Tax reform won’t result in capital flight, layoffs, says DOF

Published December 6, 2018, 12:00 AM

by manilabulletin_admin

By Chino S. Leyco

Finance Secretary Carlos G. Dominguez III shrugged off fears the Duterte administration’s second tax reform proposal would result in capital flight, instead he insisted that the plan will create business environment conducive to inclusive growth.

Finance Secretary Sonny Dominguez III answers question during a roundtable discussion with senior editors of The Manila Bulletin yesterday. (Albert Garcia|Manila Bulletin
Finance Secretary Carlos G. Dominguez III . (Manila Bulletin file photo)

Dominguez believes that their proposal to lower the corporate income tax (CIT) and overhaul the country’s “convoluted” fiscal incentives system, once passed into law, would not jeopardize investments and employment in the country.

According to Dominguez, instead of layoffs, the proposal would generate some 1.4 million jobs, mostly in small and medium enterprises (SMEs), over the next decade.

Dominguez said the proposed staggered cuts in the CIT from 30 percent to 20 percent over a 10-year period as provided under the Tax Reform for Attracting Better and High-Quality Opportunities (TRABAHO) bill will energize hundreds of thousands of SMEs.

TRABAHO bill will also encourage businesses to use part of their saving from lower tax payments to expand their businesses and hire more workers, the finance chief said.

“We urge the business community to thoroughly read the measure, rather than base their positions on hearsay and opinions of uninformed people, so that you can work with the government in explaining the true benefits of the TRABAHO bill to the public,” Dominguez said.

He said that contrary to the perception poised by the proposed tax reform’s critics, the Duterte administration’s plan will not eliminate incentives for investors but would even improve them by offering a better set of perks.

The set of incentives under Package 2 will be transparent, time-bound, targeted and performance-based, Dominguez said, to, among others, help eliminate corruption and cronyism.

The proposed CIT cuts and reforms in the fiscal incentives system constitute Package 2 of the Duterte administration’s comprehensive tax reform program (CTRP).

The Package 2 version of the House of Representatives was approved by the chamber last September, while the counterpart version of the Senate is still being studied.

He noted that the reforms being implemented so far by the Duterte administration on its end, including improvements in the ease of doing business, have helped raise net foreign direct investment (FDI) inflows by a hefty third or 31 percent to $7.4 billion in the first eight months.

Apart from pointing to deepening investor confidence in the Duterte administration, Dominguez said the FDI surge this year proves that investors are not being spooked by tax reform, as claimed by certain groups.

While FDIs are dramatically increasing, the Philippine Economic Zone Authority (PEZA) has claimed a slowdown in investments in areas under its jurisdiction, which, Dominguez said, “can only mean they are trying to attract investments that cannot be viable without unreasonable incentives.”

“These are not the investments we need to become a strong economy. The more meaningful investments are being made by competitive companies that do not ask for tax holidays and other incentives,” he said.