Retired Police Brigadier General Manuel Gaerlan, President and CEO of the Clark Development Corporation; Ms. Maria Alegria Limjoco, Chairperson of the Philippine Chamber of Commerce and Industry; Mr. Jess Nicdao, Chairman of the Pampanga Chamber of Commerce and Industry; officers and members of the PamCham; distinguished guests: Good afternoon.
Thank you for inviting me to this meeting. This is an excellent opportunity to explain the government’s programs to support the growth of MSMEs or micro, small, and medium enterprises, especially in the countryside.
Small businesses are the hardest hit by the pandemic. Despite all the government’s efforts to support the small businesses and their workers, many enterprises will be forced to close down because of the difficulties brought about by the pandemic and the way the contagion has upended consumer behavior. The unemployment rate and poverty incidence may continue to be quite elevated for some time.
There is good news on the horizon, however. In the second quarter of this year, we expect to begin growing our economy again. We see that the second wave of infections that started at the end of March has subsided dramatically. We hope that this will be the last surge.
COVID-19 vaccine deliveries have also begun to pick up and we are now rapidly expanding inoculation. In fact, the government has opened up the vaccination program to frontline personnel in the essential sectors of the economy.
If manufacturers deliver the vaccines as committed and planned, we expect to see a significant containment of the infections by the second half of this year. We should have enough doses to vaccinate not only the 70 million adults in the country, but also some of the 15 million teenagers once the vaccine is approved by the Food and Drug Administration for them. We are also in the process of negotiating for the booster shots next year. The COVID-19 pandemic should soon be contained.
Before the crisis hit us, the Duterte administration has been supporting our businesses by ensuring fiscal stability. This led to the highest sovereign credit rating the country ever achieved. In turn, this ensured lower interest rates and cheaper, more accessible financing for our enterprises.
Over the last five years, we passed game-changing reforms that allowed MSMEs to flourish in the country and Pampanga is one of the biggest beneficiaries of these measures.
We saw the enactment of the Ease of Doing Business Act that made it easy and convenient for our people to start businesses. The law also encouraged those who are already engaged in business to further expand their activities.
The digitalization of transactions has been encouraged to achieve the greatest efficiency. On the part of the Bureau of Internal Revenue, the filing and payment of taxes were made easy through the implementation of several digital initiatives.
For instance, in 2015, only 25 percent of taxpayers used the Bureau’s Electronic Filing and Payments System. Last year, the taxpayers who availed of the electronic channel almost tripled to 74 percent and to 93 percent in the first four months of 2021.
Meanwhile, almost 100 percent of the total number of annual income tax returns were filed electronically in the first four months of 2021 from just 10 percent compared to the same period in 2015.
Our comprehensive tax reform program, on the other hand, ensured a reliable flow of revenues while enabling 99 percent of our workers to boost their disposable incomes with a lower individual tax rate. This led to an increased consumer spending that fueled demand and further invigorated our robust retail sector.
Our Build, Build, Build program expanded economic opportunities for MSMEs, created jobs, and helped improve the quality of life, especially in the countryside. Pampanga has been one of the showcases of the massive infrastructure program through the development of the world-class Clark International Airport and other flagship projects in Central Luzon, such as the New Clark City. It took a President from Mindanao for the biggest public and private infrastructure investments to come into this region.
The game-changing reforms we had institutionalized over the last five years cemented our overall macroeconomic stability and allowed us to respond decisively to this global health crisis.
When the pandemic hit us, we found ourselves with a strong financial and banking system, ample foreign reserves, and enough fiscal stamina to support what has turned out to be a long health emergency.
Our strong fiscal position gave us breathing space during the pandemic. When we needed to borrow to support our budget in the midst of a public health crisis, we were able to do so expeditiously and on the best terms.
Our stable financial footing enabled the government to provide direct subsidies to our low-income families and to fund fiscally responsible stimulus packages. Bayanihan 1 and 2 helped us rescue our most vulnerable enterprises, conserve jobs, and expand lending to businesses.
In particular, Bayanihan 1 allowed us to support the employees of enterprises through the Small Business Wage Subsidy Program. This gave out 46 billion pesos worth of subsidies to more than 3 million workers.
