Finance Secretary Carlos Dominguez III has told Swiss investors now is the right time for them to set up shop in the Philippines when it has a President who has both the political will and capital to pursue bold reforms to sustain the growth momentum, improve the ease of doing business and transform the country into one of the world’s top investment destinations.
During a recent meeting with members of the Philippine-Swiss Business Council, Dominguez said the initial economic reforms that the government has carried out on the Duterte watch has now borne fruit, following the record collections reported by the Bureaus of Internal Revenue (BIR) and of Customs (BOC) two months into the implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) law this year.
He said “this is a good time to do tax reform because we have a leader with both the political will and the political capital to bring about meaningful change. President Rodrigo Duterte has thrown his full support behind the tax reform effort.”
“This is the best time to do reform. It allows us the leisure to carefully calibrate the reform measures for optimal economic impact. Free from any pressing economic distress, we have the opportunity to rally public support for this program. We are able to look far into the future and build towards the inclusive and dynamic economy our people deserve,” said Dominguez at the meeting.
Dominguez said both the BIR and BOC have exceeded their revenue collection targets in the first two months of the year since the TRAIN began implementation on January 1. The BOC raised its collections by 26.5 percent and the BIR by 10.8 percent for the first two months of 2018 as against the same period last year.
The finance chief said the government remains on track to push the economy’s growth rate to 7 percent or better this year, and attain its goal of investment-led growth and more inclusive development with the ultimate objective of reducing poverty incidence to 14 percent by the time President Duterte leaves office in 2022.
“We hope Swiss businesses could find a home here—a happy one. We are working very hard to improve the ease of doing business and reducing our (Foreign) Investment Negative List to the bare minimum. From being mocked as ‘The Sick Man of Asia,’ the Philippines is now seen as the region’s next economic powerhouse,” Dominguez said.
He said the Philippines’ “young and talented labor force, our large consumer market and our determined participation in building a Southeast Asian common market produce much headroom for sustainable growth.”
Dominguez issued the call as Swiss Ambassador to the Philippines Andrea Reichlin commended the Philippine government for implementing the TRAIN’s provisions, which she described as “potential game changers,” as well as for being voted recently as the world’s No. 1 “Best Country to Invest In” by global business decision makers.
“I think everybody has read the results of the (survey published by) Business Insider. We should give a round of applause for having the Philippines on the first, I think this is the first time in history,” Reichlin said at the start of the meeting.
The ambassador was referring to a recent survey conducted by the US News and World Report in coordination with the Wharton School of Business and Y&R’s BAV Group and published by Business Insider on its website. The survey, which ranked the Philippines as the world’s No. 1 “Best Country to Invest In,” was conducted among more than 6,000 business decision makers and used World Bank data to come up with the results.
According to Dominguez, he believes that among the reasons the Philippines landed on top of the list were the following: 1) a young and hardworking work force, 2) an excellent inclusive growth momentum, 3) expanding Middle Class, 4) politically stable environment, 5) strong and popular leadership, 6) fiscal discipline and a stable Monetary policy, 7) the country’s membership in the Association of Southeast Asian Nations (ASEAN), 8) an achievable infrastructure program, 9) strong anti-corruption drive, and 10) improved revenue collection.
On tax reform, Reichlin said “consecutive legislations now under preparation (and) the passage of TRAIN into law has already been commencing extensively. Among others, it has been highlighted that this is the first comprehensive tax program since 1997 and its key promises are seen as potential game-changers.”
Reichlin and the Swiss delegation likewise welcomed the Senate’s concurrence to the ratification of the free trade agreement (FTA) between the Philippines and the European Free Trade Association (EFTA) states comprising Iceland, the Principality of Liechtenstein, Norway, and Switzerland.
The agreement, ratified by President Duterte last Dec. 8, allows for a secure market access for Philippine agriculture exports beyond EFTA commitments in its existing FTAs. In return, the Philippines will provide the EFTA zero tariffs on almost all industrial and fishery products, with a transitional period for select tariff lines.
During the meeting, Dominguez reaffirmed the Duterte administration’s commitment to pursue its succeeding tax reform packages, including the proposal to reduce corporate income taxes complemented by the modernization of investment incentives.
“Before we embarked on the Comprehensive Tax Reform Program, our tax system was as perforated as, excuse the expression, Swiss cheese,” Dominguez said.
Dominguez noted, for instance, that before TRAIN, the personal income tax had not been adjusted for inflation for the last 20 years, making the rates oppressive. The country’s corporate income tax rate, meanwhile, is way above the regional benchmark, making it a disincentive to investments, while investment incentives were granted through dozens of separate pieces of legislation, he said.
“Tax reform is more than just increasing revenues for the government to fund its social programs. It is also about creating economic conditions that foster investments. It is about providing a level playing field for enterprises to compete. It is about building transparent governance and simplified procedures that enhance compliance. In a word, tax reform is the instrument to bring about a modern economy and governance,” Dominguez said.
Dominguez also corrected misconceptions that the TRAIN was the cause of the uptick in in the inflation rate in the first two months of 2018 as he explained that the reasons behind this slight rise was due to the spike in world oil prices, the peso depreciation and the improved collection of tobacco taxes.
“Core inflation, however, remains manageable. The effects of TRAIN is not yet there. This is one of the areas, where part of the inflation is due to better tax collection,” Dominguez said.