MANUFACTURING ACTIVITY sharply declined to a 15-month low in August as a fresh surge in coronavirus disease 2019 (COVID-19) infections led to another strict lockdown in the Philippine capital. Read the full story
Here’s a quick glance at how PSEi stocks fared on Wednesday, September 1, 2021.
THE PESO weakened versus the greenback on Wednesday following the release of data showing weak manufacturing activity and the country’s rising debt stock.
The local unit closed at P50.07 per dollar yesterday, shedding 31 centavos from its P49.76 finish on Tuesday, data from the Bankers Association of the Philippines showed.
The peso opened Wednesday’s session at P49.73 against the dollar. Its weakest showing was its close of P50.07, while its intraday best was at P49.73 versus the greenback.
Dollars exchanged climbed to $1.054 billion on Wednesday from $848.73 million on Tuesday.
The peso dropped against the dollar due to data showing manufacturing activity contracted in August, a trader said.
The Philippine Purchasing Managers’ Index dropped to 46.4 in August from 50.4 in July, IHS Markit said on Wednesday. This was below the 50 neutral mark that separates expansion from contraction and was the lowest reading since the 40.1 in May 2020.
IHS Markit attributed the drop in the index to the impact of the two-week lockdown in August, which forced the closure of factories and businesses.
The continued rise in the country’s debt stock also affected peso-dollar trading, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.
The country’s outstanding debt jumped 26.7% to P11.61 trillion from a year earlier as of end-July, based on data from the Bureau of the Treasury released on Tuesday. It also rose by 4% from June.
For Thursday, Mr. Ricafort gave a forecast range of P49.95 to 50.15 per dollar, while the trader expects the local unit to move within the P50 to P50.25 range. — LWTN
SHARES declined on last-minute profit taking after manufacturing activity in the country dropped last month as strict lockdown restrictions were reimposed amid a surge in coronavirus disease 2019 (COVID-19) cases.
The benchmark Philippine Stock Exchange index (PSEi) dropped 69.50 points or 1.01% to close at 6,785.94 on Wednesday, while the all shares index lost 10.32 points or 0.24% to end at 4,215.26.
“The PSEi gave up its gains from the day before on massive last-minute selling pressure. The price momentum of blue-chip issues was the opposite of the previous session,” AAA Southeast Equities, Inc. Research Head Christopher John Mangun said in an e-mail.
“The large contraction in factory output according to the Philippines’ purchasing managers’ index (PMI) may have been a factor for lightening positions,” he added. “The large number of cases from the greater Metro Manila areas of Cavite, Laguna and Bulacan which is where a lot of manufacturing facilities are located, could be the reason for the perceived slump in factory output.”
Manufacturing activity in the country contracted in August, sinking to its lowest level in 15 months, as the reimposition of strict lockdown measures caused sluggish demand and forced factories and businesses to halt operations, IHS Markit reported on Wednesday.
IHS Markit said the Philippines Manufacturing PMI fell to 46.4 last month from 50.4 in July to again fall below the 50 neutral mark that separates contraction from expansion due to a “renewed contraction in operating conditions” in the sector.
“The local market ended lower along with some Asian markets, as investors weigh carefully the ongoing spread of the Delta variant across the globe, against the pace of the local government’s vaccination program,” Timson Securities, Inc. trader Darren Blaine T. Pangan said in a separate Viber message.
Most sectoral indices declined on Wednesday except for mining and oil, which gained 70.25 points or 0.76% to finish at 9,295.23, and financials, which went up by 9.84 points or 0.68% to 1,437.55.
Meanwhile, property dropped 52.22 points or 1.68% to 3,042.76; holding firms shed 97.26 points or 1.41% to close at 6,778.54; industrials declined by 64.81 points or 0.64% to 9,985.12; and services inched down by 9.32 points or 0.52% to 1,764.29.
Value turnover decreased to P8.82 billion on Wednesday with 2.02 billion shares switching hands, from the P14.85 billion with 2.92 billion issues traded the previous day.
Advancers narrowly beat decliners, 101 against 97, while 41 names closed unchanged.
