At a time when funds are urgent for the huge COVID-19 response needed, research group IBON said that the Duterte administration is giving up Php667 billion in revenues to boost the profits of the country’s largest corporations. Oligarch profits are boosted at the expense of aiding poor families, containing the spread of the coronavirus, and treating those with COVID-19, said the group.
In a Senate hearing on Tuesday, Department of Finance (DOF) Secretary Carlos Dominguez III said that the administration wants to cut the corporate income tax (CIT) from 30% to 25% starting July this year. The CIT will be lowered again starting 2023 to fall to just 20% by 2027. This will result in an estimated revenue loss of Php42 billion in 2020 and a further Php625 billion over the succeeding five years.
The faster and bigger CIT cut proposed is grossly unconscionable at a time when the government is blaming its incomplete response to the COVID-19 crisis on the lack of funds, said IBON. Cash transfers are inadequate for tens of millions of Filipino families, the government says mass testing is unaffordable, and small businesses and workers are bearing the burden of precautionary measures. There is also no substantial increase in the number of health workers, beds, intensive care units, and ventilators in the public health system, the group noted.
And yet, IBON stressed, The DOF is using the COVID-19 crisis as an excuse to increase the profits of large corporations. The Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) pushed by the DOF as “one of the largest stimulus measures in the country’s history” is the very same regressive TRAIN Package 2 it has been pushing for over three years, said the group. CREATE is only its latest renaming after being called Corporate Income Tax and Incentives Reform Act (CITIRA).
The finance department is also being untruthful in saying that the measure “is meant to fuel economic dynamism, especially among the country’s growth engines – the micro, small and medium enterprises (MSMEs) – that employ a majority of Filipino workers”, said IBON. In a Senate Ways and Means Committee hearing in 2018, the DOF itself reported that 75% of CIT revenue collected comes from large corporations and only 25% from MSMEs. Hence, it is large corporations and not MSMEs who are the biggest winners getting the biggest boost in their profits from the CIT cut.
IBON said that if the government is really serious about supporting MSMEs and not just using them as a smokescreen to increase oligarch profits, it can instead introduce a more progressive two-tiered CIT scheme with 20% CIT for MSMEs and a higher 35% for large enterprises. The group said that countries with such segmented CIT schemes in ASEAN include Thailand, Malaysia, Cambodia and Brunei.
The proposed measure is also misguided in being designed as an incentive for foreign investors to come to the Philippines, IBON added. Most foreign investment in the country is in low value-added operations. Reducing tax revenues collected from them reduces among the biggest concrete benefits from letting them operate in the country, the group explained.
The big business bias of the government’s COVID-19 response is becoming increasingly evident, according to IBON. The Duterte administration is giving them CIT cuts, supporting lower wages for workers, and preparing huge loans, loan guarantees and bailouts. These should be corrected in favor of more generous income support for affected families, strengthening the public health system, and supporting Filipino MSMEs, said the group.