A new Singapore-inspired tax law will lower corporate taxes and boost foreign investment in the Philippines, Treasury Secretary Carlos Dominguez told CNBC as the country seeks to accelerate its economic recovery.
The Philippines’s so-called Business Recovery and Business Tax Incentives Act (CREATE), which came into force last month, aims to provide financial relief to businesses in need while increasing the country’s competitiveness in the region, he told CNBC on Tuesday.
The law lowers the corporate tax rate – formerly the at 30% the highest among the Southeast Asian countries – up to 25% for large companies and 20% for small companies.
It also unifies the government’s inbound investment program, bringing it closer to financial centers like Singapore, and giving the president more powers to give non-tax incentives to businesses, Dominguez said.
“We have modeled our program on the Singaporean system,” he said, referring to his coordinated strategy of attracting foreign investment and creating incentives.
“In the past we had 13 independent investment promotion agencies in the country that were poorly coordinated,” he continued.
People wearing protective masks are seen walking on a busy street in Manila, Philippines on March 20, 2021.
Xinhua News Agency | Getty Images
“Now we’re coordinating them and making sure these agencies offer incentives that are transparent, time-bound, performance-driven and that attract the investments we actually want in this country.”
The reduced corporate tax is the latest in a series of tax reforms introduced by President Rodrigo Dutertes PDP Laban Party since taking office in 2016.
The finance secretary said the plans would return cash to distressed small and medium-sized businesses, which can then invest in jobs and economic growth again. However, critics have questioned the merits of reducing already stressed public finances as the country battles the coronavirus pandemic.
“We estimate the portion we are giving up is around 1 trillion pesos ($ 20.65 billion) over a 10-year period. However, we believe this is a time to do so,” Dominguez said.
“Companies need fiscal incentives, number one. And second, that they will attract more investment into our country over a long period of time,” he said.
The Philippines have so far retained its BBB credit rating from Fitch Ratings, BAA2 from Moody’sand BBB + from Japan Agency for rating and investment information (R&I). This is despite the global downturn and its disproportionate impact on emerging markets.
“Not just the rating agencies, but the people who actually put their money where their mouths are have invested in the Philippines’ long-term profitability and prospects,” he said, citing the strong bond trading activity.
The Finance Secretary’s comments come as the Philippines faces a surge in cases in its capital, Manila. Dominguez said the country’s resources are currently “sufficient” to handle the surge, adding that by the end of this year it had ordered enough vaccines to vaccinate its 70 million adult population.
“This Covid contagion is just a slip-up in our history. We still have our solid fundamentals, which represent 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 only add to our ability to attract more investment to this country.”