Foreigners turned sellers, logging P30.61 million in net outflows on Wednesday, from the P306.96 million in net purchases recorded on Tuesday.
“Support may be placed at 6,590, while immediate resistance may be drawn at the 6,900 level,” Timson Securities’ Mr. Pangan said. — Keren Concepcion G. Valmonte
TRADE SECRETARY Ramon M. Lopez has proposed opening up regional trade for essential goods needed by countries to deal with the pandemic.
He said at a Belt and Road Summit Wednesday that the Philippines did not restrict exports of personal protective equipment such as medical-grade masks throughout the public health crisis.
“We have to honor all the contracts of our exporters and allow them to fulfill their deliveries,” he said.
The 10 members of the Association of Southeast Asian Nations (ASEAN) committed to refrain from using trade restrictions, including non-tariff measures, on essential goods to prevent supply disruptions during the coronavirus disease 2019 (COVID-19) pandemic.
“It may be useful for those part of the Belt and Road Initiative to consider a similar arrangement with ASEAN to show our stakeholders our collective effort to ensure that supply chains remain open regardless of the pandemic, and that essential goods remain available to our peoples.”
China’s Belt and Road Initiative is Beijing’s global infrastructure development strategy connecting Asia, Africa, and Europe.
Mr. Lopez said regional free trade agreements could help build back supply chains after the pandemic.
The Regional Comprehensive Economic Partnership, a trade pact that includes China, Australia, New Zealand, Japan, South Korea and all 10 ASEAN member countries, was signed last year.
“For strengthened multilateral cooperation, we may need to do more to ensure that trade remains unimpeded,” Mr. Lopez said.
“For the Philippines, it is important therefore to support initiatives that keep markets open and ensure the unhampered flow of essential goods and services by reducing unnecessary trade measures.”
Mr. Lopez has been pushing for the inclusion of rice into the list of essential goods unimpeded by trade restrictions under the ASEAN agreement. — Jenina P. Ibañez
THE DEPARTMENT of Energy believes new laws may be needed to relax the foreign ownership restrictions for wind and solar projects.
“The National Renewable Energy Board has looked into it — under the leadership of then-chair Monalisa Dimalanta. (But) we have a problem on the interpretation of the Constitution. It states (that) all natural resources with energy potential should undergo service contracting,” Undersecretary Felix William B. Fuentebella said at a webinar organized by the European Chamber of Commerce of the Philippines Tuesday.
“There were exemptions… That’s why we were able to (relax foreign ownership) for biomass and geothermal, but as far as wind and solar is concerned, there may be a need for legislation,” he added.
Biomass and geothermal development are currently open to full foreign ownership.
The Energy department recently held the third round of its open and competitive selection process, which allowed for the full foreign ownership of large-scale geothermal projects including sites like Daklan, Puting Lupa and Mt. Labo, which have a total potential capacity of 74 megawatts.
The 1987 Philippine Constitution prescribes 60-40% ownership in favor of Filipinos for various sectors.
During the webinar, Mr. Fuentebella also addressed whether the department has plans to issue a permanent ban on new coal projects.
“Is it being looked into by the government? Of course, we are looking into all the scenarios as far as whether or not we will pursue coal. In fact, we are even (thinking of going) nuclear… because we have an increase in population while the DBCC (Development Budget Coordination Committee) and NEDA (National Economic and Development Authority) come up with their economic growth numbers. So these are aspects that we have to balance… and (operationalize) in the Philippine Energy Plan,” he said.
Last year, Energy Secretary Alfonso G. Cusi announced that the department is freezing approvals for greenfield coal-fired projects with the goal of making the power supply mix more flexible. — Angelica Y. Yang
THE SUPPLY of water is expected to be tight until new sources are tapped starting 2024, with available water to be in high demand when economic activity picks up, according to testimony delivered at a Senate hearing.
Metropolitan Waterworks and Sewerage System (MWSS) Legal Services Manager Augustine M. Vestil, Jr. said at a hearing of the Public Services committee that the water regulator projects supply of 96 megaliters per day in 2021 to 2022.
“This is small, but will help address water (demand) this year,” Mr. Vestil said at the hearing.
