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NEDA presses for sustainability, environmental impact accounting

THE National Economic and Development Authority (NEDA) said it is pressing companies and households to adopt a sustainable approach to consumption and production, in part by better accounting for environmental and social costs of their actions.

In a news conference in Pasig City on Monday, NEDA Undersecretary Rosemarie G. Edillon launched their Philippine Action Plan for Sustainable Consumption and Production (SCP), which will act as a guide on the implementation of SCP for all sectors.

SCP minimizes the negative environmental impact of consumption and production while promoting quality of life without compromising resources for future generations, according to the United Nations Environment Programme.

Between 2020 and 2022, she said that NEDA hopes to institutionalize Natural Capital Accounting (NCA) which reckons environmental and the social costs of all economic activities amid similar reforms to methods of estimating will be measured akin to how the gross domestic product (GDP) is being evaluated.

“We have actually already submitted an NCA institutionalization road map, so this will be up for discussion… Of course there’s also the need to have more capacity building in terms of the statisticians who will do the measurement and the instruments that will be involved,” she added.

She said that the NCA measurement system will help the people and government “internalize environmental and the social costs of everything” that they do.

The SCP strategic framework aims to increase awareness among Filipinos and encourage them to shift to a more sustainable and “climate-smart” practices and lifestyles.

The SCP plan hopes to produce two outcomes with inputs from policy and regulation, technology innovation, on infrastructure and on promotion and education.

The plan’s first outcome focuses on the economic, social, and environmental impacts of production and consumption processes value while the second one considers an efficient and equitable resource use of firms, households, and individuals.

The first outcome requires the institutionalization of NCA and establishment of infrastructure to support it, as well as the development of an online public platform to calculate carbon and ecological footprints.

NEDA will propose for the second outcome a review of laws such as the Philippine Clean Air Act and Toxic Substances and Hazardous and Nuclear Wastes Control Act of 1990, as well as providing infrastructure supporting SCP such as elevated walkways, bike lanes, affordable e-vehicle technologies.

PHILIPPINES AT RISK
Ms. Edillon said that the country’s total population is expected to rise by an additional 8.3 million by 2022, and grow to 140 million by 2040.

She said that population density likewise grew to 337 people per square kilometer in 2015 from 255 in 2000.

“With such a dense population, you have congestion which is actually manifested in traffic congestion,” she said.

At the same time, the country is currently suffering from declining quality of air mainly due to emissions from transport and industry, especially in highly urbanized cities.

Water quality at major bodies of water remains poor while most “are deemed unfit for their intended uses,” she said.

Daily solid waste generation rose to 40,000 tons in 2016 or 0.4 kilogram per person per day.

Residential areas accounted for 57% of waste generated in 2013, followed by 12% for commercial areas and the remainder generated by institutional and industrial areas. — Beatrice M. Laforga

Senate to insist on higher excise rates for alcohol, e-cigarettes

THE Senate Ways and Means Committee said it will stand firm on the rates it seeks to impose on alcohol products and electronic cigarettes, which are higher than the proposed rates in the counterpart House legislation, its Chairman said.

Senator Pilar Juliana S. Cayetano said the tax measure has a chance of obtaining approval in the Senate within the year, with the interpellation period set to begin Tuesday.

“I am ready and I will make myself available every day in my effort to get this bill approved as soon as possible,” Ms. Cayetano said in a statement Tuesday.

“I understand that those from the industries and even some of our colleagues find the rates that we are proposing on a high end, but we stand by those rates.”

The Department of Finance (DoF) projects that the current Senate version will generate P47.9 billion in 2020 and a total of P356.9 billion over five years. This is much higher than the P16.3 billion expected revenue in 2020 from the House version, and P108.9 billion within five years.

Senate Bill No. 1074 proposes to increase the specific tax rate on distilled spirits to P90 per proof liter in 2020 from the current P23.40 and retain the ad valorem tax of 20% of the net retail price (NRP). The specific tax rate is set to increase by P10 until it reaches P120 in 2023.

Sparkling wines will be levied P600 per liter, while still wines and carbonated wines will be taxed at P43 per liter in 2020; with both increasing by 10% annually beginning 2021.

Tax imposed on wines currently vary by the net retail price of a bottle or volume of alcohol content. At present, sparkling wines costing P500 or less and those costing more than P500 are levied P316.33 and P885.72, respectively.

Rates on still wines and carbonated wines are currently at P37.96 for bottles with 14% alcohol or less; and P75.92 for those with over 14% alcohol.

The Senate version also proposed to tax fermented liquor with P45 per liter in 2020; P55 in 2021; P65 in 2022; and P75 in 2023; from there, it shall increase by 10% every year starting 2024.

The same rates will be imposed on alcopops, or “pre-mixed alcoholic beverages with alcohol content less than 10% alcohol by volume and which alcohol is from malt or wines or a distillation process.”

In comparison, House Bill No. 1026, approved on Aug. 20, proposed the following rates on distilled spirits: 22% ad valorem tax on NRP; and a specific tax rate of P35 in 2020, which shall increase by P5 every year until 2022; and by 7% annually starting 2023.

