This headline earlier this week must certainly have caused many people a great deal of anxiety: “Citira to cut 700,000 PH jobs.”
The headline was in quotation marks in its original form, because it was not a statement of fact on our part, but rather the assertion of the Joint Foreign Chambers of the Philippines (JFC) as their latest counter to the Corporate Income Tax and Incentives Rationalization Act (Citira) being debated in the Senate.
The measure, which passed the House of Representatives as House Bill 4157, is the second package of the government’s Comprehensive Tax Reform Program (CTRP), and is considered one of the two most important legislative priorities — the other being timely passage of the 2020 national budget — for this year by the Department of Finance (DoF). Whereas the first package of the CTRP addressed personal income taxes and excise taxes, this installment deals with corporate taxes and has two main parts: a gradual reduction of the corporate income tax rate from its current 30 percent to 20 percent, and “rationalization” of the large and complicated menu of fiscal incentives — various forms of tax breaks — offered to business investors.
That rationalization will involve streamlining the process for granting and administering fiscal incentives and significantly altering the number and terms of incentives that are permitted. Many incentives will be eliminated, and some will have their periods of effectivity reduced. A few incentives, according to the DoF, will actually be increased but subjected to stricter conditions.
The potential loss of tax breaks is of course what the JFC and other business groups have been bitterly opposing ever since the corporate tax reform proposal was first introduced in Congress. The first version of the measure, known as the Tax Reform for Attracting Better and High-quality Opportunities (Trabaho) Bill, stalled in the last Congress, in part because of the strenuous resistance of business lobbyists who have steadfastly maintained that massive losses in jobs and investment will be the result.
It is natural for businesses, which enjoy tax advantages, to disagree with proposals that would remove them. However, the JFC and other business organizations that have spoken out against fiscal incentive rationalization have consistently mischaracterized the impact of tax breaks on investment decisions. That is because their argument does not seem to be backed by actual evidence; on the contrary, most studies indicated that tax breaks are not as important to investment decisions as they would like us to believe.
The Organization for Economic Cooperation and Development (OECD), for example, devotes an entire chapter to the issue in its Policy Framework for Investment Users’ Tool Kit, which was published in 2013. In it, the OECD notes that, “Investors are generally willing to accept a higher host country tax burden if the country offers attractive business-enabling and market conditions, a stable framework and, above all, host country location-specific profit opportunities.” The JFC and other business interests may indeed have valid complaints about the investment environment in the Philippines, but the potential reduction of tax breaks is not one of them.
Similarly, the JFC’s contention that about 121,000 direct jobs and 582,000 indirect jobs will be lost in Citira’s first year of implementation must be challenged as it has been presented with no evidence to back the claim. If the JFC is able to provide figures of such specificity, it should be able to provide supporting evidence for them by identifying which businesses intend to eliminate jobs and remove themselves from the Philippines if the tax reform package is passed.
If it cannot do this, then the claim of massive job losses must be viewed as what it appears to be, a mere scare tactic to cow lawmakers into continuing favorable treatment for some companies without regard to what is best for broader economic policy.