A new Singapore-inspired tax law will reduce corporate income tax and boost foreign investment in the Philippines, finance secretary Carlos Dominguez told CNBC, as the country moves to speed up its economic recovery.
The Philippines’ so-called corporate recovery and tax incentives for enterprises (CREATE) act, which was signed into law last month, aims to provide financial relief to companies in need while increasing the country’s competitiveness within the region, he told CNBC Tuesday.
The law reduces the corporate income tax rate — formerly the highest among Southeast Asian nations at 30% — to 25% for large companies and 20% for small businesses.
It also unifies the government’s inbound investment program, bringing it closer in line with financial hubs like Singapore, and granting the president more powers to give non-fiscal incentives to businesses, Dominguez said.
“We patterned our program after the Singaporean system,” he said in reference to its coordinated strategy of attracting and incentivizing overseas investments.
“In the past we had 13 independent investment promoting agencies in the country, and they were hardly ever coordinated,” he continued.
People wearing protective masks are seen at a busy street in Manila, the Philippines, March 20, 2021.
Xinhua News Agency | Getty Images
“Now we are coordinating them and we are making sure that these agencies provide incentives that are transparent, that are time-bound, that are performance-based, and attract the investments that we actually want in this country.”
The reduced corporate tax is the latest in a series of tax reforms introduced by President Rodrigo Duterte’s PDP-Laban party since coming into power in 2016.
The finance secretary said the plans will return cash to distressed small- and medium-sized businesses, which can then reinvest in jobs and economic growth. However, critics have questioned the merits of reducing already stressed public finances as the country battles the coronavirus pandemic.
“The chunk we are giving up, we estimate is around 1 trillion pesos ($20.65 billion) over a period of 10 years. However, we think this is a time to do it,” said Dominguez.
“The businesses need fiscal stimulus, number one. And secondly, that it will attract more investments into our country over the long period of time,” he said.
The Philippines has so far retained its BBB credit rating from Fitch Ratings, BAA2 from Moody’s, and BBB+ from Japan’s Rating and Investment Information (R&I) agency. That’s despite the global downturn and its disproportionate impact on emerging markets.
“Not only the credit rating agencies, but the people who actually put their money where their mouth is, have been investing in the long-term viability and prospects of the Philippines,” he said, referencing strong bond trading activity.
The finance secretary’s comments come as the Philippines faces a spike in cases in its capital Manila. Dominguez said the country’s resources are currently “adequate” to deal with the surge, adding that it has ordered enough vaccines to inoculate its 70 million adult population by the end of this year.
“This Covid contagion is just a blip in our history. We still have our strong fundamentals, which are our very strong fiscal and monetary system in the Philippines,” said Dominguez.
“We have our very young and talented workforce, and we have improved the infrastructure so far. So this CREATE (law) will just add to our ability to attract more investments into this country.”