The Lower House last week approved on third and final reading the since-renamed Tax Reform for Attracting Better and High-quality Opportunities or House Bill 8083, the second package in the polarizing Tax Reform for Acceleration and Inclusion law.
With only the Makabayan bloc and the so-called Magnificent 7 opposing, the proposed law is still part and parcel of the government’s ambitious development agenda anchored on boosting infrastructure, this time geared to supposedly encourage investments by lowering the corporate income tax rate from 30 to 20 percent by 2029 and “rationalize” fiscal incentives given to businesses.
According to then-House committee on ways and means chairman Rep. Dakila Cua (Quirino Province), “The objective of the Trabaho bill is to create more jobs and opportunities through the encouragement of the private sector to invest and grow their businesses here.”
This direction, however, seems to be belied by the opinion of the industry as well as observers and pundits. The Fitch Group’s research arm BMI Research predicts that the law, if enacted, will, in fact, dampen investments because it will make the country even less competitive.
“While the proposed tax reforms may be fiscally prudent, it will likely make the Philippines less competitive versus its regional peers. Investments could slow over the near-term as the proposed conditional corporate tax reduction and repealing of fiscal incentives create uncertainties for businesses,” the group said in its latest economic brief.
Even with the proposed reduction in corporate income tax, the tax rates in the Philippines will remain to be one of the highest and least competitive in the region, the group added.
The Philippine Ecozones Association warned that the Trabaho law could, in fact, result in job losses, not to mention lower production output and exports and even capital flight, overall disturbing the already investor-friendly conditions in the country’s economic zones.
“The tax reform measures being put forth will reverse the progress that the private sector, hand in hand with the government, have attained thus far in contributing to nation-building through strengthening the industrial sectors of manufacturing, information technology, business process outsourcing, and many others,” said Philea president Francisco Zaldarriaga.
Indeed, what can be hardest hit are two of the country’s biggest export revenue drawers: The electronics and semiconductors sector and BPOs, many of whom are located inside economic zones and thus enjoy fiscal incentives.
Zaldarriaga pointed out that the bill could erect even more barriers to foreign investments, in addition to subpar infrastructure, problematic business ownership laws, and the prohibitive cost of utilities.
He added: “The PEZA law is one of the most potent investment incentive tools that has buoyed our economy in the past decades. Why tamper with it now?”
Another sector that is projected to suffer is the mining industry, with experts predicting massive losses of quality jobs in the hundreds of thousands, many in rural areas where development is so needed and yet so scarce.
Worse, the proposed repeal of key sections in the Mining Act further undermines an already inconsistent policy environment, sending more red flags to potential investors. If this happens, it will jeopardize many projects already in the pipeline, also wiping out potential quality jobs across the supply chain.
For instance, the Trabaho bill aims to repeal Section 90 of the Mining Act, which states that “mining activities shall always be included in the investment priorities plan.” As it is, this mandate has not been observed. Some $20 billion worth of approved mining projects remains stalled, with no new mining projects approved. The other sections up for repeal all constitute key incentives designed to attract investments in the sector.
A planned Strategic Investments Priority Plan aims to consolidate fiscal incentives to industries that fall under it. If mining is not in the list, it will make the country even more unattractive and uncompetitive, practically killing the sector and, by extension, billions of dollars in lost revenue for the government and quality jobs for hundreds of thousands of Filipinos.
More broadly speaking, it will further imperil the already difficult task of harnessing one of the country’s largest natural resource—minerals—which, as we have seen in the industrial development of other countries, is essential if we are to sustain the kind of inclusive growth that has eluded Filipinos for decades.
Mineral-rich countries like Australia, Canada, Chile, Peru, and South Africa managed to industrialize on the back of a robust mining industry. In the context of the government’s much-publicized Build Build Build program, this turn of events is even more frustrating.
If the infrastructure agenda were to be sustainable in the short and medium term, mining has to play an indispensable cog in the envisioned supply chain. Regressive policies will not provide the much-need raw materials for cement, steel, and the like. The best move for government is to immediately resolve the decades-old policy limbo, shifting aggressively towards fostering an effectively regulated and competitive environment, the industry can release an economic potential that can increase GDP by a huge 1 percent! Isn’t that what we need?
As the Trabaho bill reaches the Senate, we hope that our Senators will not succumb to another railroading of Train2 aka Trabaho bill, now so aggressively driven by the Department of Finance. We are all suffering from what has been admitted as “unanticipated” effects of this grand policy blunder. Instead of insisting on Train2, the damaging taxes of Train should be reversed immediately, and this time please listen to all the industries who at the end of the day are creating the jobs and do all the work for the economy.