TOKYO—Now is a “fine time” to invest in the Philippines as Tokyo rekindles its ties with Manila and the Duterte administration has crafted a “business-friendly” socioeconomic agenda that underlines its readiness and capability to drastically reduce poverty and lift the economy to high middle-income status in six years’ time, Finance Secretary Carlos Dominguez III told the business community here.
Dominguez said President Duterte, who is here in Japan this week, has put in place at the start of his government a “clear and coherent” strategy to maintain policy stability, achieve high and inclusive growth, and make doing business in my country easier” in the months ahead.
He said at an investment forum that the Duterte administration is accelerating public spending on infrastructure, human capital and social protection in pursuit of inclusive growth, and is mounting a tax reform plan to raise enough funds for these priority investments areas.
Dominguez also informed participants at the forum that the Philippines’ Bureau of Internal Revenue (BIR) is now revising regulations on the value-added tax (VAT) withholding system involving projects funded by Japan’s Overseas Economic Cooperation Fund (OECF), taking into account the concerns raised by the Japanese government and contractors of OECD-funded projects.
“I have also instructed our Commissioner in the Internal Revenue to prioritize the resolution of the issues on VAT on Japanese contractors undertaking ODA projects,” Dominguez said.
(According to Assistant Secretary Mark Dennis Joven of the DOF-Revenue Operations Group, this issue pertains to Revenue Memorandum Circular 45-2015, which was issued by the BIR during the previous administration.)
Dominguez said the new government has also taken initial steps to stamp out official corruption, cut red tape in the bureaucracy, and simplify tariff rules in order to entice investors from Japan and elsewhere to set up shop in the Philippines.
“This is a fine time for looking at the Philippine economy as an investment destination,” said Dominguez at the Philippine Economic Forum here at the Prince Park Tower Tokyo Hotel, Convention Hall.
“The opportunities are many and the possibilities are large. The Philippines is an economy that is finally ready for more regionalization,” added Dominguez, who is here in Tokyo as a member of President Duterte’s official party in his three-day official visit to Japan.
Dominguez said that, “The bilateral relations between Japan and the Philippines has deepened and we look forward to more intensive cooperation. We look to investment inflows from Japan especially those that will support strategic investments in the infrastructure and industry.”
He said public-private partnerships and other investment opportunities are in store for Japanese businesses in such Philippine sectors as transportation, banking, energy and tourism.
“There are numerous investment possibilities open to our regional partners,” he said. “We have expanded our public-partnership program to include unsolicited proposals from potential investors. The energy and transport sectors are key areas needing more investments. Our banks are seeking new partners. Our primary industries are open to joint ventures.”
As the Philippine economy grows, the domestic market is expected to “expand dramatically,” which, he said, will “translate into growth opportunities for traditional sectors such as retail and food processing.”
“We are likewise seeking new markets for our exports,” he said. “Through regional partnerships, we envision the growth of trade volumes between the Philippines and Japan.”
With tourism viewed as a key contributor to the anticipated dynamic economic growth of the Philippines, Dominguez said “we need new investments in tourism facilities. In this area, we have found strong support from our neighbors in the region.”
He assured his audience at the forum that, “The new administration of President Duterte has taken a definite pro-business policy.”
“We will continue with the macroeconomic thrust of previous administrations that brought us to a higher growth plane,” he said. “Early on, we have committed to respect all existing contracts and maintain policy stability. We have initiated a government-wide program for dramatically reducing red tape and improving the ease of doing business in the country.”
He pointed out that President Duterte has committed to “a drastic reduction of corruption in government,” and that “this effort is helped by more intense implementation of programs to reduce smuggling in our ports and tax evasion in our revenue-generating agencies.”
“We have simplified tariff rules and our Securities and Exchange Commission has simplified the process for incorporation,” he said.
Hence, said Dominguez, “the macroeconomic policies are well in place. The fiscal reforms are business-friendly. Doing business in my country will surely be easier over the next few months.”
The finance secretary said the new government has “put in place a clear and coherent economic strategy to reduce poverty rates effectively in the medium term and lift the Philippine economy to high income status in the space of a generation. We call this the 10-point economic program of the present political leadership.”
To guarantee economic inclusion, he said the planned higher investments in infrastructure, human capital and social protection are geared to reduce the poverty rate from the current 26.5 percent to 17 percent by the time President Duterte leaves office in 2022.
Freeing 10 million people from poverty over the next six years—the principal concern of the new government—will mean “a reduction in human misery, in child malnutrition, in vulnerability to extreme weather conditions and in communities weakened by crime and violence,” Dominguez said.
But he said poverty reduction can only succeed if economic development is inclusive, if enough jobs are produced for the unemployed, if farms are transformed from being poverty traps into becoming engines for prosperity, and if the problem of disarticulated economies is solved to end the great wealth disparities among Philippine regions.
He said the government needs to build new roads and railways, provide adequate power to communities and new industries, modernize ports and domestic shipping, reduce oppressive personal income tax rates to raise the spending power of wage earners, and raise enough revenues to spend more not only on infrastructure but also on health, education and other forms of human capital development.
At the same time, the government also needs to deepen the country’s financial system with an eye on widening popular access to the banking system, support small industries with credit and raise capital for industrialization, he said.
“Building an inclusive economy requires the right fiscal configuration,” he said. “We must reduce the oppressive personal income tax rates to provide wage earners more say in what they wish to spend on. At the same time, we must also reduce the income tax rates for corporations. We need to raise state revenues to enable expanded spending on much-needed infrastructure and other economic investments that will enhance our human capital such as health and education.”
Dominguez stressed that as the finance secretary of the Duterte government, “I see the tax reform program we have now submitted to our Congress as the lynchpin of the broader reform program for building an inclusive economy.”
“We seek to simplify the system, broaden the tax base, widen the value-added tax net and raise more revenues despite the rate reductions in personal and corporate income taxes,” he said. “We will supplement this with specific taxes on products that damage public health and pollute the environment. This is a pro-poor tax program with 40% of public spending directed towards social services.”
“Over the next six years, we expect increased public spending to further boost overall growth performance,” he said. “Economic investments in needed infrastructure will be supported with public-private partnerships. We need to rapidly build new roads, railways and ports to decongest our cities and reduce logistics costs for the most basic goods our people need.”
According to Dominguez, the Philippines’ estimated infrastructure budget for the next 6 years is around US$180 billion.
While doing all these, he said, “We aspire to deepen our financial system and widen popular access to it. We need to broaden public access to the banking system, support small industries with credit and raise capital for industrialization. With the liberalization of our banking industry, it is now feasible to build partnerships with the bigger banks in our part of the world.”