An ad valorem tax of 15% on NRP will be introduced on sparkling wines and a P650 specific tax rate with a 7% annual indexation.

Moreover, still wines and carbonated wines with 14% alcohol or less will be charged P40 per liter and P80 per liter for those with more than 14% alcohol; while rates on fermented liquors and alcopops will be increased to P32 per liter in 2020 from the current P25.42.

The same measure will also amend Republic Act No. 11346, which will raise excise tax on tobacco products to P60 per pack by 2023 from the current P35; and introduced a P10 per pack rate on heated tobacco products in 2020.

It also introduced the following rates on vapor products: P10 for 10 milliliter vapor products, P20 for 20 ml, P30 for 30 ml, P40 for 40 ml, P50 for 50 ml and so on.

Both versions proposed to increase the rates on heated tobacco products to P45 per pack beginning 2020, at par with regular tobacco products. This is to increase by P5 annually until 2023.

The Senate version further proposed to increase rates on vapor products to P45 per 10 milliliter in January, be they based with nicotine salts or classic nicotine. The rate is to increase by P5 per year until it reaches P60 in 2023.

The House, meanwhile, proposes to increase rates to P30 per ml in 2020 on vapor products with nicotine salt and only P4.50 per ml in 2020 for products using conventional nicotine.

The proposal forms part of the administration’s comprehensive tax reform program, alongside measures that seek to reduce corporate income tax and streamline redundant fiscal incentives; centralize real property valuation and assessment; and simplify the tax structure for financial investments.

Aside from RA 11346, the government has so far passed Republic Act No. 10963, which slashed personal income tax rates and increased or added levies on several goods and services; and RA 11213, the Tax Amnesty Act, which grants estate tax amnesty and amnesty on delinquent accounts left unpaid even after being given final assessment. — Charmaine A. Tadalan

Labor dep’t sees need for P500 million to support livelihood assistance for earthquake victims

THE Department of Labor and Employment (DoLE) said it will require P500 million to provide livelihood assistance to workers affected by the Mindanao earthquakes.

Labor Secretary Silvestre H. Bello III said in a statement Tuesday that he has just visited Davao City, one of the affected areas struck by the Magnitude 6.6 and 6.5 earthquakes in Mindanao. He added that the P200-million fund currently on tap for worker assistance might not be enough.

“We may need more than P500 million to cover all those needing assistance and emergency employment in the affected areas,” he said.

Last week, DoLE reported that it sent labor officials and inspectors to assess the damage to workplaces in the area.

The financial aid will go towards emergency employment for workers displaced by the earthquake. The aid will also support livelihood assistance for workers in the informal sector.

Mr. Bello said in the meantime, the P200 million will be used to cover all these needs. He has also called on the Overseas Workers Welfare Administration (OWWA) to create a calamity fund for families for OFW members who are affected by the earthquake.

“The OWWA board has decided to give P3,000 per family of OFW in the areas hit by the earthquake, so, for those who have OFW relatives, please tell them that they are entitled to financial assistance from OWWA,” Mr. Bello said. — Gillian M. Cortez

BIR app-design contest taking entries until mid-November

THE Bureau of Internal Revenue (BIR) said its contest to design an app simplifying the taxpaying process will continue to take submissions from the public until Nov. 15.

BIR officials acknowledged that the contest, billed as “Hackatax,” signifies that the current process is cumbersome with many “pain points” for taxpayers.

At a news conference Monday in Quezon City, BIR Deputy Commissioner Lanee Cui S. David said proposals will be evaluated on creativity and design, including the user interface and the user experience.

Also to be graded are the app’s business model, the performance of the prototype, and the final presentation, Ms. David added.

The BIR launched the program on Oct. 15.

Maraming problema (There are a lot of problems) with doing business, mahirap mag-register, mahirap mag-file ng tax (it’s difficult to register and file tax documents) especially if you’re an MSME (micro, small and medium enterprise). For people that can envision those solutions, whether you’re a student or a professional, you can participate,” according to Winston Damarillo, founder of DevCon Philippines, a non-profit promoting IT talent.

Mr. Damarillo said developers will be provided with dummy data for testing the final product.

Ms. David said that while the application will be developed by the winning contestant, the BIR will handle the back end operations to keep the data safe.

A shortlist of 10 entries will be announced on Nov. 22. They have until March to develop the final product.

At stake are unspecified cash prizes, enrollment into the BIR’s Tax Software Provider (TSP) certification system, and admission to start-up incubator programs.

Participants can also monetize their entries by directly marketing it to taxpayers. — Beatrice M. Laforga

ASEAN FDI inflows at record $155B in 2018; PHL fifth

THE Philippines was fifth among regional economies in attracting foreign direct investment (FDI) in 2018, with the region taking in a record $155 billion overall, equivalent to 11.5% of the global total, up from 9.6% in 2017.

