Plus for the economy
The emerging results of the midterm elections augur well for the economy, bringing with them the possibility that vital legislation needed to attract foreign investments and keep growth sustainable will see the light of day.
Senators supporting President Duterte are poised to win nine of 12 seats up for grabs, effectively giving the President control of 18 of the 24-member Senate. Candidates allied with Mr. Duterte are also expected to keep their dominance in the House of Representatives. The looming legislative supermajority will help the administration push key policy reforms that seek to attract more foreign investors into the country, including the proposed amendments to the Retail Trade Liberalization Act, the Foreign Investments Act and the Public Service Act, all of which hardly
advanced in the last Congress.
House Bill No. 4595 and Senate Bill No. 1639 seek to amend the existing retail trade liberalization law to improve investments in the manufacturing sector, particularly among small- and medium-sized enterprises. Under Republic Act No. 8762, or the Retail Trade Liberalization Act of 2000, enterprises with a paid-up capital of less than $2.5 million are reserved exclusively for Filipino citizens and corporations wholly owned by Filipino citizens. Only enterprises with a minimum capitalization of $2.5 million or more may be owned fully by foreigners, a provision that many find too restrictive. The government wants this reduced to $200,000.
The government also wants to amend the Foreign Investments Act by reducing the threshold for foreign investors investing $100,000 in SMEs from 50 to only 15 direct employees. It also proposes to exclude “practice of professions” from the coverage of the Foreign Investments Act. On the amendment to Commonwealth Act No. 146, or the Public Service Act, the government wants to limit the term “public utilities” to electricity distribution and transmission as well as waterworks and sewerage systems. The redefinition of “public utilities” will allow foreign companies to own up to 100 percent of local telecommunications ventures.
The Duterte administration is also pursuing a total of seven packages under its comprehensive tax reform program. The second package on corporate income taxation, dubbed the Tax Reform for Attracting Better and Higher Quality Opportunities (Trabaho) bill, got stalled in the previous Congress. It now faces a bigger chance of being passed in the incoming Congress. Trabaho aims to replace the current system of too many tax incentives with a lower corporate tax rate. Analysts have pointed out that reducing the complex tax system and lowering the tax rate should provide a boost to investment.
The administration has so far introduced a number of economic reforms welcomed by the business community. These included the controversial Tax Reform for Acceleration and Inclusion (TRAIN) Act and rice tariffication. The first set of tax reforms under the TRAIN law widened the tax base and raised government revenues needed to fund Malacañang’s ambitious “Build, build, build” infrastructure program. Meanwhile, the benefits of scrapping rice import quotas that protected the local rice industry and caused local prices of the staple to remain high are being reflected in the continued decline in rice prices.
However, private economists have pointed out that attempts to improve the business environment have been somewhat undermined by the actions of the President himself. They cite his increasingly autocratic tendencies, including his willingness to undermine political institutions and attack his opponents, scaring foreign investors in the process. They cite as proof of this the fact that new approvals of investment commitments in 2017 and 2018 were less than half the average of what they were under Mr. Duterte’s predecessor.
In the end, the Duterte administration has to balance economic reforms with good governance. To some investors, favorable economic conditions alone may not be enough to entice them to bet their money on the Philippines.
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