26th Metro Manila Business Conference
(Greetings)
Thank you for inviting me to join you today.
I am happy that this conference focuses on the matter of enabling Micro, Small and Medium Enterprises (MSMEs) through sustainable strategic partnerships. This sector is vital in building a dynamic and inclusive economy for our people.
Fully 99.6 percent of all our enterprises are MSMEs. They employ the bulk of our labor force. They link big manufacturers to their consumer base. They compose the supply chain that, when enabled, will support the industrialization of our economy.
The Duterte administration is committed to shaping our economic development from consumption- to investments-led growth. Investments will create quality jobs for the surge of young Filipinos preparing to enter the workforce. A broader base of entrepreneurship will help us draw as many Filipinos as possible into the mainstream of national progress. This, in turn, will help us reduce poverty incidence to the lowest possible level over the next few years.
We have pursued an economic strategy aimed at enabling business opportunities and broadening participation in wealth creation. The Build, Build, Build program, which aims to expand infrastructure investments to 7.3 percent of GDP by 2022, is expected to stimulate economic activity. The comprehensive tax reform program seeks to make the tax system fairer, simpler, and more efficient. It also seeks to create a level playing field for business and generate a reliable revenue process to support both economic investments and more robust social services.
As the first package of the tax reform law took effect at the start of the year, revenues in the first six months exceeded expectations. The total revenue collection grew by 20 percent over the same period last year.
From January to June, collections of the Bureau of Internal Revenue improved by 14 percent and the Bureau of Customs’ collections grew by 33 percent compared to the same period in 2017.
Small and medium enterprises also received tax breaks amounting to billions of pesos for the first six months of 2018 alone. From January to June, VAT collections in the BIR’s regional offices fell by 13.18 percent compared to the same period last year, indicating that many small and medium enterprises have now benefited from the raising of the VAT threshold from 1.9 million pesos to 3 million pesos under the new law.
In the second package, we are seeking to reduce the corporate income tax rate for enterprises as well as rationalize the many incentive programs granted to existing businesses.
As you know, our corporate tax system has created an unfair structure wherein a very large majority of businesses, especially small and medium enterprises, pay 30 percent of their net taxable income as tax, while those receiving incentives—and they are usually the larger companies—pay much less, at around 6 to 13 percent only. This is very unfair, as corporations under the regular regime are contributing just as much as, if not more than, those which are under the special regime.
In addition, outside the tax code, we have 123 laws that grant investment incentives and 192 laws that grant non-investment incentives. On top of that, we have 14 investment promotions agencies (IPAs) all authorized by law to grant tax incentives. The Philippines is one of the most generous countries in the world in granting tax incentives and therefore giving away potential revenue. While other countries give incentives for limited periods, some of the tax incentives handed out by law here apply forever.
The Tax Incentive Management and Transparency Act (TIMTA) enabled us to verify what we had long suspected, helping us build the case for Package 2. We have estimated that in 2015 alone, the first year of available data, 301 billion pesos of income, VAT, and customs duty incentives were given to various firms. We have yet to account for foregone local taxes and leakages. Preliminary data for 2016 shows that we gave 75 billion pesos more in income and customs duty incentives relative to 2015.
These findings underscore the importance of what we seek to achieve with Package 2. We will propose tax code amendments that will improve compliance, harmonize the governance of incentives through the Fiscal Incentives Review Board, and repeal some exemptions.
To harmonize the incentives regime, we propose to repeal 123 special laws on investment incentives and to consolidate them into one omnibus incentive law. We will expand the TIMTA law to ensure transparency and accountability of incentives. To narrow the gap between those under the standard rate like most MSMEsand incentives recipients, the larger companies, we will keep the income tax holiday and other income-based incentives, while replacing the 5-percent gross income earned tax in lieu of all taxes with a 15 percent tax on net taxable income.
In the end, only incentives that are performance-based, targeted, time-bound, and transparent will remain. With this reform, we hope to create a fairer and more transparent environment for MSMEs.
Last May, the Ease of Doing Business Act of 2018 was signed into law. This promises to reduce red tape significantly and make government more responsive to the needs of our entrepreneurs like yourselves. We will complement this with several programs encouraging digitalization of all government procedures. The BIR, for instance, is working double-time on streamlining processes for documentary requirements for renewing business permits.
We have also established a Trade Net System that automates licensing, permit, clearance and certification procedures for all regulatory agencies. All 76 regulatory government agencies across 18 government departments will be fully interconnected. This system will simplify import and export documentary processes covering an initial 7,400 regulated products. Trade Net will serve as the Philippines’ link to the ASEAN Single Window (ASW). This is all happening now and the Bureau of Customs will be the first to go live this month.
We are ready to run PHPAY. This is a digital payment gateway that will enable taxpayers and other state clients to remit fees and other charges electronically. This will dramatically cut transactions costs across the board. It will also drastically cut corruption associated with primitive payments systems.
We are well on our way to start testing the Philippine Business Data Bank (PBDB). This will be the single repository of business registration information in the country. This too will enhance information sharing and hasten business transactions.
The new financial technologies or fintech we are putting in place opens a wide horizon of business opportunities for our MSMEs. These include peer-to-peer lending, equity crowdfunding, merchant and e-commerce finance and invoice finance. The financial world is being revolutionized by new technologies. We are responding promptly to make the advantages offered by fintech accessible to our enterprises.
In addition to the policy changes that enable increased use of digital technologies for small businesses, our two government financial institutions are aggressively committed to supporting MSMEs.
Land Bank, over the years, supported MSMEs through various programs designed to help sustainability and competitiveness of small businesses. I encourage you to look more closely at these various lending programs. As of 2017, Land Bank’s outstanding loans to MSMEs reached 89.8 billion pesos.
The Development Bank of the Philippines (DBP), for its part, has also provided funding support for MSMEs. As of June this year, the DBP has extended 13 billion pesos in loans to small enterprises. In addition, the DBP will capacitate all its account officers so they may extend financial advisory services to MSMEs for free.
The DBP will likewise open additional Lending Centers to be closer to its clients, partnering with microfinance institutions and cooperatives to support small businesses.
The government is fully committed to fostering the growth of our small businesses. We are eager to listen to feedback from groups like this one to further improve on the policy reforms already done.
In turn, I urge our MSMEs to be innovative, to explore opportunities opened by the new ways of doing business and to be bold in opening new ventures. I assure you that government is supporting you. We will support small businesses in every waypossible. We know the crucial role MSMEs play in forging a better future for our people, and we will partner with you and we will help you in this task.
Thank you and good day.
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