The data were contained in the Association of Southeast Asian Nations (ASEAN) ASEAN Investment Report, which showed increased FDI inflows for a third year. The Philippines was fifth among the 10 ASEAN economies, taking in $9.8 billion.

Around half of FDI inflows in 2018 went to Singapore, with $77.6 billion. Indonesia, Vietnam, and Thailand rounded out the top four.

The Bangko Sentral ng Pilipinas has said that Philippine FDI inflows have been increasing since 2014, hitting $10.2 billion in 2017 from $5.7 billion three years before.

According to the ASEAN report, FDI to the Philippines was flat due to a significant decline in investment from Europe and the United States.

Investment from Europe, according to central bank data, fell to $347 million in 2018 from $1.8 billion in 2017. FDI inflows from the US fell to $160 million in 2018 from $473 million in 2017.

These declines, the report said, were offset by a rise in FDI from three economies, led by a 2.5 times increase from Hong Kong, a three-fold increase from Japan, and a seven-fold rise from China.

“FDI in finance, real estate and other services rose, which compensated the decline in investment in manufacturing (to $1 billion); FDI to the power industry dropped from more than $1 billion in 2017 to $193 million,” according to the report.

FDI from the United States to ASEAN, according to the report, fell to $8 billion in 2018 from $25 billion in 2017, “in line with the global fall in United States investment due to the 2017 tax reform.”

The Tax Cuts and Jobs Act in 2017 encouraged US companies to move regional headquarters back to the US.

The top sources of FDI in the region were intra-ASEAN investment ($25 billion), the European Union (rising 45% to $22 billion), and Japan (rising 30% to $21 billion).

FDI from China fell 26% to $10 billion.

The most intra-ASEAN FDI–flows were captured by Indonesia with $11.82 billion in 2018. The Philippines was sixth with $990 million.

The majority of intra-ASEAN investment went into the services sector (48%) followed by manufacturing (33%).

“Intra-ASEAN manufacturing investment rose from $7.3 billion in 2017 to $8 billion, suggesting an increasing industrial connectivity among ASEAN Member States through ASEAN MNEs (multinational enterprises),” according to the report.

By source country, Singapore made the most intra-ASEAN investments at $17.21 billion. The Philippines was fourth with $1.22 billion.

SERVICES
The services sector is the largest recipient of FDI in ASEAN, a bulk of which came from the European Union ($16.8 billion) and the United States ($14.8 billion) from 2014 to 2018.

In the four years to 2018, a significant bulk of services FDI flows went to Singapore at $314.7 billion out of the $442.5 billion ASEAN total.

The Philippines came in eight out of the ten countries with $7.7 billion. Most of the services investments in the Philippines went to financial and insurance activities ($3 billion), followed by electricity, gas, steam, and air conditioning supply ($1.4 billion).

“Foreign banks were expanding in the country, including through mergers and acquisitions. Capital One Financial Corporation (United States) opened a business process outsourcing (BPO) subsidiary in the Philippines in 2016,” the report said.

FDI in services, the report said, may be driven by efficiency-seeking considerations such a labor, overhead, and administration costs.

“Because of the availability of language skills and low-cost skilled labour for IT-BPO operations, the Philippines has attracted many such MNEs. Australian IT-BPO companies have invested in the country to supply BPO services, including call center operations,” the report said.

The 2019 report focused on FDI flows in health care services, with the sector accounting for a small but rising percentage of total FDI.

Low-cost production had attracted pharmaceutical companies to the region to produce medicines, and investors have been tapping into rapidly growing health care industries, including hospitals.

The report said that the private sector can contribute to health care services further to cater to the growing ASEAN population. — Jenina P. Ibañez

POEA warns against overseas recruitment scams on social media

THE Philippine Overseas Employment Administration (POEA) issued a warning Monday against fraudulent online organizations claiming to be the agency and offering non-existent jobs.

In a statement on Tuesday, POEA cited the “proliferation of fake Facebook pages that falsely use the name and logo of the POEA to advertise job vacancies in countries like Australia, Canada, Germany, Japan, New Zealand, and the United States.”

POEA said the only valid Facebook page of the agency is facebook.com/poea.gov.ph. Job seekers can verify job openings through POEA’s social media page or the agency’s website.

POEA added that a Facebook page named “POEA Job Hirings in New Zealand” recently offered openings for Filipinos at automaker Honda Motor Co. Ltd., in New Zealand, which it dismissed as a scam.

“The company has since denied any active recruitment activity in the Philippines or any country outside New Zealand,” POEA said, adding that POEA Job Hirings in New Zealand is also a fake POEA page.

Other fake Facebook pages are POEA Jobs Online, OFW POEA Jobs Abroad, POEA Jobs Abroad, POEA Job Hiring USA, POEA Job Hiring Australia, POEA Job Hiring UK, POEA Job Agency Hiring, POEA Trabaho Abroad Hiring, POEA Jobs in Dubai, Work Abroad-POEA Licensed Company, and POEA Accredited Licensed Agency. — Gillian M. Cortez

Trade tensions, protectionism slow growth in maritime trade — UNCTAD

MARITIME trade growth has slowed due to trade tensions and protectionism, with the Philippines expected to benefit in a minor way from substitution, the United Nations Conference on Trade and Development (UNCTAD) said.

