Suits The C-Suite

The journey to sustainability started with the Industrial Revolution, when economic growth was characterized by faster and large-scale manufacturing processes. This came at the expense of a degrading environment, unhealthy labor practices, and aggressive cost-saving mechanisms.

 Now, sustainability has evolved into a critical key performance metric that drives long-term value for investments and embraces corporate responsibility in the use of natural resources, uplifting of social communities, and upholding accountability for regulatory obligations.

As the economy moves towards achieving the UN Sustainable Development Goals (SDGs), taxation plays the role of a catalyst that facilitates an enduring partnership between the government and businesses in building a competitive and resilient nation.

This is the eighth and last article in our series following the 2nd SGV Tax Symposium, which focused on how a sustainable and effective tax ecosystem can advance the sustainability agenda for both the public and private sectors. This article will highlight the role of taxation in a company’s sustainability strategy that aligns with government priorities and contribute to building a better Philippines.

SUSTAINABILITY AND ESG
One of the ways businesses build public trust and stakeholder confidence is by having key performance indicators (KPIs) that demonstrate their environmental, social, and governance (ESG) commitments. Businesses that integrate ESG metrics into their sustainability strategies not only create long-term value, but also set a baseline standard for future growth.

During the Conversation with the C-Suites panel at the 2nd SGV Tax Symposium, Chief Finance, Risk, and Sustainability Officer of Metro Pacific Investments Corp. (MPIC), June Cheryl Cabal-Revilla, said MPIC’s holistic approach to sustainability embodies a framework for economic, environmental, social, and governance (EESG) measures which are complemented by defined KPIs.

“Apart from the usual economic or financial resilience, we put priority on environment and climate resilience, then on social, organizational, and community resilience because that involves all our employees and the communities around us who are also our customers. Lastly, we focus on governance and reputational resilience, which cut across everything that we do. That has been our way of life for three to four years now. It has been embraced by everyone in the company/group,” Ms. Cabal-Revilla said. In addition, they have already incorporated sustainability in planning their capital expenditures.

According to Ms. Cabal-Revilla, “there is a desire for governmental entities to gain a more comprehensive understanding of the essence of sustainability. This desire emphasizes EESG principles, their impact, and the ability to echo their critical nature to the greater public.”

Although businesses have the influence and tools to create positive outcomes, it takes a whole-of-society approach sustained by long-term government support to meet the challenges of sustainability.

TAX AND ENVIRONMENTAL SUSTAINABILITY
Alongside regulations, taxation is also a key tool in promoting sustainable development practices and in impeding activities harmful to the environment through targeted fiscal incentives and punitive taxes. According to the Organisation for Economic Cooperation and Development (OECD), environmentally related taxes “provide incentives for further efficiency gains, green investment and innovation and shifts in consumption patterns.”

In the Philippines, businesses can be partners of the government in its green campaign by aligning their investments and projects with the priority sectors of the Philippine Economic Zone Authority (PEZA) and Board of Investments (BoI). Green industries such as renewable energy projects, energy efficiency activities, and eco-industrial park development, among others, are also eligible for incentives. These highlight the administration’s goal to make the Philippines a regional hub for globally competitive, innovative, and sustainability-driven industries.

In addition to tax incentives, the government can also potentially explore imposing additional charges for environmental and health damage. Such punitive taxes can stimulate businesses and consumers to seek cleaner solutions that reduce greenhouse gas emissions while simultaneously raising revenue to fund vital government social services.

TAX AND SOCIAL RESPONSIBILITY
Taxation also contributes to the social externalities of economic activity by creating and/or attracting investments that create employment opportunities in rural and less developed areas, build infrastructure to support trade and industry, and sustain government and private expenditures for education, health, and social welfare activities.

TAX AND TRANSPARENCY IN GOVERNANCE
Proper tax governance in ensuring that businesses pay a fair amount of tax is an issue held highly not only in local tax audit and enforcement programs, but also globally given recent regulatory developments against base erosion and profit shifting (BEPS).

 The Bureau of Internal Revenue (BIR), under the leadership of Commissioner Romeo Lumagui, Jr., embodies this principle on sustainability with its four pillars: excellent taxpayer service; integrity in the revenue service; audit and enforcement; and digitalization. Guided by these pillars, the BIR aims to protect the interests of the government and its stakeholders, and at the same time foster a business climate that is conducive to growth, diversification and profitability.

In alignment with the BIR’s priority programs, companies reinforce their own governance with an oversight mechanism that upholds accountability for tax planning and decisions made around its tax compliance and reporting.

SUSTAINABILITY AS COLLABORATIVE EFFORT
The road to sustainability is not just one person’s journey. It requires a collective effort from the government, the private sector, and the taxpaying public who must all work hand-in-hand to achieve the Philippines’ sustainable development goals for a strong and better future.

The 2nd SGV Tax Symposium, in relaunching the SGV Tax Vision, articulates on the interdependency among taxpayers, regulators, and tax practitioners who each play a significant and complementary role in enabling businesses and driving socio-economic growth for the whole country.

In a sustainable tax ecosystem, taxpayers embody a culture of integrity with their knowledge on tax rules and a better appreciation of their social responsibility and commitment to nation-building by paying the correct taxes.

Regulators enable taxpayers to align their expenditures with government priorities and contribute the most in meeting desired outcomes. This is achieved by providing detailed and specific policies and regulations with clear accountability and measurable targets, produced in close collaboration with concerned industries and affected communities.

 Tax practitioners support taxpayers and regulators alike by being equipped with the necessary skills to competently explain tax rules while upholding the value of integrity. They thereby foster an environment where taxpayers are compliant, government can deliver on its commitments, the public can access job opportunities, businesses can realize their long-term value, and the Philippines becomes a conducive place for investment.

While the factors that drive sustainability changes arise from different backgrounds, in the end, consistent and continuous collaboration is vital to attaining effective and long-term sustainable development, growth and resiliency.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the authors and do not necessarily represent the views of SGV & Co.

 

Margaux A. Advincula is a tax partner and head of the SGV Clark Office, and Michelle C. Arias is a tax senior director.