The committee’s chair, Senator Mary Grace Natividad S. Poe-Llamanzares, said: “It’s almost guaranteed that we will have a water shortage once we return to some sort of semblance of normalcy.”
She warned of a supply deficit “once all the establishments open.”
Senator Maria Imelda Josefa R. Marcos pointed out from the MWSS presentation that supply will be flat until 2024, indicating no expectation of new water sources, which Mr. Vestil confirmed. He said water concessionaires are currently tapping deep wells to augment supply.
Mr. Vestil said average daily demand would indicate that water will be sufficient for Metro Manila. The capital’s sources are the Umiray River on the Aurora/Quezon provincial boundary, the Angat River, Manila Water Co. Inc.’s Cardona water treatment plant, and Maynilad Water Services, Inc.’s Putatan treatment plant in Muntinlupa.
He noted, are ongoing projects by Manila Water and Maynilad will improve supply, though their impact will be manifest in about three years.
Short-term solutions include mobile treatment plans that can go up within a year, Maynilad Chief Operating Officer Randolph T. Estrellado said.
Metro Pacific Investments Corp., which has a majority stake in Maynilad, is one of three Philippine units of Hong Kong-based First Pacific Co. Ltd., the others being Philex Mining Corp. and PLDT Inc.
Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has interest in BusinessWorld through the Philippine Star Group, which it controls. — Alyssa Nicole O. Tan
THE SUGAR Regulatory Administration’s (SRA) decision to allocate 100% of sugar output to the domestic market in crop year 2021-2022 is expected to help producers be profitable because they will not be required to sell sugar to the US at concessionary prices.
Manuel R. Lamata, United Sugar Producers Federation president, said in a phone message that Sugar Order (SO) No. 1, which allocated 100% of production to the domestic market, will mean producers will not be loss-making.
SRA issued SO No. 1 on Aug. 31, which classified the entire crop as “B” sugar, for domestic allocation.
“We are thankful that the SRA has followed our advice to make all of our sugar production “B.” It will positively benefit the industry since we are going to have the same price all the way. We will not post losses,” Mr. Lamata said.
Mr. Lamata said however that small volume of imports might be needed with supply expected to be tight due to the high levels of projected rainfall, which will negatively affect production.
“In terms of supply, it is going to be tight. I think we may need to import a bit of sugar. It will depend on the weather and production in the coming crop year. We will know by May next year,” Mr. Lamata said.
The SRA’s pre-milling estimate for raw sugar production for crop year 2021-2022 is 2.099 million metric tons (MT), against the 2.138 million MT produced in the prior crop year.
It added that the production estimate was a result of higher-than-normal rainfall with the re-emergence of the La Niña weather phenomenon in late October or November this year. It is expected to run until the first quarter of 2022, according to the government weather service, known as PAGASA.
“The raw sugar supply and demand projection of SRA Regulation Department shows that even with a carry-over volume of 158,557 MT of domestic sugar, the country’s sugar supply situation is better served with an all ‘B’ domestic sugar allocation for the crop year,” according to the Sugar Order.
Raymond V. Montinola, Confederation of Sugar Producers Associations, Inc. president, said the market will still dictate price movements, but said conditions favor producers.
“I think this year will be good for the producers in terms of prices. But in terms of productivity, I doubt that, especially after coming from La Niña last crop year and the possibility of another La Niña this crop year,” Mr. Montinola said in a mobile phone message.
“As to price, market forces will dictate on what it will be, whether it is going up or down,” he added.
National Federation of Sugarcane Planters President Enrique D. Rojas said in a statement that the order is favorable to sugar farmers.
“This allocation spares sugar producers (from) the losses they suffered last year arising from selling a portion of their sugar production to the US market at a lower price, compared to the more reasonable sugar prices in the domestic market,” Mr. Rojas said.
Moving forward, the SRA said it will conduct periodic assessments during the crop year 2021-2022 and may revise allocations when necessary. — Revin Mikhael D. Ochave
PHILIPPINE ECONOMIC growth is expected to come in below the growth targets set by the government with a performance of 3.5% this year and 6.5% in 2022, due to the continued lockdowns, GlobalSource Partners said.