According to the 2019 Review of Maritime Transport, international maritime trade lost momentum last year, with volumes expanding 2.7% in 2018 from 4.1% the previous year.

“It undermined global port cargo-handling activities, and growth in containerized global port throughput decelerated to 4.7%, down from 6.7% in 2017,” according to the report.

Trade tensions and protectionism topped the list of downside risks that contributed to the slowdown. These were followed by Brexit, the economic transition in China, geopolitical turmoil, and supply-side disruptions such as those occurring in the oil sector.

Grain, containerized trade, and steel products were affected by the US-China trade war the most, according to the report, with the tensions reducing or diverting trade flows.

“Supply chain disruptions have also been observed and could deepen if trade tensions and tariffs are prolonged,” the report said.

With maritime imports to China accounting for about a quarter of the global total, UNCTAD said that the outlook for maritime trade depends on developments in the Chinese economy.

“A tapering in the country’s dry bulk import demand reflects [China’s] recent reform agenda, promoting a shift from investment-led growth and manufacturing towards consumer spending and services.”

The decline of iron ore and coal imports by China has had a negative effect on dry bulk, the mainstay of global trade for around two decades.

According to preliminary data from the Philippine Statistics Authority, Philippine iron and steel exports in August declined 34% from a year earlier, while the eight-month export value fell 13.5% from a year earlier.

Because of the tariff uncertainty between the US and China, UNCTAD said that other countries are expected to benefit.

The Philippines, along with Vietnam, India, and Pakistan, is expected to benefit, but to a smaller extent than Canada, Japan, and Mexico, which altogether are expected to capture over $20 billion in trade.

The UNCTAD study estimates that 82% of the $250 billion in Chinese exports subject to US tariffs can be captured by other countries, along with 85% of $85 billion in US exports subject to Chinese tariffs.

With trade tensions and uncertainties in maritime transport, UNCTAD expects international maritime trade to expand at an average annual growth rate of 3.5% over 2019-2024.

UNCTAD said that this growth will be driven by growth in containerized, dry bulk and gas cargoes.

China, Japan, and South Korea in 2018 still dominated the global shipbuilding market in 2018, with more than 90% of the 58,045 total global ship deliveries.

The Philippines offered 3.4%, or 1,988 vessels. A bulk of these vessels are container ships, with 992 vessels.

The Philippines delivered 654 bulk carriers, 288 oil tankers, 52 gas carriers, and 2 ferries/passenger ships.

There has been a steep decline in dry bulk carrier and oil tanker delivery since 2016, while container ships and gas carrier deliveries have been climbing. — Jenina P. Ibañez

Peso extends climb as inflation eases

THE PESO rose as inflation slowed further in October.

THE PESO rallied further on Tuesday as inflation eased to a three-year low in October.

The local unit finished trading at P50.41 against the greenback on Monday, stronger by nine centavos from its P50.50 per dollar close on Monday.

The peso started trading at P50.55 versus the dollar. Its weakest point for the day was at P50.63, while its best showing against the greenback was at P50.40.

Dollars traded on Tuesday rose to $1.188 billion from $869.5 million seen on Monday.

“Strength may have come from the three-year low inflation print for October. This is aside from the favorable prospects from the progress of the US-China trade negotiations,” UnionBank of the Philippines, Inc. chief economist Ruben Carlo O. Asuncion said in a text message.

Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael L. Ricafort added that the peso’s strength came after signals of a pause in further monetary easing from the central bank.

“The peso closed stronger…after the latest inflation data eased to a 3.5-year low of 0.8% and a day after the BSP Governor [Benjamin E.] Diokno signalled no more cuts in local policy rates and in banks’ RRR (reserve requirement ratio) for the rest of 2019 even after the [latest] US Federal Reserve rate cut, thereby improving the peso’s interest rate differential and allure versus the US dollar,” Mr. Ricafort said in a text message.

Inflation eased to 0.8% in October from the 0.9% in September on the back of a drop in prices of food commodities, oil, transportation and utilities, according to the Philippine Statistics Authority.

Last month’s print is near the lower end of the Bangko Sentral ng Pilipinas’ forecast inflation range for the month which was from 0.5% to 1.3% and also matched the median estimate of 0.8% in BusinessWorld’s poll of 14 economists.

Meanwhile, China has been calling on US President Donald J. Trump to remove more tariffs imposed in September as part of the “phase one” of the trade deal between the two biggest economies in the world, people familiar with the negotiations told Reuters on Monday.

For today, UnionBank’s Mr. Asuncion said the peso will likely play around the P50.20-50.50 band versus the dollar, while RCBC’s Mr. Ricafort expects the local unit to trade within P52.20-52.50. — Luz Wendy T. Noble with Reuters

October inflation good news fuels bourse’s climb

THE MAIN INDEX on Tuesday logged its best finish in more than three months on optimism fueled by an official report showing easing October inflation that met market expectations and more good news on the Sino-US trade front.

