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A House of Representatives panel on Tuesday restored the local tax on both local and foreign companies under proposed changes to the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, as requested by Philippine President Ferdinand R. Marcos, Jr., according to the Ways and Means Committee chairman.

Under the report approved by the committee on Tuesday, corporations will now have to pay 2% local tax — from the original 1.5% proposal — on top of a 20% income tax.

Albay Rep. Jose Ma. Clemente S. Salceda, who heads the ways and means committee chairman, told a hearing the President had asked them to restore the local tax “in lieu of all local taxes to be collected by investment promotion agencies for concerned local government units.”

House Bill (HB) No. 9794, also known as CREATE MORE (CREATE to Maximize Opportunities for Reinvigorating the Economy), seeks to amend Republic Act (RA) No. 11534 or the CREATE law. The measure will be sent to the plenary soon for debates.

Eleanor L. Roque, tax principal at P&A Grant Thornton, said lawmakers should ensure that the local business tax rate for companies with incentives should be lower than the regular rate for companies without incentives.

“If you look at the local business tax rate based on the Local Government Code, the rate varies  from 0.375% to 2%, so lawmakers should compare the rates to arrive at a logical incentive rate,” she said in a Viber message.

The Ways and Means Committee also introduced several changes to the committee report, such as value-added tax (VAT) exemptions for enterprises whose total sales are solely for export, and including a list of local tax exemptions following the imposition of a registered business enterprises’ local tax.

Another amendment is to turn the Fiscal Incentives Review Board (FIRB) into a review and monitoring body for investment promotion agencies (IPA).

The bill seeks to limit the FIRB’s power to approve or deny incentives, and to reinstate the power to grant tax incentives to IPAs.

Lawmakers also agreed to incorporate the Organization for Economic Co-Operation and Development’s (OECD) Base Erosion Profit Shifting (BEPS) framework for multinational enterprises in the CREATE MORE bill.

“Under the current OECD, the US, Japan, Korea, China and Singapore are major investors… They’re already implementing the 15% global minimum tax so if they are given an income tax holiday and they don’t pay anything, when they return to their home country, they will have to pay the 15% [global minimum tax,] so our income tax holiday is useless,” Mr. Salceda told the committee.

Finance Assistant Secretary Juvy C. Danofrata said the Philippines would “lose out” if it does not recognize the 15% global minimum tax implemented in OECD countries.

“If we don’t make amendments to our tax system, what will happen is if we give an income tax holiday to a multinational that is also paying its taxes in other countries, the tax that we don’t collect will eventually be paid in the other country,”  she said in mixed English and Filipino.

The CREATE MORE bill seeks to impose a 20% corporate income tax on local and foreign corporations under the enhanced deduction income tax regime.

“The incentive really for the enhanced deduction is to encourage them to get more employees to invest more because there’s also an incentive on the capital investment,” Ms. Danofrata told the committee.

Under the bill, domestic and export companies, including those inside ecozones and freeports, will be entitled to duty exemptions, VAT exemption on imports, and VAT zero-rating for local purchases.

Enterprises would also be entitled to a 200% additional deduction for power costs during the income tax holiday period. They may also enjoy a 100% additional deduction in expenses for trade fairs, missions or exhibitions.

VAT incentives for companies that enjoy incentives before the enactment of CREATE will be extended from 10 to 12 years, if there is no tax refund or credit granted. They may also enjoy duty incentives for the remainder of the 10-year transitory period.

“We gave two more years because the BIR (Bureau of Internal Revenue) has been coming up with all RMCs (revenue memorandum circulars) that of course negate the benefits that accrue to those that we have provided incentives to but went through a transition,” Mr. Salceda said.

The bill also allows the information technology and business process outsourcing sector to “conduct business under alternative work arrangements.”

The bill also seeks to include the Bangsamoro Board of Investments and the Bangsamoro Economic Zone Authority under the list of investment promotion agencies.

