Uncertain times

The business community seems to be divided in its opinion on the supposedly upcoming change in the leadership of the House of Representatives.

There are those who are satisfied with the way the Lower House has been performing so far and they don’t want the boat rocked, so to speak.

It will be recalled that the House of Representatives under Speaker Alan Peter Cayetano was able to approve in record time on Sept. 13 last year its version of the Corporate Income Tax and Incentives Reform Act (CITIRA).

As I said in my last column, it is unfortunate that the Senate has not acted with  a similar sense of urgency considering that last March, President Duterte had certified the CITIRA bill as urgent and called on the Senate to approve Senate Bill 1357 which is still pending its second reading.  CITIRA is now known as the CREATE Act or Corporate Recovery and Tax Incentives for Enterprises.

CITIRA or CREATE is envisioned to rationalize and overhaul the existing investment incentives system and develop a regime that is performance-based, targeted, time bound and transparent. As the Package 2 of the comprehensive tax reform program, the bill also aims to amend the Tax Code by consolidating the various tax incentives embodied in over 300 laws into a single title under the National Internal Revenue Code.

The House version allows enterprises enjoying incentives under the current regime to continue availing of the incentives for up to five more years from enactment of the CITIRA or CREATE law. The Senate version, on the other hand, increases the period to seven years. There are other substantial differences between the two versions, so it is expected that a bicameral conference committee will be convened.

According to the Department of Finance, it is proposing several amendments to Senate committee report 50 or the Ways and Means Committee report on CITIRA. These include an immediate five percentage point cut in the corporate income tax (CIT) this year, which will be reduced further by one percentage point every year from 2023 to 2027; maintaining for up to nine years the status quo for registered business activities enjoying the five percent tax on gross income earned incentive; and giving the President more flexibility to grant a combination of fiscal and non-fiscal incentives, among others.

As proposed by the economic team, the CIT will be reduced outright to 25 percent until 2022, followed by a one percentage point reduction yearly until 2027 to reach 20 percent by that year. The DOF said the reduction would bring the country closer to the ASEAN CIT rate average of around 22 percent and would boost cost competitiveness in doing business. It noted that the Philippines currently imposes the highest CIT rate in the ASEAN region, which is a burden to MSMEs that are dealing with the effects of the pandemic.

The finance department, likewise, pointed out that for decades, the country has been too generous in granting tax incentives to a few investors in perpetuity and without a regular and in-depth review of the costs and benefits of doing so. In fact in 2017 alone, it noted that the Filipino people granted P441 billion or 2.8 percent of GDP in tax incentives to only 3,170 companies, including those on the elite list of top 1000 corporations. CREATE, the DOF said, would make sure that every peso granted as a tax incentive yields a net positive benefit to society.

There are still a number of economic bills pending with the Lower House, and with the supposed change in the House leadership by Oct. 14 resulting from the term-sharing agreement between Cayetano and Marinduque Rep. Lord Allan Velasco, a number of businessmen are worried that the change might not be good, especially due to the current uncertainties brought about by the pandemic.

Meanwhile, Velasco has been accused of being behind several attempts in the past to oust Cayetano and of not supporting Cayetano while the latter was the House Speaker. And because of these, the business community is worried that if indeed Velasco becomes the new Speaker, everything will be chaotic, which might derail the gains achieved by the House so far.

But Marinduque Gov. Presbitero Velasco recently came to the defense of his son Lord Allan from allegations about a plot to unseat Cayetano, saying  his son knows how to honor a gentleman’s agreement, in particular the term-sharing agreement, and that the younger Velasco, being an honorable man, will not do anything to derail the 15-21 month term-sharing agreement. Under the term-sharing deal, Cayetano sits as Speaker for the first 15 months, while Velasco will serve the remaining 21 months of the 18th Congress.

Observers say this is not the first time that  former Supreme Court Justice Presbitero Velasco has involved himself in his son’s political affairs. In an online article and in her book, “Shadow of Doubt: Probing the Supreme Court,” veteran journalist Marites Dañguilan-Vitug wrote about the elder Velasco’s involvement in his son’s congressional bid while Presbitero was still a sitting SC justice.

There are those in the business community, of course, who want to see what a new House leader can do for the country and for the economy in particular.

Those who want Cayetano to stay, on the other hand, believe that what Velasco will be capable of doing remains to be seen and that at these times when everything seems uncertain, the country cannot afford to take another risk.

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