The Philippine Stock Exchange index (PSEi) gained 157.03 points or 1.94% to close at 8,216.68 on Tuesday, its best performance since Jul. 25, when it closed at 8,272.18. The all-shares index similarly increased by 55.67 points or 1.15% to end at 4,887.37.

“Philippine shares climbed astronomically, amid continued optimism about a near-term US-China trade resolution and PH inflation hitting below one percent once again for October,” Regina Capital Development Corp. Head of Sales Luis A. Limlingan said in a mobile phone message.

The government on Tuesday morning reported that October headline inflation clocked in at 0.8% — the median of estimates by analysts polled by BusinessWorld late last week — marking the fifth straight month of slowdown and the slowest clip in nearly three-and-a-half years or since April 2016’s 0.7%.

Reuters reported US and China are looking at reducing more tariffs as part of the first phase of a trade deal that is expected to be signed later this month. This is expected to remove US tariffs on about $156 billion worth of Chinese imports. Moreover, Commerce Secretary Wilbur Ross said on Sunday that licenses for US firms to sell components to blacklisted Huawei Technologies Co. Ltd. would come “very shortly.”

That news fueled Wall Street’s climb, driving the Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite up 0.42%, 0.37% and 0.56%, respectively on Monday.

Major Asian markets also cheered the trade development, with Japan’s Nikkei 225 and Topix indices rising 1.76% and 1.66%, respectively; the Shanghai SE Composite index climbing 0.54%, Hong Kong’s Hang Seng gaining 0.49%, South Korea’s KOSPI increasing 0.58% and Australia’s S&P/ASX 200 going up 0.15%.

Tuesday saw only mining and oil among the six Philippine sectoral indices decline — by 166.26 points or 1.78% to 9,162.34.

The rest gained: holding firms by 251.33 points or 3.19% to 8,112.59, property by 53.61 points or 1.27% to 4,274.18, industrials by 24.93 points or 0.23% to 10,623.70, financials by 21.39 points or 1.1% to 1,964.51 and services by 16.83 points or 1.09% to 1,555.

For Philstocks Financial, Inc. Senior Research Analyst Japhet Louis O. Tantiangco, corporate earnings reports helped lift market sentiment, citing results of the likes of SM Prime Holdings, Inc.

Tuesday closed with 651.15 million shares worth P9.55 billion changing hands, compared to Monday’s 1.15 billion shares worth P6.58 billion. Stocks that declined edged out those that gained, 95 to 94, as 54 others ended flat.

Mr. Tantiangco said via text that if third-quarter gross domestic product data due Nov. 7 “would meet or exceed investors’ expectations, then the market could sustain its current position.” — Denise A. Valdez

Changing times for PEZA Locators

Taxes are integral to any economic policy. Investments flow in and out of the economy based on fiscal incentives as much as human capital. For Philippine Economic Zone Authority (PEZA) locators, investors were enticed to invest in the Philippines with tax incentives, such as the Income Tax Holiday (ITH) or 5% Gross Income Taxation (GIT), VAT zero-rated purchases, and duty-free importations. However, with major tax reforms introduced and proposed by the government, PEZA locators are facing a new business paradigm, requiring proactiveness.

With Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion (TRAIN), purchases by PEZA locators (i.e., those registered and operating within the PEZA zones, which are considered as separate customs territories) were expressly recognized as VAT zero-rated. TRAIN provided “(s)ale and delivery of goods to… (r)egistered enterprises within a separate customs territory as provided under special laws…” and “(s)ervices rendered to… (r)egistered enterprises within a separate customs territory as provided under special law” shall be VAT zero-rated. However, these provisions were vetoed by the President because they “go against the principle of limiting the VAT zero-rating to direct exporters (and that) (t)he proliferation of separate customs territories, which include buildings, creates significant leakages in our tax system.”

This change in the VAT treatment of purchases by PEZA locators, from 0% to 12%, created noise among PEZA-locators. To appease the investors, PEZA immediately issued Memorandum Circular No. 2018-003, providing that “the [Department of Finance] informed [PEZA] that the TRAIN law does not affect the current zero-rating of sales of goods and services to PEZA locators. Accordingly, Section 8 [of the PEZA Law], which provides that special economic zones are to be operated and managed as separate customs territory, has not been amended or repealed by the TRAIN Law.” Thus, purchase by PEZA locators remain at 0% VAT.

The status quo, however, may just be a respite. Under TRAIN, ultimately, only direct exporters shall be entitled to VAT zero-rated sales. This means that suppliers of direct exporters, being merely indirect exporters themselves, shall not be entitled to VAT zero-rated sales. Viewed from a different angle, sales to exporters, such as PEZA locators, or the purchases by these PEZA-locators shall no longer be VAT zero-rated, but subject to 12% VAT. This shall be the case upon the successful establishment and implementation of an enhanced VAT refund system. The effecting criterion requires all VAT refunds to be acted upon by the Bureau of Internal Revenue (BIR) within 90 days from application. This determination will be made by the Department of Finance (DoF), based on the success of the refund system by Dec. 31.

