Pandemic-hit businesses identify cheap credit, cash transfers, deferral of rent and mortgage payments along with sizable tax cuts as their most needed forms of government support. This is according to a World Bank Philippines survey of 74,031 firms from all over the Philippines, more than 90 percent of them are micro, small, and medium enterprises (MSMEs). The online survey was conducted from July 7 to 14.
Finance Assistant Secretary Antonio Joselito Lambino II said such survey findings should serve as a “strong impetus” for the Congress to immediately pass the pending Corporate Recovery and Tax Incentives for Enterprises (CREATE) and Financial Institutions’ Strategic Transfer (FIST) bills, as “these measures aim to address the urgent concerns of businesses reeling from the global economic downturn brought about by the prolonged outbreak of COVID-19.”
“The survey findings are directly aligned with the objectives of Republic Act (RA) 11469 or Bayanihan 1 and RA 11494 or Bayanihan 2 along with the pending CREATE and FIST bills. We hope that this recent report helps persuade our lawmakers to pass both priority measures to provide immediate aid to Covid-battered businesses and spur the quick recovery of the domestic economy from the pandemic,” Lambino said.
In partnership with the Department of Finance (DOF) and the National Economic and Development Authority (NEDA), the World Bank Philippines conducted the business survey to measure the impact of the pandemic on companies, with a focus on MSMEs.
Topping the most desired forms of state intervention by MSMEs and other businesses reeling from the pandemic’s economic fallout, he said, are cash transfers (46 percent); loans at subsidized rates (36 percent); tax exemption or deduction (22 percent); deferral of rent, mortgage or utilities (22 percent); and deferral of loan payment (22 percent).
“The findings of the study confirm that the Philippine government’s economic recovery programs are responsive to the needs of MSMEs. Bayanihan 1 launched the largest cash transfer program for small business workers in our country’s history along with deferral of loan and utility payments. Bayanihan 2 includes similar programs and infuses capital into GFIs (government financial institutions) for lending to MSMEs and other productive sectors of the economy,” Lambino said.
He added that, “The survey results bolster the call made by President Duterte in his most recent SONA (State of the Nation Address) for the Congress to fast-track the passage of CREATE and FIST, which will respectively reduce taxes on most businesses and help banks stay healthy so that they can keep lending to Covid-affected businesses.”
“We cannot emphasize enough how critical it is for these measures to be passed by the Congress, primarily for the benefit of MSMEs that comprise over 99 percent of local businesses and employ an overwhelming majority of Filipino workers,” Lambino said.
As of 2017, about 3,150 favored companies registered with investment promotion agencies (IPAs) get to pay discounted taxes equivalent to 6 to 13 percent of net income under the current tax system while MSMEs and other firms pay the regular rate of 30 percent.
The DOF is working with the Congress on the immediate passage of CREATE that aims to accelerate economic recovery by immediately lowering the CIT to 25 percent from the current 30 percent–the highest in the region–and modernizing the Philippines’ fiscal incentives system.
Such reforms in corporate taxation as proposed by the CREATE bill are expected to attract more and better foreign direct investments (FDIs) into the country, and would thus create jobs, stimulate industries, and boost economic growth in the long term.
Earlier, Finance Secretary Carlos Dominguez III said the immediate reduction of the corporate income tax rate by five percentage points to 25 percent would mean savings from reduced tax payments. This will allow entrepreneurs, especially owners of MSMEs, expand their businesses and hire more workers.
“The hefty corporate income tax cut will free up around P37 billion pesos for businesses in the second half of 2020 alone,” Dominguez said.
Lambino said the DOF is also pursuing the legislative approval of FIST, which aims to mitigate the threat of non-performing assets (NPAs) to the country’s banking system.
Lambino said FIST aims to enable banks to offload souring loans and assets, clean up their balance sheets, and extend more funds to more sectors in need of credit.
The bill improves upon the law that created Special Purpose Vehicles in response to the Asian Financial Crisis in the early 2000s, he said.
“Without the FIST bill, the economy is going to be worse off. The worst hit are going to be the small and medium enterprises,” said Lambino. “Helping banks clear their books allows them to lend more money to MSMEs and other businesses.”
CREATE and FIST are currently under the periods of interpellation and sponsorship, respectively, in the Senate.
Both measures have already been passed by the House of Representatives. (Department of Finance)