GlobalSource, a macroeconomic and geopolitical risk research house, said it has reduced its gross domestic product growth forecast for 2021 from 4%, while maintaining the outlook for 2022.
Think tank GlobalSource Partners Country Analysts Romeo L. Bernardo and Marie Christine Tang said their projections are less optimistic than the economic team’s 4-5% target for the year and 7-9% next year, on the assumption that the government will continue to declare periodic lockdowns over the rest of 2021.
“With the Delta variant circulating, the threshold for herd immunity a moving target, limited healthcare capacity, and dismally inadequate contact tracing, the more probable scenario for the near term is for an economy under some form of quarantine of varying stringency, unable to quickly close output gaps and return to pre-pandemic growth rates,” they said in an Aug. 28 report.
A faster vaccination rollout to prevent the collapse of the health system will support their projections, but failure to contain future waves could dim the economic outlook further.
Around 12.57% of the country’s total population has been vaccinated as of Aug. 29, according to Our World in Data. The government aims to inoculate its entire adult population this year.
Metro Manila and other parts of the country struggling with high infections were placed under enhanced community quarantine in August.
The authorities reported 14,216 new cases Wednesday, which brought the total number of active cases to 140,949. The Philippines recorded its highest one-day tally Monday with 22,366 new infections.
“Prospects for 2022 are better as more vaccines are administered and preferred western brands become more widely available assuming full regulatory approval locally,” GlobalSource Partners said.
Pent-up demand due to the prolonged crisis should also support a rebound next year, but GlobalSource said growth may not return to its pre-pandemic trend of 6.5-7% over the medium term due to economic scarring.
“The country’s potential growth had started to turn down even before COVID-19, reflecting the end of about seven years of historically higher capital accumulation and waning contribution from estimated total factor productivity (based on five-year averages),” it said.
“We expect that economic scarring resulting from the prolonged pandemic, associated with among others, losses/mismatches in labor skills, bankruptcies, rising inequality with narrower fiscal headroom to close gaps, will further lower potential growth by 1 to 1.5 ppt (percentage point),” it added.
GlobalSource Partners said reforms that will attract investment and technology transfer as well as increase competition can help bring the economy back to a higher growth track.
However, it said a return to normalcy, in which mobility and economic activity return to pre-crisis levels, will not happen until late 2022.
The situation calls for “active fiscal policy within the confines of narrower fiscal space, requiring (the government) to commit to a credible fiscal consolidation plan early on. Without these offsetting actions, the economic scarring caused by the lingering crisis will reduce medium-term growth prospects, possibly by at least 1 ppt vs. the 6-7% pre-pandemic growth rate over the previous decade,” it added.
After growing by 3.7% in the first half, the economy has to expand by at least 4.3% for the rest of the year to hit the low end of this year’s growth target. — Beatrice M. Laforga
NEW renewable energy (RE) investment between 2009 and 2020 amounted to P221.35 billion, the Department of Energy (DoE) said Wednesday, noting a growing interest in clean power since the enactment of the RE Law.
“Between 2009 to 2020, we saw the addition of about 2,339 MW (megawatts) of RE capacity installations which translate to estimated total investments of P221.35 billion,” Senior Undersecretary Jesus Cristino P. Posadas said in a virtual event Wednesday.
The DoE estimates total RE installed capacity of 7,617 MW as of the end of 2020, with 3,779 MW of the total consisting of hydro.
The Energy department targets a renewable share of 35% of the power mix by 2030, and 50% by 2040.
Mr. Posadas also noted that the DoE has declared a moratorium on greenfield coal-fired plants and eased foreign ownership restrictions on the development of geothermal and biomass projects.
“We allowed the full participation of foreign firms in large-scale geothermal projects which have (an) initial investment capitalization of about $50 million for financial and technical assistance agreements. Biomass projects including waste to energy are likewise open to 100% foreign ownership,” he said, referring to the department’s decision to do away with the 60-40% ownership rule in favor of Filipinos.
He said the RE Act of 2008 has led to substantial growth in interest in RE, steered by the department’s mandatory and voluntary market development support mechanisms in favor of renewables.