As such, by 2020, if the DoF determines the refund system to be successful, purchases by PEZA locators may be subject to 12% VAT. When it happens, PEZA locators have two options — they may either treat the 12% VAT as part of their cost, or claim a refund. The 12% input VAT passed on to the PEZA locators is qualified for refund, provided these are in relation to the PEZA locator’s exports (of either goods and services), which are paid for in foreign currency.

Another major shift for PEZA locators will be as introduced by the Corporate Income Tax and Incentives Rationalization Act (CITIRA), when passed into law. The CITIRA was submitted by the House of Representatives to the Senate on Sept. 16, and is currently pending review and deliberation. The certainty of CITIRA passing into law may have been sealed with the support by the PEZA Office itself, previously a staunch critic of CITIRA.

FREEPIK/POCKETVECTOR

Under CITIRA, PEZA locators will lose their ITH and 5% GIT status over the course of five years; exemption from the 15% Branch Profits Remittance Tax; exemption from local business tax; and exemption from 10% Improperly Accumulated Earnings Tax. After full implementation of TRAIN and CITIRA, PEZA locators will be no different from other regular corporations (except with respect to its qualified duty-free importations, which is not expressly touched upon by TRAIN and CITIRA).

Hence, the question, is there still any economic benefit to being a PEZA locator? And more importantly, how should a PEZA locator prepare for these changes?

It seems there are no more significant tax benefits to being a PEZA locator (except, as noted before, with respect to its qualified duty-free importations). While the answer is negative to the first question, the answer to the second is hopeful, with some pro-activeness.

With respect to the 12% VAT on its purchases upon full implementation of TRAIN, a PEZA locator should already prepare its processes for VAT refund applications. It should make sure its suppliers provide all the necessary information (including proper name of the PEZA locator, its TIN, the VAT breakdown, etc.) in the VAT invoices and official receipts. For its export sales to be zero-rated, the PEZA locator should also make sure that its own VAT invoices and official receipts are marked as VAT zero-rated, the sale is in foreign currency, and that there is proof of remittance. If the PEZA locator is able to establish its process, then the 12% VAT passed on to it by its suppliers will not materially affect the bottomline.

With respect to the removal of the incentives under CITIRA, PEZA locators may opt to cancel their PEZA registration and apply for registration under the Strategic Investment Priority Plan (SIPP) with the Fiscal Incentives Review Board (FIRB). The SIPP shall be as formulated by the Board of Investments. Under the CITIRA, SIPP-qualified entities shall be entitled to ITH for two to six years, depending on location; reduced corporate income tax rate after its ITH, and in lieu of local business tax; duty-free importation on capital equipment and raw materials directly and exclusively used for its registered activity; if at least 90% of sales are export sales, its purchases shall be VAT zero-rated (i.e., the SIPP entity does not have to file for a VAT refund); and enhanced deduction for capital assets and labor. As such, PEZA locators qualified for SIPP have a lot of fiscal incentives still going for them, as long as they are aligned with the government’s investment policy.

While the business outlook for PEZA locators may seem tough, truly tough businesses know how to make good of the bad. As when the paradigm is shifting, only the truly enterprising can ride and prosper. Nothing is perpetually stable in business. It should be business as usual, but with heaps of foresight.

The views and opinions expressed in this article are those of the author. This article is for general informational and educational purposes, and not offered as, and does not constitute, legal advice or legal opinion.

 

Karen Andrea D. Torres is a Senior Associate of the Tax Department of the Angara Abello Concepcion Regala & Cruz Law Offices (ACCRALAW).

kdtorres@accralaw.com

(632) 8830-8000

The Philippines’ complicity in creating China’s vision of a regional order

Prior to his 5th working visit to Beijing, President Rodrigo Duterte announced that he would push for the immediate adoption of the Code of Conduct (CoC) for the Parties in the South China Sea dispute. He promised that he would press for the early drafting of the agreement to reduce tension and minimize the risk of incidents and miscalculation in the face of concerns about the delay in its drafting, apparently because of China’s delaying tactics.

President Duterte explained that he wanted the CoC because he does not want “trouble” for the Philippines. His sense of urgency for the early conclusion of a CoC came in the aftermath of two incidents in the West Philippine Sea: a Chinese vessel’s ramming of a Filipino fishing boat in the Reed Bank, and the Armed Forces of the Philippines’ (AFP) sounding the alarm over the growing Chinese naval presence near the Tawi-Tawi Islands.

PUSHING FOR THE ASEAN-CHINA COC
The idea of an ASEAN-China CoC originated on Sept. 2, 2002 after the two parties signed the “Declaration on a Code of Conduct (DOC) for the South China Sea.” The DOC was a primarily a political statement of broad principles of behavior aimed to stabilize the situation in the South China Sea and prevent an accidental outbreak of conflict in the disputed areas. ASEAN’s original goal was to transform the DOC into a legally binding agreement and not just a broad statement of principles.

