The Ateneo School of Government called on the national government and Congress to conduct a massive review of the proposed Corporate Income Tax and Incentive Reform Act to rid it of “potential unintended consequences.”
Ateneo School of Government dean Ronald Mendoza said Tuesday in the first ever Investor Insights forum hosted by the Philippine Economic Zone Authority that the government should lay out a concrete plan and safeguards for the rollout of all reforms, particularly those triggering massive structural adjustments in key economic sectors with vulnerable populations like the workers and farmers.
“The clear challenge presently is to better understand the consequences of reform roll-out so that government and the private sector are better prepared for any potential unintended consequences and in order to offer adequate safety nets for the groups most affected by dramatic structural adjustments,” he said.
Mendoza said the rollout of the Tax Reform for Acceleration and Inclusion had an impact on inflation while the Rice Tariffication Law led to depressed palay prices.
“Both these earlier reforms should offer much food for thought when embarking on further reforms, given that their rollout issues have not yet been fully sorted out. There are even reports that the cash transfers to protect poor and low-income households from the impact of TRAIN 1 have not even been fully paid out even as the law was passed in 2017,” he said.
The Ateneo School of Government said the seeming disagreement on evidence and data emphasized the need to review the empirical evidence related to CITIRA.
“The evidence should unite us in support of a well-designed and well rolled-out reform. And we should be careful in interpreting the present set of mixed results on the effectiveness of incentives to attract FDI. Studies suggest that investors are influenced more by strong economic fundamentals of the host economy,” Mendoza said.
“The evidence suggests that the effectiveness of incentives is highly context-dependent. In other words, in addition to the prevailing tax policy and regime in a country, investment decisions are also driven by market and political factors such as market size and income level, labor productivity, type and availability of infrastructure, and political and macroeconomic stability,” he said.
Mendoza said one could not jump to the simplistic conclusion that investor incentives were not needed, as investments into any country take into consideration the aggregate investor landscape or incentives as well as in other “competitor countries” which may also host the investment.
“In our analysis, if investment studies show that the evidence on incentives is mixed, this could mean that incentives across countries may tend to cancel each other out”•but that does not mean automatically that they are not effective, nor that removing them will necessarily have no consequences on future and present investments,” he said.
“One might be able to argue this particularly for countries like the Philippines that still lag in improvements in other FDI-attracting factors such as ease of doing business. And our competitiveness and EODB indicators have not dramatically improved in the past few years”•all while our competitors have,” he said.