Mr. Salceda said the bill also proposes to grant an income tax holiday to domestic market enterprises in creative industries listed under RA 11904 or the Philippine Creative Industries Development Act “for as long as they have at least a minimum of $500 million.”

Filomeno S. Sta. Ana III, coordinator of Action for Economic Reforms, said issues with the CREATE law could be fixed under its implementing rules and regulations.

“Sure it has imperfections, but its flaws can be corrected through implementing rules and regulations and other administrative measures. We should not forget that CREATE lowered the corporate income taxes for all business enterprises,” he said in a Viber message.

He earlier said a looming fiscal crisis due to a “generous tax incentive system” could “block the new flow of investments and thus impede growth and employment.” — By Beatriz Marie D. Cruz, Reporter

Renewable energy (RE) commercial projects with awarded service contracts increased by 26% in 2023, led by solar technology, according to the Department of Energy (DoE).

Data from the DoE released on Tuesday showed that RE projects totaled 1,220 last year with a potential capacity of 134,813.79 megawatts (MW), higher than the 965 recorded in 2022 with a capacity of 80,396.61 MW.

Of the total, there are 434 solar projects in the country with 28,913.78 MW potential capacity. This was followed by 428 hydropower projects with 18,902.96 MW and 252 wind power projects with 85,692.964 MW.

There are also 58 biomass projects with 206.88 MW; 39 geothermal projects with 1,063.20 MW; and nine ocean energy projects with 34 MW.

Terry L. Ridon, a public investment analyst and convenor of think tank InfraWatch PH, attributed the increase in RE projects to a “better business climate under the current administration, the commitment of the Energy department to a better energy mix in the medium-term, and the relatively lower costs of building RE facilities compared to legacy facilities like coal and gas plants.”

“This is a step in the right direction as this significantly contributes to our climate commitments, and balances our reliance on coal and gas technologies,” he said in a Viber message.

He added that this momentum towards RE should prompt the government to further streamline permitting processes, particularly in local government units, to expedite the establishment of RE facilities.

As of the end of 2022, RE accounted for about 22% of the Philippines’ energy mix, with coal-fired power plants providing nearly 60%. 

Looking ahead, the government aims to increase the share of renewables to 35% by 2030 and 50% by 2040. — Sheldeen Joy Talavera

Philippine Finance Secretary Ralph G. Recto said on Wednesday inflation remains a “most urgent concern” and must be kept under control.

Mr. Recto, who took on the financial portfolio on Jan. 15, is the government’s representative to the seven-member policymaking monetary board of the Bangko Sentral ng Pilipinas, which will meet for the first time this year on Feb. 15 to review the direction of policy rates.

Headline inflation in December returned to target at 3.9%, but average inflation for 2023 was 6%, well above the central bank’s 2% to 4% target.

“It is imperative that we find ways and means to r25`educe inflation,” Mr. Recto told a news conference. “I support what the monetary board is doing. Like I said, it’s data driven.”

The central bank kept its benchmark rate steady at 6.5% in the final two meetings of last year, after hiking rates by a total of 450 basis points since May 2022 to rein in inflation.

Mr. Recto said the possibility of oil prices and transport costs going up is there given escalating geopolitical tensions.

“The central bank will look at all these data and make the appropriate decisions going forward. We recognize that there are external threats,” he said.

Bangko Sentral ng Pilipinas Governor Eli M. Remolona Jr. said on Monday monetary policy would have to remain sufficiently tight given the inflation numbers, making a rate cut at its meeting next month unlikely. — Reuters

NEWLY APPOINTED Finance Secretary Ralph G. Recto took his oath as a member of the Monetary Board on Monday, the Philippine central bank said, taking the last seat in the seven-member policy-making body.

Mr. Recto is expected to prioritize inflation while pushing stable economic growth, analysts said.

“He is responsible for National Government debt and taxes,” Jonathan L. Ravelas, senior adviser at professional service firm Reyes Tacandong & Co., said in a Viber message. “He ensures that growth continues by providing inputs to the Monetary Board to help support and stabilize growth.”