More than 15 years after China and the ASEAN signed the DOC, the two parties had not even started negotiations for the CoC for the simple reason that China declared that the time was not yet ripe to do so. On May 18, 2017, however, China and the 10 member states of ASEAN suddenly announced that they finally agreed on a framework for a code of conduct on the South China Sea. Foreign Minister Wang Yi said that he would like to wrap up the deliberations on a CoC, indicating that China was positive toward the conclusion of such agreement. On Aug. 6, 2017, the ASEAN and Chinese foreign ministers endorsed the framework of the CoC negotiation. The agreement on a framework is a small step forward in putting in place a conflict-management mechanism to prevent any escalation of the South China Sea dispute.

The agreed framework, however, is short on details and contains many of the principles and provisions already mentioned in the 2002 DOC. The ASEAN insists that the CoC must be legally binding. However, Beijing wants adherence to the agreement to be voluntary, like the 2002 DOC. Furthermore, although the framework includes new reference to the prevention and management of incidents, the phrase “legally binding” is absent from the text along with its geographical scope and enforcement and arbitration mechanisms.

The framework agreement aims to exclude the US and Japan as external actors “who interfere” in the dispute, and marginalize the ASEAN’s role in the South China Sea dispute as it emphasizes Southeast Asian claimant states only versus China. It is framing the CoC negotiation as an issue between China and the claimant states only. It is expected that the negotiation for a CoC will be a long and protracted process, and most possibly a frustrating one since the ASEAN and China are still in a quandary on whether the agreement will be legally binding or not.

THE PHILIPPINES’ COMPLICITY
As the country coordinator of the ASEAN-China Dialogue, President Duterte declared that the Philippines is committed in advancing an early adoption of the CoC in the South China Sea with relevant parties. During his meeting with President Xi Jinping, he reasoned out that the “absence of the CoC that is to be observed by affected countries has caused numerous conflicts in the subject waters that could have been prevented by a document that will regulate their actions.” Xi welcomed the Philippine president’s efforts to hasten the conclusion of negotiations for a CoC as he described the agreement as a creative way to set rules for the resolution of the South China Sea dispute. The Chinese leader emphasized however that the joint efforts for the early conclusion of the CoC should “exclude external disturbances in order to focus on cooperation and developments to safeguard regional peace and stability.”

As Premier Li Keqiang said on Nov. 13, 2018 in Singapore, his country hoped to complete the CoC negotiations within three years. There are indications, however, that the CoC that will be concluded in 2022 will be different from what the ASEAN envisioned in 2002.

In 2002, the ASEAN’s goal was to negotiate a legally binding CoC that would enable the regional association to pursue a soft-balancing policy on China’s growing naval ambition in the South China Sea. The 2022 CoC will most likely contain provisions that would allow China to assume a leadership role vis-à-vis the ASEAN in managing but not resolving the dispute. It will also ensure that external stakeholders, such as the US and Japan, will be prevented from getting actively involved in the dispute. This will eventually allow Beijing to establish a Sino-centric regional order in Southeast Asia. In effect, the Philippines under the Duterte Administration is playing a significant role in ensuring that China will realize its vision of a Southeast Asian order under its suzerainty.

 

Dr. Renato de Castro is a Trustee and Convenor of the National Security and East Asian Affairs Program, Stratbase ADR Institute.

On being a Filipino in Mexico

For sure it will take more than a day’s visit to truly understand the culture, the nature, and the essence of a nation, but there is something about Mexico and Mexicans that can make a Pinoy feel “at home” upon setting foot on the United States’ southern neighbor.

My first visit to Mexico was back in 1981 when I was asked by the Malacañang press office to join a group of media, advertising, and public relations professionals who made up then President Ferdinand Marcos’ official contingent for the North-South Summit in Cancun.

Except for the dominance of beans in the meals and the total closing down of businesses for mid-day siesta, I sensed something very familiar about the environment in Mexico that was almost deja vu. Even the proliferation of good-looking femininity was so reminiscent of Metro Manila

Ang daming tisay!” (So many mestizas), my advertising colleague, Emil Misa, gushed as we watched the girls go by at a Mexico City street corner. Emil, along with fellow ad men Greg Garcia III, Louie Morales, Tom Banguis, and myself, were jestingly called the Cancun Boys because of that trip.

In fact, to make ourselves “useful” at the Cancun Summit, another ad executive, Tony Zorilla, and our group decided to put out a supplement in the leading Mexican English-language and Spanish-language dailies, highlighting the remarkably tight bond that make Mexico and the Philippines virtual utol or kaputol (a Tagalog idiom referring to siblings cut from the same umbilical cord).

I wrote almost all of the articles for the supplement around the theme of shared Spanish colonial history, religion, culture, and even language, going back to the Manila-Acapulco galleon trade.

But it was in the early 1990s, on a subsequent visit to Tijuana, the northernmost Mexican city bordering the US (in San Diego), that the similarity between the Philippines and Mexico really struck me. The streets of Tijuana looked so much like Cubao or any Manila commercial area — store fronts, dusty streets, traffic and all — even the people.