Some of these mechanisms include the renewable energy portfolio standards which require power providers to source a portion of clean energy from eligible RE facilities; the green energy option program which gives qualified end-users the choice to source power from RE through accredited entities; and the net metering program, which encourages power consumers to generate their own electricity through RE facilities with a capacity of up to 100 kilowatts. — Angelica Y. Yang
TWO MAJOR cloud-computing investors could enter the Philippines by the end of 2021, the Board of Investments (BoI) said.
BoI Managing Head Ceferino S. Rodolfo said investors from China and the United States have expressed interest in the Philippines. The potential investors are from the so-called hyperscaler segment of the industry — large global companies offering cloud and networking technologies at scale.
“I’m pretty sure within this year we could have at least one Chinese hyperscaler, at least one US hyperscaler,” Mr. Rodolfo said at a virtual event Wednesday.
“They’re really looking at the green energy market here as a main driver and also looking at the data privacy regulatory framework for the Philippines.”
The BoI is in talks with companies like Microsoft Azure, Amazon Web Services, Google Cloud, and Alibaba Cloud. Ongoing talks with companies that have shown interest in the Philippines range from “exploratory to advanced,” Mr. Rodolfo said.
“We are actually targeting hyperscalers in particular those who are very conscious in reducing their carbon footprint.”
Other companies like Oracle and IBM Cloud can co-locate with local data center providers like PLDT, Inc., Globe Telecom, Inc., Converge ICT Solutions, Inc., and DITO Telecommunity Corp., he added.
Mr. Rodolfo in a Viber message to reporters also noted that one company is looking to invest $800 million. He did not disclose further details.
Trade Secretary and BoI Chairman Ramon M. Lopez at the same event said the government is targeting hyperscalers in its global investment campaign.
“Hyperscalers act as enablers of various industries and are the backbone of digital-native industries such as financial technology and digital banking. Their increased presence will create a multiplier effect, especially with the potential increase in demand for renewable energy and data center developers,” he said.
“In addition, they create potential investment value in terms of generating foreign direct investments, improving internet connectivity, investment in IT infrastructure, manpower upskilling, and renewable energy.”
He said the Philippine cloud computing market is expected to grow to $3 billion by 2025, citing a report from GlobalData.
Business leaders in June said the Philippines is attracting expansive data center interest in anticipation of further e-commerce demand. PwC Philippines Vice-Chairman and Assurance Managing Partner Roderick Danao said companies in the Philippines are in the process of building mega-data centers as they anticipate a surge in demand for data driven by e-commerce activities.
PLDT, Inc. in May said that it plans to increase its international capacity by five times by the end of this year through the Jupiter submarine telecommunications cable system. The company said it aims to help make the Philippines a hub connecting Southeast Asia to the United States, indicating infrastructure as a top for draw for hyperscaler firms.
Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a majority stake in BusinessWorld through the Philippine Star Group, which it controls. — Jenina P. Ibañez
It’s undeniably a social media-driven era. People from all walks of life watch the content put out by influencers, who have become a tremendous source of tips, trendy products and services, news, and entertainment, replacing to an extent the sway traditional celebrities held over their fans. Videos that go viral are a surefire way of monetizing viewership.
With more subscribers hitting that notification bell icon on social media channels, the Bureau of Internal Revenue (BIR) recently released Revenue Memorandum Circular (RMC) No. 97-2021 to remind influencers of their tax obligations.
The RMC defined influencers as all taxpayers, individuals or corporations, receiving income in cash or in kind, in exchange for services performed as bloggers, video bloggers or “vloggers;” or any other activities performed on social media sites and platforms, such as YouTube, Facebook, Instagram, TikTok, etc. Influencer income sources may include YouTube Partner Programs, display advertising, sponsored posts, and other marketing and promotional activities.
The RMC is a reminder of a business’s tax obligations, with a stern warning for the non-compliant, who face the prospect of a “full-blown investigation.” The RMC did not mention the taxable years to be covered by the audit, but may be working within the framework of the statute of limitations (i.e., three years from when returns were filed, or 10 years in case of fraud). Moreover, the BIR intends to leverage cross-border sharing of data, pursuant to the Exchange of Information clause under various tax treaties, to properly determine the influencer’s tax liability and help curb tax evasion.
