26 May 2020

Originally Posted in Business Mirror

The head of the country’s umbrella organization of exporters welcomes government calls to reduce the corporate income tax rate to 25 percent and swiftly pass the Corporate Income Tax and Incentives Reform Act (Citira) to provide relief to “overburdened” businesses, particularly micro, small and medium enterprises (MSMEs) in this pandemic.

Reacting to the presentation of acting chief of the National Economic and Development Authority (Neda) Secretary Karl Chua during the Sulong Pilipinas online forum on Thursday, Sergio R. Ortiz-Luis Jr., president of the Philippine Exporters Confederation Inc. (Philexport) said that the 5-percent drastic reduction in CIT is consistent with the Philexport Citira position.

The drop in CIT is seen to attract investors, increase the country’s competitiveness and help address particularly the cash flow issue of MSMEs. But in this crisis, this tax reform will particularly be relevant especially to small and medium-sized businesses bleeding from the impacts of the lockdowns and Covid-19 pandemic, said Ortiz-Luis.

Philexport also supports the Citira recommendation of the electronics industry, the country’s leading export performer.

Philexport Trustee for the Electronics sector Ferdinand A. Ferrer separately raised the need for the status quo for the existing incentives for the next two to three years, allow indirect exporters to avail of the same incentives such as value-added tax exemption as direct exporters, and incentivize training, especially in the light of the shift to digital operations.

Citira, the second package of the Comprehensive Tax Reform Program of the government, seeks to rationalize tax incentives for businesses by reducing CIT rate from the current 30 percent, the highest in Southeast Asia, to 20 percent over a period of 10 years. Prior to the announcement of Secretary Chua, Albay Rep. Joey Salceda, also chairman of the House Ways and Means Committee and one of the principal authors of Citira, this week also renewed his call for a speedy enactment of the bill, with the immediate 5-percent one-time reduction in the CIT.

Media outlets have, likewise, reported that Finance Secretary Carlos G. Dominguez III recently sought the passage of Citira before Congress adjourns on June 3 to attract investors relocating from other countries.

Meanwhile, Philexport unveiled on May 11 the New Normal Export Road map, developed with inputs from the organization’s local chapters nationwide and affiliated industry associations. The road map proposes measures anchored on the three pillars of recovery, resilience, and resurgence (3Rs) to help businesses, especially MSMEs and exporters, get back on their feet, restart and sustain their operations and create jobs.

Among other priorities toward recovery, the road map calls for the immediate reduction of the CIT to 25 percent and the removal, or reduction to 50 percent of the export threshold so that more companies will be able to enjoy incentives.

Ortiz-Luis Jr. cited that it is doubly challenging to export in this new normal, citing the disturbance brought about by the pandemic in over 200 countries, including the country’s top trading partners. The roadmap also proposes, among others, the immediate roll out of the following:

• Philippine Economic Stimulus Act, or PESA, (with amendments from the private sector) to help fund assistance programs;
• Open Access in Data Transmission Act to help address broadband and connectivity issues;
• Magna Carta for MSMEs as amended to empower SB Corp. to lend more to MSMEs and facilitate other sources of funds;
• Customs Amnesty Act as possible revenue source for COVID-19 assistance programs;
• Balik Probinsya, or Executive Order 114 to help decongest Metro Manila;
• interest-free, MSME-friendly multi-purpose loans with minimum requirements;
• wage subsidies for the months covering the enhanced community quarantine (ECQ) and one month after lifting the ECQ in concerned areas;
• moratorium on utility and rental payments, with staggered payment of accumulated bills; and
• National ID System to facilitate social protection programs. Ortiz-Luis Jr. has repeatedly asked government to give immediate attention and solution to the plight of exporters and MSMEs in this crisis.

These include issues they face at local government unit checkpoints that hamper the flow of goods and people moving these goods. Many of these companies have slowed, or totally shut down operations, and are barely hanging on as trade and commerce are upended.

MSMEs account for some 60 percent of the country’s employment and 30 percent of gross domestic product (GDP), Ortiz-Luis Jr. said.

A survey done by PHILEXPORT has found that a vast majority of MSMEs are hoping to operate again once the ECQ is lifted, but probably not going over half of their full capacity due to various limitations.

Many said full operations will depend on factors such as mass testing for Covid-19 cases, establishment of quarantine facilities, provision of public transportation, availability of loan or financial assistance, smooth logistics operations, sufficient raw material supply, and product demand.