (CIT) from 30 percent to 25 percent for large corporations and to 20 percent for small and medium enterprises that have net taxable income not higher than PHP5 million.
It provides fiscal relief to both domestic and foreign investors doing businesses in the country, a move seen to encourage businessmen to put up domestic operations in a bid to boost economic activities and help in the continued recovery of the economy.
Dominguez said tax reforms pushed by the current administration allowed the government to increase revenues and implement more needed infrastructure and social protection programs.
He said the Tax Reform for Acceleration and Inclusion (TRAIN) Act, signed into law on Dec. 19, 2017, is targeted to make taxation in the country simpler and more efficient to encourage investments and lift the lives of the people.
Among others, it exempted from paying income taxes people earning below PHP250,000 annually, which covers around 99 percent of taxpayers.
To counter the impact of lower income tax collections, TRAIN imposed excise taxes on sweetened beverages, a measure aimed at reducing cases of people having diabetes, which later on will be a cost to the government once they go to public hospitals to seek medical intervention; and mandated the nationwide fuel marking program to address oil smuggling.
Dominguez said excise tax collection from sweetened beverages amounts to around PHP104 million a day.
He added while these reforms materialized during the current administration, “the success of the tax reform measures cannot be attributed exclusively to the current efforts.”
“All in all, TRAIN and the other enacted packages of the tax reform program enabled the government to raise PHP504.6 billion in incremental revenues during the first four years of implementation,” he said.
The Finance chief said that through these tax reforms and improved tax administration, the government increased its revenue effort to 16.1 percent of GDP in 2019 from 15.1 percent in 2015.
“This was our best performance in more than two decades,” he said.
Dominguez said tax reforms and fiscal discipline allowed the government to reduce the proportion of debt to the economy’s annual output to a record low of 39.6 percent in 2019 from 42.7 in 2015.
This resulted in several upgrades on the country’s credit ratings to BBB and as much as AAA, the latter of which was given by Lianhe Credit Rating Co. Ltd.
“As a result, we were able to bring down our borrowing costs and raise bond issuances with very tight spreads in the international markets. This high credit rating also spilled over in the low borrowing costs for the private sector,” Dominguez said.
He said proven fiscal discipline by the current administration made development partners and lenders support the government’s infrastructure programs through loan and grants provisions.
Dominguez said the government was able to get 28 highly concessional loan agreements for projects under the Build, Build, Build (BBB) program.
One of these projects is the Metro Manila Subway project, which is being financed with the help of the Japanese government.
“This administration was able to raise infrastructure spending to above 5 percent of GDP, double the level recorded by the previous four administrations,” he said.
And while government debt increased during the pandemic, resulting in the rise of the deficit to GDP ratio from 3.4 percent in 2019 to 7.6 percent in 2020 and 8.6 percent in 2021, Dominguez said “we had set out a clear strategy for financing our deficit.”
“We prioritized domestic borrowings followed by official development assistance and then, and lastly, international capital markets. We determined this plan as the most prudent approach, ensuring sustainability in our debt service,” he said.
Dominguez said the debt-to-GDP ratio rose from a record-low 39.6 percent in 2019 to 54.6 percent in 2020 and 60.5 percent in 2021.
“Nevertheless, this ratio remains eminently manageable. The fact that the Philippines was able to maintain all its historic high credit ratings throughout the crisis amidst downgrades among our peers is a testament to our excellent record of prudent spending and fiscal discipline,” he said.
He added disruption caused by the pandemic on the government’s revenue collection “is only temporary”, adding that “deficit and borrowings will begin to decline for the year.”
“As the pandemic subsides, the Philippine economy is now well on its way to rapid recovery. Our risk management strategy culminated in full-year growth of 5.6 percent in 2021, exceeding target and market expectations. This year, we expect our economy to grow by 7-9 percent,” he added. (PNA)