Under the Tax Code, resident citizens and domestic corporations are taxable on their worldwide income. However, non-resident citizens, foreign nationals, and foreign corporations are taxable only on their Philippine-sourced income.
Payments received by an influencer for services rendered, irrespective of the manner or form of payment, are considered business income. These include free products they receive in exchange for promoting them on the influencer’s accounts or channels, to be declared at fair market value.
However, the RMC did not specify what constitutes Philippine-based content that would form part of a foreigner’s taxable Philippine income. Thus, the burden of proving that the income is derived from foreign sources (and therefore, tax-exempt), falls on the influencer.
For tax purposes, influencers, other than corporations and partnerships, are classified as self-employed individuals, as sole proprietors earning business income. Following is a summary of their tax compliance obligations:
1. Register and secure a Tax Identification Number (TIN) from the Revenue District Office (RDO) having jurisdiction over the place of business or place of residence, or update his existing registration with the appropriate RDO. Not having a TIN/BIR registration does not exempt anyone from the payment of taxes. A minor who earns income is likewise covered by this requirement.
2. Keep and register books of account to record all transactions and results of operations.
3. File relevant tax returns and pay tax based on his registration. The annual income tax return (ITR) should be supported by audited financial statements if gross receipts exceed P3 million and not availing of the optional standard deduction (OSD).
4. Withhold and remit taxes (where applicable) on payments to suppliers and employees.
5. For Filipinos, exert all efforts to invoke treaty benefits on foreign-sourced income by obtaining a Tax Residency Certificate from the BIR for presentation to the source state. If treaty benefits are not availed of and the taxpayer is subjected to regular tax in the source state, he is not allowed to claim foreign tax credits in excess of the amount of tax that he would have paid in the source state had he invoked the treaty provisions.
TAXATION OF INDIVIDUAL INFLUENCERS
Influencers are subject to tax just like any other person engaging in any other business. If gross receipts exceed the value-added tax (VAT) threshold of P3 million, the graduated tax rates of 0% to 35% will apply and he will be subject to VAT. If earnings are P3 million or lower, the taxpayer has the option of choosing either:
• 8% rate based on gross receipts and other non-operating income which will be in lieu of any other income or percentage tax.
• Graduated tax rates of 0% to 35% and 1% percentage tax (effective July 1, 2020 to June 30, 2023, and 3% thereafter).
If the influencer chooses the graduated tax rates, he can deduct all the ordinary and necessary expenses incurred during the taxable year in computing his taxable income, subject to substantiation and compliance with the applicable withholding tax rules.
Based on the RMC, such expenses can include: filming expenses (cameras, smartphones, microphone and other filming equipment); computer equipment, subscription and software licensing fees; internet and communication expenses; home office expenses (proportionate rent and utility expenses); office supplies; business expenses (travel or transportation, payment for video editing, costume design, advertising and marketing costs); depreciation expense; and bank charges and shipping fees.
Alternatively, instead of claiming itemized deductions, the influencer may also elect the Optional Standard Deduction (OSD), or a standard deduction not exceeding 40% of gross sales/receipts of individual taxpayers. Under this deduction scheme, no substantiation is required. The influencer, however, must signify the election of OSD in the first quarter ITR.
CONSEQUENCES FOR NON-COMPLIANCE
Failure to voluntarily and truthfully file returns and pay taxes may result in the payment of deficiency tax plus surcharge (25% or 50% for fraud cases), interest (12% p.a.) and penalties. A breathtaking update one shouldn’t miss under the TRAIN law was the jacked-up penalties ranging from P500,000 to P10,000,000. Penal liability also applies if there is a finding of willful intent to evade taxes.
While I appreciate how influencers engage followers with their quirky ideas, I am just as pleased knowing that when I hit the subscribe button and click the bell icon, increased viewership translates into payment of taxes to allow the government to raise needed revenue.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.
Raymund M. Gutib is a senior manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.
