NextGen Day

MANILA – The Duterte administration’s game-changing reforms elevated the Philippines among Asia’s leaders and provided it with the financial resources to weather the virus-induced pandemic.

The Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, as well as modifications to the Retail Trade Liberalization Act (RTLA), Public Service Act (PSA), and Foreign Investment Act, are among these measures (FIA).

“The pandemic’s impact would have been harsher if we hadn’t pursued them sooner.” Instead of 9.6%, our GDP (gross domestic product) in 2020 would have plummeted by 13.3%. “Preparation is always the greatest plan in any conflict or emergency,” Finance Secretary Carlos Dominguez III said during his statement at the Philippine economic briefing on Tuesday.

For example, the CREATE law, which took effect on April 11, 2021, cut corporate income tax (CIT) from 30% to 25% for major corporations and 20% for small and medium businesses with net taxable income of less than PHP5 million.

It offers tax breaks to both domestic and foreign investors conducting business in the country, in an effort to encourage entrepreneurs to set up domestic operations in order to promote economic activity and contribute to the economy’s sustained recovery.

Tax measures advocated by the present administration, according to Dominguez, have allowed the government to raise revenues and undertake more essential infrastructure and social safety initiatives.

He stated that the Tax Reform for Acceleration and Inclusion (TRAIN) Act, which was signed into law on December 19, 2017, aims to make taxation in the country simpler and more efficient in order to attract investments and improve people’s lives.

It exempted those earning less than PHP250,000 per year from paying income taxes, which covers nearly all taxpayers.

To offset the impact of lower income tax collections, TRAIN imposed excise taxes on sweetened beverages, a measure aimed at reducing the number of people with diabetes, which will later be a cost to the government when they seek medical treatment at public hospitals; and mandated a nationwide fuel marking program to combat oil smuggling.

Excise taxes on sweetened beverages bring in roughly PHP104 million each day, according to Dominguez.

While these improvements were enacted during the current government, he stated that “the success of the tax reform measures cannot be credited solely to the current efforts.”

“Overall, TRAIN and the other tax reform packages approved by the administration enabled the government to raise PHP504.6 billion in additional revenues in the first four years of implementation,” he said.

According to the Finance Minister, the government’s revenue effort climbed to 16.1 percent of GDP in 2019 from 15.1 percent in 2015 as a result of these tax reforms and improved tax administration.

He stated, “This was our best performance in well than two decades.”

Tax reforms and fiscal discipline, according to Dominguez, enabled the government to lower the debt-to-annual-output ratio to a new low of 39.6 percent in 2019, down from 42.7 percent in 2015.

As a result, the country’s credit ratings were upgraded to BBB and even AAA, the latter of which was awarded by Lianhe Credit Rating Co. Ltd.

“As a result, we were able to lower our borrowing costs and raise bond issuances in international markets with very tight spreads.” “The low borrowing costs for the private sector are a result of the strong credit rating,” Dominguez added.

He claimed that the present administration’s demonstrated fiscal discipline prompted development partners and lenders to assist the government’s infrastructure plans through loan and grant arrangements.

Under the Build, Build, Build (BBB) initiative, the government was able to secure 28 extremely concessional loan deals, according to Dominguez.

One of these projects is the Metro Manila Subway, which is being funded with Japanese government assistance.

“This administration was able to increase infrastructure investment to above 5% of GDP, more than doubling the preceding four administrations’ levels,” he stated.

While government debt surged during the epidemic, the deficit to GDP ratio increased from 3.4 percent in 2019 to 7.6 percent in 2020 and 8.6 percent in 2021, according to Dominguez, “we had put out a clear approach for funding our deficit.”

“We put local borrowing first, then government development assistance, and last international capital markets,” says the report. “We judged that this plan was the most appropriate approach for assuring debt service sustainability,” he said.

According to Dominguez, the debt-to-GDP ratio increased from 39.6 percent in 2019 to 54.6 percent in 2020 and 60.5 percent in 2021, up from a historic low of 39.6 percent in 2019.

“However, this ratio is still very doable.” “Our excellent record of prudent spending and fiscal discipline is a testament to our excellent record of prudent spending and fiscal discipline,” he said, noting that the Philippines was able to maintain all of its historic high credit ratings throughout the crisis despite downgrades among our peers.

He stated that the disruption to the government’s tax collection caused by the pandemic is “just transitory,” and that “deficit and borrowings will begin to diminish for the year.”

“As the pandemic fades, the Philippine economy is well on its way to regaining its footing.” In 2021, our risk management method resulted in full-year growth of 5.6 percent, exceeding both our targets and market expectations. “We expect our economy to increase by 7-9 percent this year,” he continued.

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