Helping distressed firms
The private sector — the engine of the economy — needs to recover fast from the global pandemic that is expected to cost the Philippines as much as P2.5 trillion in losses. The country’s economic officials are now highlighting components of an assistance package that has been drawn up to aid affected private firms. At the same time, the government is also pushing to attract investors, particularly foreign companies planning to move out of China in the wake of the COVID-19 crisis.
President Duterte’s economic team has pitched to Congress the proposed Philippine Program for Recovery with Equity and Solidarity or “PH-Progreso,” outlining the economic measures necessary to restart the economy. An important component of the plan insofar as distressed industries are concerned is the injection by the government of badly needed — although limited — capital into corporations devastated by the lockdown imposed on much of the country to contain the pandemic; the quarantine has virtually stopped economic activity since the middle of March this year.
However, as Acting Socioeconomic Planning Secretary Karl Kendrick T. Chua has put it, industries asking for government help must remember that, first, it will not be free, and second, there will be trade-offs. Distressed firms should be prepared to accept the conditions tied to government assistance, such as a specified time period within which to fully recover and repay the assistance.
The government may also require other sectors to rethink their business strategies. Chua cited as example the hospitality business, specifically small hotels and motels/hostels that rely mainly on tourists for revenues. When the new business normal sets in, they can refocus their business on workers who need to stay nearer their office.
For other companies, new business models, particularly those tapping the potentials of the digital economy, should be pursued. Case in point are agricultural companies that are now finding new revenue channels to sell their produce through the internet.
Also included in the PH-Progreso plan is a one-time reduction in the corporate income tax from the current 30 percent—the highest in the Association of Southeast Asian Nations—to 25 percent. The reduction is seen to take effect by July this year, if Congress can approve the proposed recovery program bill by June 3, the last session day before it adjourns on June 5.
While this measure is primarily aimed at helping existing companies by reducing their tax obligations starting this year, it is also an important attraction for companies looking to relocate from China. Foreign business chambers have long clamored for a reduction in the corporate income tax.
The government is also revamping the tax incentive scheme by giving the President the authority to tailor-fit perks for specific foreign investors wishing to come to the country, doing away with the one-size-fits-all approach. This reform measure should work well with the lower corporate tax scheme in helping lure more foreign investors.
The latest post-pandemic recovery program of the government is for implementation between June and December this year. While it is estimated to cost as much as P160 billion, the government told Congress that its multiplier effect could bring some P800 billion to P1 trillion in value-added to the economy, not to mention the hundreds of thousands of jobs that will be generated in the process.
PH-Progreso is shaping up to be a critical measure to revive the economy and, in particular, help the private sector regain its bearings. Congress needs to work fast on it, and on two other vital measures: the “Bayanihan 2” bill on spending and capital support designed to restore jobs and incomes — a follow-through to the Bayanihan to Heal as One Act containing the government’s initial response to the COVID-19 emergency; and the proposed bill seeking to promote economic expansion and diversification by encouraging people in the metropolis to relocate to the provinces and set up businesses there.
The economic recession has inflicted widespread damage on businesses and, on millions of Filipinos, immense suffering that may lead to dangerous social disruptions; addressing it the soonest is the government’s overriding task in the days and months ahead.
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