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Safety nets urged in case CITIRA results in ‘unintended consequences’

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Anflo ecozone and the Davao International Container Terminal
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THE government must have safety nets in place because the ultimate impact of its incentive rationalization program on employment is unknown, Ateneo School of Government Dean Ronald U. Mendoza said Tuesday at an investment forum organized by the Philippine Economic Zone Authority.

He said that the rationalization of incentives, embodied in a bill that, if passed, will be known as the Comprehensive Income Tax and Incentives Rationalization Act (CITIRA), must be accompanied by plans to deal with possible layoffs.

The Joint Foreign Chambers of Commerce has warned that the bill will result in the job losses, while the Department of Finance contends that the bill will ultimately create 1.5 million jobs.

“The clear challenge at present is to better understand the consequences of reform roll-out so that government and the private sector are better prepared for any potential unintended consequences and in order to offer adequate safety nets for the groups most affected by dramatic structural adjustments,” Mr. Mendoza said.

He said the government should take care in interpreting the mixed results of incentives in attracting foreign direct investment, noting that investment decisions are also driven by factors such as market size, labor productivity, and infrastructure.

“Investments in any one country or any one sector are typically made while taking into consideration the aggregate investor landscape — which includes incentives — as well as in other competitor countries which may also host the investment,” he said.




“Our competitiveness and Ease of Doing Business indicators have not dramatically improved in the past few years — all while our competitors have.”

Mr. Mendoza said the government should learn from the roll out of earlier reforms to anticipate unintended consequences.

The Tax Reform for Acceleration and Inclusion (TRAIN) law, which lowered personal income tax and increased consumption taxes, is being studied for its possible role in increased inflation last year. The Rice Tariffication Law that liberalized rice imports impacted farmers due to depressed palay prices.

“Economic reforms must be supported by strong safety nets and adjustment mechanisms to make their full positive impact much more robust and inclusive. Many agencies have to work more effectively together. Otherwise we may see unintended consequences all over again,” Mr. Mendoza said. — Jenina P. Ibañez

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