The Philippines Cuts Corporate Tax to Aid Pandemic-Hit Businesses

IMAGE Malacañang

President Rodrigo Duterte on Friday signed a law lowering the taxes paid by companies to attract investments and help businesses recover from the pandemic, according to its principal author.

Corporate income tax rate is cut from 30 percent to 25 percent for most businesses, and 20 percent for smaller enterprises under the CREATE law, Albay Rep. Joey Salceda said.

The law will bring the Philippines closer to the average rate in Southeast Asia at around 22 percent, the Department of Finance has said.

It is the second of four planned tax reform packages with a little over a year left in Duterte's term, which will end in June 2022. The first package called TRAIN lowered personal income tax rates giving workers higher take-home pay.

Economy in peril

The Philippines’ economic recovery from the pandemic will lag its regional peers, according to the World Bank, as it struggles to move beyond strict lockdowns and stimulus that have been inefficient and inadequate.

The Southeast Asian nation’s “highly decentralized” health system, and lockdowns that were “super draconian” but “porous,” made for a disastrous combination, Aaditya Mattoo, the World Bank’s chief economist for the East Asia and Pacific region, said in an interview ahead of a regional report released Friday.

“You incurred the economic distress without getting the containment benefit,” Mattoo said. That contrasts with countries like China and Vietnam, which moved swiftly to “smarter containment” measures involving testing and tracing.

Mattoo’s team judged an economy’s recovery path on three factors: management of the virus, trade exposure to the rest of the world and the government’s capacity to provide support. The Philippines underperformed on all three, they determined.

  • COVID cases remain high despite the severe lockdowns and, at 0.2 doses per 100 people as of March 17, the Philippines is in the lower half of 15 regional countries in its vaccination drive, World Bank data show
  • Others in the region, including Thailand and Malaysia, could take advantage of surging electronics demand and a global upswing in trade, while the Philippines remained over-reliant on tourism and remittances, which have contracted as overseas workers came home. Supply problems also were exacerbated by Typhoon Goni last year
  • The Philippines’ stimulus was not well targeted, with households that didn’t lose income just as likely to receive aid as those that did. Household earnings dropped by almost 8 percent of gross domestic income, also on the higher end for the region’s economies, the World Bank data show. The Philippines is “relatively conservative in its fiscal position and they’re not a country which is under any severe domestic debt,” Mattoo said.

The Philippine economy will probably expand 5.5 percent this year and 6.3 percent in 2022, staying below its pre-pandemic levels through most of next year, according to the World Bank’s report Friday. That’s after its 9.5 percent contraction last year, the region’s worst aside from smaller Pacific Island countries.

“In the Philippines, growth is expected to recover in the medium term, contingent on an improved external environment, a successful vaccination program, and the loosening of movement restrictions,” according to the report.

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