THE economic team on Thursday revealed its proposed recovery plan to help the economy bounce back from the ongoing coronavirus crisis, which includes liquidity support for businesses through banks and a significant reduction in corporate income tax (CIT).
Finance Secretary Carlos G. Dominguez III said during the Sulong Pilipinas event on Thursday that the government will need an additional P130-P160 billion to finance the programs under the first part of the three-phased recovery plan dubbed as the “Bayanihan II.”
Mr. Dominguez said of the total funding, P50 billion will be used as additional capital for state-owned banks Land Bank of the Philippines (LANDBANK) and Development Bank of the Philippines (DBP) and another P20 billion for loans of the Philippine Guarantee Corp. (Philguarantee).
Mr. Dominguez said LANDBANK and DBP will act as a wholesale bank that will buy loans of microfinance institutions, cooperatives, rural and thrift banks to free up lending space so small firms will have access to credit.
“Part of the increase in capital to LANDBANK and DBP [is] that they form a joint venture that will be empowered to buy bonds, preferred shares or common shares in qualified companies that need…solvency support,” he added.
Without going into details, Mr. Dominguez said the remaining part of the proposed budget will be used to “hire people to do specific jobs,” such as contact tracing for which around 300,000-500,000 people can be hired.
“What we are proposing is a stimulus package with far larger effects that will increase our fiscal deficit by nine-tenths of one percent. I think it’s around P130 billion or P160 billion. If you put it in the right place, the actual value, the actual economic activity that that kind of investment can make is probably P800 billion or P1 trillion because of the multiplier effect that you can get by putting it as bank capital and as capital of Philguarantee,” he said.
According to a presentation made during the online forum, support to small and medium firms under Bayanihan II includes credit guarantees and the wage subsidy program, while large firms will receive “targeted equity support to match bank lending” with conditions that have yet to be announced.
In the same forum, Acting Socioeconomic Planning Secretary Karl Kendrick T. Chua said the second part of the proposed three-phased recovery plan includes a drastic CIT rate cut to 25% from the current 30% starting July.
The proposal will be under CREATE bill or the Corporate Recovery and Tax Incentives for Enterprises Act, a revised version of the Corporate Income Tax and Incentives Rationalization Act (CITIRA) bill that is pending at the Senate.
Albay Rep. Jose Maria Clemente S. Salceda earlier said the proposal is to bring the CIT down to 25% this year from 30% currently, while the next administration will “have flexibility over the other 5%,” against the previous proposal under CITIRA of a yearly one percentage point reduction for 10 years.
Mr. Chua said the CREATE bill will also include an extension of the net operating loss carryover (NOLCO) to five years from three years, while losses for this year “can be credited to future tax payments.”
While there will be changes in the incentive scheme from those proposed under the CITIRA, he said a longer sunset period will be provided under the new proposal where existing incentives will not be changed in the next four to nine years.
To attract new investors, Mr. Dominguez said they are proposing a more flexible income tax system that will offer “tailor-fit” incentives.
He said they will prioritize companies in industries that hire a lot of workers, those that can help improve technology here and those with stable markets.
Meanwhile, Mr. Chua said the third phase of the recovery program will involve “reprioritization” of the 2021 and 2022 budget to include projects meant to improve the country’s health care system, agriculture sector and the entire food value chains, as well as infrastructure projects under the administration’s “Build, Build, Build” program.
“This will ensure that the recovery stage is adequately supported, should the Bayanihan II be insufficient, or if the recovery takes a longer time,” Mr. Chua’s presentation read.
Meanwhile, Mr. Chua said the results of the three surveys conducted by the government showed micro-, small- and medium-sized firms (MSMEs) suffered income losses worth P767 billion so far due to business disruptions during the enhanced community quarantine (ECQ) in Luzon, with their income declining by 87% in March versus what they earned in February.
Of the more than 44,000 respondents in the survey conducted in early April, 66% reported zero sales while 33% said they had lower sales.
This translated to estimated job losses of about 2.24 million workers, or a 10% decline in March from the month prior, while about 75% or 33,041 firms have temporarily closed.
In the agriculture sector, National Economic and Development Authority’s survey showed an estimated P108 million in lost revenues, as 65% of the 6,863 respondents said they were able to sell their products while 35% were not able to sell. — Beatrice M. Laforga