Mr. Recto, a former lawmaker who was appointed Finance chief last week, will represent President Ferdinand R. Marcos, Jr.’s Cabinet at the Bangko Sentral ng Pilipinas’ (BSP) highest policy-making body.

The Monetary Board is headed by Governor Eli M. Remolona, Jr., who led Mr. Recto’s oath-taking at the central bank office in Manila, the BSP said in a statement.

The board also has five full-time members from the private sector, namely Benjamin E. Diokno, V. Bruce J. Tolentino, Anita Linda R. Aquino, Romeo L. Bernardo, and Rosalia V. de Leon.

Mr. Diokno is Mr. Recto’s predecessor at the Finance department and Ms. De Leon used to be the national treasurer.

Ms. Aquino held key positions at Standard Chartered Bank Manila, Rizal Commercial Banking Corp., Citicorp Investment Bank in Singapore, and Citibank N.A. Manila.

Mr. Tolentino was the deputy director-general of the International Rice Research Institute, served as chief economist and country representative at The Asia Foundation, and was senior economic policy adviser at the Asian Development Bank (ADB).

Meanwhile, Mr. Bernardo was an analyst for the Philippines at GlobalSource Partners. He used to be a Finance undersecretary and an alternate executive director at the ADB.

Mr. Recto would give the Monetary Board a clear perspective on how monetary policy and banking regulation can support economic growth, China Bank Capital Corp. Managing Director Juan Paolo E. Colet said in a Viber message.

“Immediate priorities should include forming a view on when to cut the policy rate and taking the necessary steps to remove the Philippines from the Financial Action Task Force’s (FATF) ‘gray list,’” he added.

Before his appointment to the Finance department on Jan. 15, Mr. Recto served as Batangas representative and was a deputy speaker of the House of Representatives.

He was a senator for three terms and held key positions including as a minority leader. He pushed higher value-added taxes (VAT) in the Senate in the early 2000.

Luis A. Limlingan, head of sales at Regina Capital Development Corp., said the central bank is already doing a good job in keeping prices stable.

“It will depend on current economic conditions but generally, Mr. Recto should try to help the economy get back to a lower inflationary environment with tools at his disposal,” he said in a Viber message.

The Monetary Board raised borrowing costs by 450 basis points from May 2022 to October 2023. This brought the key interest rate to 6.5%, the highest in 16 years.

Despite the high interest rate environment, the Philippine economy expanded by 5.9% in the third quarter, faster than 4.3% in the second quarter.

For the nine months ended September, economic growth averaged 5.5%, below the government’s 6-7% full-year goal.

Mr. Remolona earlier said it is unlikely for the BSP to start easing policy rates in the first half given the risks to inflation.

The central bank sees inflation easing to 3.7% this year and to 3.2% in 2025. Inflation in 2023 was 6%, breaching the 2-4% target for the second straight year.

The BSP will hold its first policy meeting this year on Feb. 15.

The FATF has kept the Philippines under a “gray list” of countries under increased monitoring for money laundering and terrorism financing risks since June 2021.

Government officials expect the Philippines to get out of the gray list in October after failing to meet the January deadline. – Keisha B. Ta-asan, Reporter

THE GOVERNMENT should address barriers to efficient broadband infrastructure to help bridge the widening digital divide in the Philippines, where the market remains a duopoly, according to the World Bank (WB).

“The broadband market in the Philippines is an effective duopoly with two large telcos,” it said in a policy note discussing reforms to promote competition and increase investment in broadband infrastructure. “Globe and PLDT Inc./Smart [Communications, Inc.] are vertically integrated.”

“They own international connectivity, backbone, middle- and last-mile networks and have the majority subscriber share,” it pointed out. “Over 500 providers acting as retailers rely on wholesale infrastructure, either from the duopoly or market challengers.”