This week, I have just made a quick trip to Cabo San Lucas and Puerto Vallarta, a favorite playground of the rich and famous, and I have become even more convinced that a Manileño would have no difficulty integrating into Mexico’s mainstream.

While the general impression is that the Latin American countries, chief of them Mexico, were so dominated by the Spanish conquistadores that nearly everyone looks Hispanic, the fact is that the indigenous Indio populace have managed to maintain their presence and brown continues to be a dominant race in these countries.

The fact that Columbus Day, a US holiday, is observed in Mexico and other Latin American countries as Dia de la Raza (The Day of the Race), not with joy and fondness but with bitterness and horror, is a testament to the massive and forcible Hispanization of the Indios, often through rape.

This, observes one historian, is where the Spanish colonization of the Philippines and the Latin American countries has differed. The Spanish conquistadores in Latin America committed genocide, decimating the indigenous population and siring thousands of half-breeds who became the dominant mestizo class.

This was not the case in the Philippines, although the Spanish friars did help themselves to Filipina womanhood, thus leaving Hispanic seeds throughout the islands, particularly in the major cities in the Visayas, Mindanao, and Luzon.

Dr. Jose Rizal underscored this in Noli Me Tangere with the tragic character of Maria Clara, sired by Padre Damaso. But even Rizal’s hero, Crisostomo Ibarra, belonged to the elite mestizo class himself.

While the US, mainly through the Thomasites, succeeded in obliterating much of the vestiges of Spain and displacing them with Americanish, the Hispanic physiognomy is still apparent among many Filipinos.

And because the Malayan race is very similar to that of the Indios in Latin America, the non-mestizo Pinoy could be mistaken for a native Mexican, and those of who have some Spanish in their blood, even with dominant Malayan features, could pass for a typical brown-skinned Mexicano.

Needless to say, the mestizos and mestizas who populate the Philippines’ entertainment industry could well be mainstays of Univision, the leading Hispanic TV network in the US.

Between 1565 and 1815, Spanish galleons braved the Pacific Ocean manned by crew members forcibly taken from the local population. According to one article, entitled, “For the Love of Mexico,” an estimated 100,000 Asians from Malaysia and the Philippines were brought to Mexico as slaves on the galleons. One can safely assume that at least half of them were natives of Las Islas Filipinas since most of the galleons set off from the Visayas, mainly Cebu.

To this day there are communities in Mexico where many families trace their roots to the Philippines. These are obviously the descendants of the natives of Las Islas Filipinas who sailed to the New World on the galleons.

Many of these Filipino crewmen managed to settle down in Mexico, particularly in Acapulco, While a number jumped ship and escaped to the marshes of Louisiana (journalist Lafcadio Hearn wrote about them, calling them Manila Men), there were those who settled in Mexico, married Mexican women and raised families.

One of them was Antonio Miranda Rodriguez who became one of the pobladores sent to found El Pueblo de Nuestra Senora de los Angeles de Porciuncula, which we now know as LA. But Rodriguez could not make it to the founding of LA at Olvera Park because he had to attend to his dying daughter in Baja California. He subsequently became an armorer at the Presidio of Santa Barbara, where he died of an illness.

Some of the galleon crewmen established themselves in Mexican society with remarkable success. The book, Race Mixture in the History of Latin America by Magnus Morner, in the archives of Mexico City, contains an entry about the marriage of one of the more prominent Filipinos to a member of Mexican high society: “Don Bernardo Marcos de Castro, Indian cacique and native of the City and Archdiocese of Manila in the Philippine Islands, and now resident at this Court… and Doña Maria Gertrudis de Rojas, Spanish and native of this City, legitimate daughter of Don Jose and Doña Rosa Clara Montes…”

The footnote to this entry is equally revealing: “Archivo del Sagrario Metropolitano, Mexico City: Libro de matrimonios de españoles, vol. 41 (1810-1811); Libro de Amonestaciones de los de color quebrado, 1756-1757, 13 v.”

Also in the archives is an account about a certain General Isidoro Montesdeoca who was reported to be of Filipino descent. Montesdeoca was a Lieutenant Governor of Guerrero, the state named after Vicente Guerrero who became president of Mexico following the war of independence from Spain.

While the bond between Filipinos and Mexicans deserves to be celebrated, there is a shadow hovering over this relationship in the era of President Donald Trump. Trump has unfairly demonized Mexicans (he does not bother to distinguish between Mexicans and other Latin Americans), calling them rapists, criminals, and terrorists.

I hope my fellow Pinoys do not use this demonization as a reason to distance themselves from our Mexican and Latin American brethren. The Trump era is just a fleeting phenomenon and will soon be but a bad memory, while our ties with Mexico, which have lasted hundreds of years, will last centuries more.

 

Greg B. Macabenta is an advertising and communications man shuttling between San Francisco and Manila and providing unique insights on issues from both perspectives.

gregmacabenta@hotmail.com