The government should go slow in implementing the Tax Reform for Attracting Better and High-Quality Opportunities (Trabaho) bill, given the possible impact it may have on investments and jobs, according to a local economist.
In an interview on Tuesday, University of Asia and the Pacific (UA&P) economist Victor A. Abola told the BusinessMirror that while he has yet to make his own assumptions on the impact of the Trabaho bill on the economy, he thinks the government is “too optimistic” about the proposed tax reform.
Abola said the government, in its analysis, merely took into consideration the revenue impact of the tax measure. However, there is more to the issue than just recouping lost revenues.
“They are too optimistic [that] foreign investment will continue to come and that the ones that are here will not leave. If you are a policy-maker, you should be more conservative. You should always [consider] the worst scenario,” Abola told the BusinessMirror on the sidelines of the First Metro Investment Corp.-UA&P economic briefing on Tuesday.
In order to address revenue concerns and continue the competitiveness of the Philippines as a viable investment destination, Abola said all the tax incentives should be retained provided a more feasible timetable is put in place.
He said allowing firms to enjoy tax perks for as long as 10 years is better than just five years or no tax incentives at all.
It is difficult for new companies to earn a profit in the first two to three years of operation, he pointed out.
Abola explained that a 10-year tax incentive will also give a company a better horizon in terms of its financial and business planning undertakings.
“I think the five years [duration of tax incentives] is very short because in the first, two, three years, you don’t make money. Ten years is probably a more realistic figure,” Abola said.
In order to prevent any abuse, Abola suggested that the government put in place a system wherein it grants tax incentives or gives tax rebates to firms for meeting certain goals.
Abola said the government should come up with a formula for the granting of an incentive. This could include hitting returns on investment or job creation goals.
Last week, Trade Secretary Ramon M. Lopez said getting the Trabaho bill may be an uphill battle at Senate.
While the House of Representatives approved the measure that it dubbed “Trabaho bill” in September, the government is having a tough time persuading the Senate to pass the tax-reform measure. The most contentious portion of the bill for the Senate is on the rationalization of tax incentives.