PLDT had PHP 205 billion in revenue in 2022, while Globe had PHP 175 billion, the multilateral lender said in its report. Converge ICT Solutions, Inc., a late third player, only had PHP 34 billion.

PLDT and Globe said they were both working on a response to the World Bank study when sought for comment in separate Viber and Facebook Messenger chats.

“Laws on connectivity have remained unchanged despite vast technological advancements, evolving business models, and widening access gap,” the World Bank said.

Among the Association of Southeast Asian Nations (ASEAN), the Philippines is the least favorable on policy environment for affordable broadband, and among the slowest in the world in promoting reforms to make it more affordable, it added.

The World Bank cited data showing household penetration for fixed broadband in the Philippines at 33% in 2022. The cost of fixed broadband was more than four times more expensive than Malaysia and Vietnam and more than double the ASEAN average, it said.

For mobile broadband — considered the driver of consumer adoption of e-commerce, financial inclusion, disaster response, and agriculture practices — active subscribers in 2022 were 70 per 100 inhabitants, the lowest among large ASEAN economies, it added.

Poor internet access and lack of digital infrastructure also affect crucial industries such as the service sector.

For example, the information technology and business process outsourcing industry, which creates jobs and drives the growth in service exports, remained constrained in a few locations, the World Bank said.

Unfortunately, the Philippines has been the last investment destination among major ASEAN economies for “hyper-scaler cloud service providers” such as Amazon and Google, it added.

“The cost of inaction — loss of growth opportunity, people remaining unequipped for future jobs and widening of the digital divide — is too high for the Philippines,” the lender said.

“Unaddressed, weak internet might derail the country’s achieving upper middle-income status in the coming years and its aspiration for a prosperous middle-class society by 2040,” it added.

The World Bank said the country’s internet connectivity lags behind its ASEAN peers in terms of affordability, speed, and access, creating an “uneven landscape for digital participation.”

“Access to broadband is fundamental to participating in a country’s digital transformation,” it said. “However, the digital divide in the Philippines is rapidly expanding. In the least populated areas and remote islands, progress in household internet penetration over the last 10 years has only been a third of progress made in populated urban centers.”

‘BINDING CONSTRAINTS’

In 2022, the Philippines invested 0.44% of its gross domestic product (GDP) in broadband infrastructure, compared with the majority of developing countries that have invested at least 1% of their GDP in telecommunication infrastructure for at least a year.

The bank also estimated that the investment gap in the Philippines is about USD 2 billion (PHP 112.8 billion) yearly.

“Binding constraints to competition and investment in the Philippine broadband infrastructure are interrelated, with cumulative effects of policy actions (or inactions) reinforcing the market structure and operators’ conduct,” it said.

“Recent economic reforms such as the removal of foreign ownership restrictions in 2022 and the introduction of the competition law in 2015 have not significantly altered the market dynamics in the broadband sector under the prevailing legal system,” it added.

The World Bank cited barriers to market entry and investment, an unlevel playing field, and the lack of an infrastructure-sharing policy framework, among other things.

It called for reforms in broadband infrastructure policies to encourage investment and competition.

“Interrelated policy and regulatory barriers underlying poor internet in the Philippines require a comprehensive package of reforms,” the lender said. “An outdated franchising and licensing regime and rigid and nontransparent spectrum management have discouraged connectivity infrastructure deployment and efficient resource reallocation.”

The World Bank said there is rich literature citing global evidence on the impact of reforms on broadband infrastructure investment and performance, including through the liberalization of foreign investments.

The government also plays a crucial role in bridging the digital divide by channeling its resources to the poor, the multilateral lender said.

“The government can complement pro-competition policy reforms with direct public investments in justifiable, efficient, and sustainable ways,” it said.

“As the government prioritizes digitalization with a view toward benefiting all Filipinos, updating policy to promote competition, encourage investment, and upgrade broadband infrastructure is urgent and necessary,” it added.

Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a majority stake in BusinessWorld through the Philippine Star Group, which it controls. – Luisa Maria Jacinta C. Jocson, Reporter