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  • TAX AND OTHER STIMULUS INITIATIVES FOR ECONOMIC RECOVERY FROM COVID-19

TAX AND OTHER STIMULUS INITIATIVES FOR ECONOMIC RECOVERY FROM COVID-19

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By: Atty. Euney Marie Mata-Perez on May 21,2020

The huge impact of the coronavirus disease 2019 (Covid-19) pandemic on the health and mobility of our people, as well as on our businesses and economy as a whole, is beyond what we all thought. The enhanced community quarantine (ECQ) imposed in mid-March has been extended, albeit in a modified form covering Metro Manila, Cebu and Laguna, until the end of May, while several regions were put under general community quarantine (GCQ). Most of us continue to work from home. However, the number of confirmed Covid-19 cases continues to rise steadily. The risk of a spike is feared, especially as people start to move around under the lockdowns that took effect on May 16.

The damage of these quarantines to our economy is enormous. Although the Philippines has been identified as one of the fastest-growing economies, growing at an average of 6.6 percent from 2016 to 2019, it is projected that the originally projected gross domestic product (GDP) growth of 6.6 percent in 2020 would most likely contract to -2.0 to -3.4 percent.

Without a doubt, the government plays a key role in not only managing this pandemic, but also enabling our economy to recover.

The government has been swift in providing assistance to those affected. Foremost of which is the passage of Republic Act 11469, or the “Bayanihan to Heal as One Act,” which authorized President Rodrigo Duterte to exercise the powers necessary to carry out the declared national policy to mitigate and contain the transmission of Covid-19. Pursuant to the Bayanihan Act, much is being done. However, there is yet much to do.

In his speech before members of the Financial Executives Institute of the Philippines Inc. on May 15, Acting National Economic and Development Authority Director General Karl Kendrick Chua identified the proposed pillars for economic recovery as follows:

– Bayanihan 1 under the Bayanihan Act includes budget and procurement flexibility; subsidy to poor and low-income families; support for small businesses through grace periods and wage subsidy; support for key sectors like the overseas Filipino worker and agriculture sectors; and health system capacity-building.

– Bayanihan 2 includes budget and procurement flexibility; reprioritization of the 2020 budget; the resumption of the Build, Build, Build infrastructure program for priority projects; supporting firms through liquidity and equity infusion; providing guarantees for loans to small businesses; and granting targeted tax incentives.

Part of Bayanihan 2 is the revision or recalibration of the proposed second package of the government’s Comprehensive Tax Reform Program, the Corporate Income Tax and Incentives Reform Act (Citira), into the Corporate Recovery and Tax Incentives for Enterprises Act (Create). It is reported that Create aims to reduce the corporate income tax rate immediately to 25 percent by July, instead of the originally proposed staggered decrease of 1 percent annually until 2030. This will be a much welcome development, although we are yet to see the specific language of the proposed Create amendments.

Chua also identified the key tax and incentives proposals as follows:

– Enhanced net operating loss carryover from three to five years. Losses in 2020 can be credited to future tax payment;

– Targeted, timebound and tailor-fit tax incentives to proactively attract the right types of investment;

– No change in present incentives for the next four to nine years; and

– Targeted and timebound tax incentives to support the Balik Probinsya, Bagong Pag-asa (BP2) Program (geographic and sector targeting).

The collections of the Bureaus of Internal Revenue and of Customs are expected to plummet, of course. The deadline for income tax return filing and payment has been moved to June 14, 2020 from the original April 15. Several other deadlines have also been extended. But all these should not give reason for the government and our tax authorities to be harsh on taxpayers. In fact, easing the burden of taxpayers through administrative leniency and issuances, like the deferment of obligations to remit withholding taxes, expediting tax refunds and issuances of tax credits, holding off of tax audits, and the like, should be part of the government’s stimulus package for micro, small and medium enterprises (MSMEs). This aspect of the so-called stimulus package should not be omitted.

Another aspect that should also be considered is to make the Philippines more attractive to investors and competitive with our neighbors. We need jobs for our people. We need to make our incentives work. We need to be serious about developing an environment that would support the business environment. We need to address ease-of-doing-business issues. We need to get our act together. We need to do this while protecting the safety and health of all Filipinos from Covid-19.

We cannot underestimate the capacity of the human spirit to rise to challenges. As a nation and as a people, we hope that we, together with our government, will rise from this Covid-19 pandemic.

However, there is much to be done.

Euney Marie J. Mata-Perez is a CPA-lawyer and managing partner of Mata-Perez, Tamayo & Francisco (MTF Counsel). She is a corporate, M&A and tax lawyer. She is also the president of the Asia-Oceana Tax Consultants’ Association.

https://www.manilatimes.net/2020/05/21/business/columnists-business/tax-and-other-stimulus-initiatives-for-economic-recovery-from-covid-19/726190/

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