The chairman of the House Committee on Ways and Means on Wednesday has warned anew the consequences of further delays in passing the Corporate Recovery and Tax Incentives for Enterprises (CREATE).
Panel Chairman and Albay Rep. Joey S. Salceda issued the warning following an assessment by Fitch Solutions, the leading international credit bench marker, that the slow pace of tax reforms is “discouraging” foreign investors and is contributing immensely to the decline in net inflows of foreign direct investments (FDI).
Salceda said the two-year loss in FDI due to delays in passing CREATE, or Package 2, of tax reforms was $6 billion to $12 billion.
Earlier, Fitch Solutions Senior Country Risk Analyst Michael Langham said the delays in the 2019 budget approval and passage of tax reform laws slowed FDI net inflows last year. Net inflows dropped 23.1 percent from a year earlier to $7.647 billion.
Langham added that, “As we saw in 2019, FDI really dropped quite sharply and a lot of that was over policy uncertainty as well as the weaker outlook for the global economy.” Langham also said the proposal to lower corporate income tax will place the country at par with its neighbors but the measure, which is still pending in the Senate, could deter potential investments.
Salceda said President Duterte and the Cabinet approved Package 2 of the Comprehensive Tax Reform Package in January 2018 and the House was always quick to pass versions of this reform.
“Well, now that crisis has come and the noise is being set aside in favor of more essential indicators in the economy, international observers and investment advisers are validating the substance of my claim,” Salceda said.
“When it comes to economic decisiveness, there is no bigger money than time. The more time you lose over policy uncertainty, the greater your foregone growth is,” Salceda added.
“I first filed this reform when I was a freshman congressman, when I authored the Subsidy Council Act in 1998. I pushed for this again, as the proposed Investment Code, in 2006. I am now in my fifth term, and I have filed this every term, in improved versions. The economic losses we are suffering by not passing this is immense, and I cannot even begin to imagine the size of the opportunity cost if I counted back to 1998,” he added.
According to Salceda, CREATE will make the country’s investment incentives one of the world’s best and most accountable.
“As for the arguments, wala nang bago. The opponents have nothing left. I will be very frank: even if you were a country with the ugliest investment code in the world, as long as you are legally open to FDI and as long as your policy is set, someone will find your country to be suited to their specific needs,” Salceda said.
Under CREATE, Salceda said, the country will have “a low basic CIT [corporate income tax] rate of 20 percent, a standard menu of incentives, and a bonus menu of incentives for the best investors.”
“So, the debate between this investor, or that investor, leaving is frustratingly superfluous. There are so many investors in the world that we are driving away because we could not make up our minds about getting this passed. I dare those who threaten us to leave to name themselves and show me their financial statements so I could see which part of the balance sheet we can help with, with amendments to the proposal. No one has called my dare. No one has submitted a cost-benefit analysis either. It’s all spooking the public with unfounded claims,” Salceda said.
“We can always make money. We can always modify our incentives if CREATE proves to be in need of tweaking. But none of the opponents can ever bring back the three years we have wasted in their repetitive opposition. It is said that time is money. I say, there is no bigger money than time, because the potential of well-managed time is infinite. And the Filipino people’s time has been wasted,” he added.
Salceda has also reiterated that the House is willing to adopt the Senate version of CREATE to fast-track the approval of the measure as long as it is fiscally sound. CREATE is still pending before the plenary of the Senate.
CREATE seeks an outright cut in the country’s CIT rate from 30 percent to 25- percent. The proposal further offers more flexible incentives, with an immediate 5 percent income tax slash, after which the CIT will be reduced by 1 percent every year from 2023 to 2027 until it reaches the 20-percent mark.