Here comes CITIRA

If you’re wondering why Finance Assistant Secretary Antonio Lambino is looking like a pirate these days with a black eye patch, you can look at vapes and e-cigarettes as the likely culprit.

Asec Tony was just three days away from completing a study program at Harvard University last month when his right eye felt paralyzed, refusing to move in sync with the left.

Tony managed to slog through the required hefty daily reading for the study program – about 200 to 300 pages. He consulted a doctor in Boston, who told him that he was suffering from a form of eye paralysis called cranial nerve 3 palsy.

What might have triggered it? Nicotine could cause it, he was told. In his case, he had just recently switched from regular cigarettes to Juul, the e-cigarette that is being blamed for seven deaths in the United States. A federal investigation of manufacturer Juul Labs (its top investor is Altria, formerly Philip Morris) is also underway on accusations of improper marketing of the product to teens as a healthier alternative to regular cigarettes – a claim that has not been approved by health authorities. Juul comes in flavors such as Strawberry Lemonade, Cappuccino and Watermelon.

Upon returning to the Philippines, a doctor gave Lambino the same diagnosis, and the same opinion about the likely cause. The affliction, he was told, could last up to six months.

Lambino has since been trolled on social media for acknowledging the harmful effects of e-cigarettes and vaporizers or vapes.

So he must be extra glad that the 18th Congress looks set to pass the second phase of the tax reform package, which increases excise taxes on alcohol and tobacco. The House of Representatives has approved the CITIRA law (for Corporate Income Tax and Incentive Rationalization Act), which imposes the same taxes on regular and e-cigarettes and vapes.

Lambino said Big Tobacco is believed to be closely monitoring the Philippine legislation, which could be replicated in other countries.

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The higher sin taxes and inclusion of vapes and e-cigarettes are among the reasons I like CITIRA. I have a strong sensitivity to cigarette smoke; even a brief exposure can give me an allergic dry cough for three weeks.

Many companies of course like the reduction in corporate income tax from 30 to 20 percent. That’s the main selling point of CITIRA. The projected increase in investments is expected by the administration to create hundreds of thousands of jobs.

So it has chosen to brush aside warnings from the Philippine Economic Zone Authority that locators in the PEZA areas could move to other countries such as Vietnam if the tax incentives they were promised when they were invited to come in, including exemption from corporate tax, are removed under CITIRA.

The PEZA locators include some of the world’s biggest companies, employing thousands of Filipinos in high-paying jobs. Two years ago when I visited Tokyo, executives of some Japanese manufacturing giants had already told me of their concerns about the planned removal of the tax incentives in the export zones.

The Duterte administration obviously is prepared to risk it. But just in case a major locator does shut down, instantly rendering about 20,000 workers jobless in one company alone, the administration has changed the acronym of the second phase of the tax reform package to CITIRA, from the previous acronym TRABAHO (Tax Reform for Attracting Better and High-Quality Opportunities).

TRABAHO was also a change from the original acronym of TRAIN 2, after the fuel excise tax under TRAIN 1 – the Tax Reform for Acceleration and Inclusion – was blamed together with soaring rice prices for record inflation last year.

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Asec Tony, who faced “The Chiefs” last Friday on Cignal TV’s One News channel, says the person who cooked up all the acronyms was Albay Rep. Joey Salceda.

Also facing The Chiefs, Salceda got testy when asked about accusations that each congressman was allocated P100 million each in “pork” in the 2020 budget (the reason, critics say, for the record speed in its approval Friday night). There’s no pork, no insertions, no earmarking in the General Appropriations Bill for 2020, Salceda stressed.

He also downplayed the PEZA concerns, stressing that there are more businesses that would benefit rather than lose due to CITIRA.

This is similar to what Asec Tony and Finance Undersecretary Karl Kendrick Chua had told STAR editors during a briefing some weeks ago.

We’re the only country in Southeast Asia, they said, that offers tax incentives forever. This is also the argument of their boss, Finance Secretary Carlos Dominguez, in pushing for the rationalization of tax incentives.

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The administration of Fidel Ramos, which opened the doors to greater economic liberalization, had offered the tax breaks to the PEZA locators.

Ramos had swiftly ended the crippling power crisis in the final months of his predecessor Cory Aquino. But it meant power costs that became the second most expensive after Japan, especially as the economy could not absorb what was available from independent power producers.

Power is a major component in the cost of production particularly in manufacturing. To compete with neighboring countries, the tax incentives were dangled.

PEZA officials point out that Philippine power costs remain among the highest in Asia (some reports say we’ve surpassed Japan) and the tax breaks in the economic zones are one way of remaining competitive in luring (and keeping) foreign direct investments.

The government, however, is bent on ending “forever” tax incentives. Asec Tony told The Chiefs that the government has studied the grant of the PEZA tax incentives and decided that these can be withdrawn without the government being held liable for breach of contract.

Salceda, who appears to be working closely with the executive economic team on the tax reform package, also said CITIRA gives PEZA locators five years to adjust to the new tax regime and the 20 percent corporate tax.

The government aims to have the Philippines advance to upper middle income country status by next year.

With more public funds to spend on infrastructure and social services notably universal health care and free education at all levels, the government is aiming to cut the poverty rate from the current 21.6 percent of the population to 13-15 percent.

That means about six million people out of poverty. Gross National Income is also targeted to increase from the current $3,500 to $3,996 by 2022.

As in the rice tariffication law, now wreaking havoc on the livelihood of 2.7 million rice farmers, the devil will be in the implementation of the CITIRA.