Last year, our government-owned banks were able to quickly extend assistance to the pandemic-hit MSMEs. The Land Bank of the Philippines and the Development Bank of the Philippines provided financing assistance to more than 7,400 affected MSMEs through the grant of loans totaling 80.2 billion pesos.
The Philippine Guarantee Corporation, for its part, launched the MSME Credit Guarantee Program in December of 2020. The program aims to guarantee at least 50 percent of the working capital loans extended by banks to viable but pandemic-hit MSMEs. Last year, it assisted close to 3,000 MSMEs with a total of 324 million pesos in loans guaranteed.
Bayanihan 2 made possible several streams of support for MSMEs. The law extends the carry-over period of net losses in 2020 and 2021 from three to five years for businesses.
This allows MSMEs to deduct incurred losses from tax payments for a longer period. This measure gives them more time to set their finances in order and, hopefully, to return to profitability.
The same law infuses more capital to the government financial institutions to dramatically expand their lending to MSMEs. The increased lending capacity enables government banks to provide wholesale financing to the rural banks and microfinance institutions.
Under Bayanihan 2, a total of 45 billion pesos was made available to the Land Bank, the DBP, and the PhilGuarantee as equity infusion for loans to individuals and businesses affected by the pandemic.
Through the capital infusion, we expect Land Bank and DBP to extend low-interest rate loans to more than 5,600 MSMEs reaching 15 billion pesos this year. Meanwhile, the PhilGuarantee targets to cover more than 8,000 MSME beneficiaries with guaranteed loans amounting to 3.9 billion pesos.
As of April of this year, the PhilGuarantee already exceeded its target as beneficiaries under the MSME Credit Guarantee Program increased to 11,382 MSMEs with guaranteed loans totaling 1.63 billion pesos. This amount represents a remarkable 400 percent increase from the 324 million peso-pilot guarantee portfolio.
On top of these, another 10 billion pesos was made available for the lending programs and interest rate subsidies of the Small Business Corporation.
We will be relying on MSMEs to drive our economic recovery. MSMEs employ the majority of workers in the country. They will play a key role in bringing down our unemployment and poverty rates.
Along with the national vaccination program, we continue advancing the policy reforms required to reignite business activity and restore consumer confidence.
The CREATE or Corporate Recovery and Tax Incentives for Enterprises law is the largest fiscal stimulus program for businesses in our recent history. It is estimated to provide private enterprises more than 1 trillion pesos worth of tax relief over the next 10 years.
MSMEs will be the biggest beneficiaries of CREATE through the grant of the largest ever corporate income tax rate reduction in the country, from 30 percent to 20 percent. Larger companies, meanwhile, will enjoy a corporate income tax rate cut from 30 percent to 25 percent.
With CREATE, we are leaving money in the hands of the private sector to revitalize their businesses. CREATE provides tax savings for our enterprises to help them cope with the crisis and participate in the recovery of the whole economy.
In addition, CREATE opens the way for us to rationalize our tax incentives system to ensure that fiscal and non-fiscal incentives are tightly targeted, performance-based, and transparent, as well as time-bound.
For enterprises that undertake activities considered as priority by the government, CREATE provides a generous incentives menu that offers tax discounts on the basis of their strategic benefit to the country, such as their ability to create high-end jobs and promote countryside development.
In addition, CREATE expanded the powers of the Fiscal Incentives Review Board to oversee the grant of incentives to the private sector. As a governance institution, the Board will promote transparency to make businesses accountable for each peso of tax incentive they receive.
Incentives will be given for upskilling and employee training. We will provide incentives for investments in less developed localities and in communities recovering from calamities or armed conflict. This will jumpstart economic activity in these areas and open more business opportunities for MSMEs.
Meanwhile, the FIST or Financial Institutions Strategic Transfer law is an important step in protecting our banking system from the market pressures induced by the pandemic. FIST enables our banks to offload their non-performing assets and grow their loanable funds to extend more support to businesses, especially MSMEs.
To ensure the long-term recovery of our economy and attract more foreign investments, we are also urging Congress to pass the amendments to the Foreign Investments Act, the Public Service Act, and the Retail Trade Liberalization Act.
We are also working with Congress in completing the final packages of our tax reform program. The pending packages will help expand the capital market and make the real property sector more efficient.
We are also supporting the Capital Market Development Act of 2021. This measure aims to further deepen the domestic capital markets by building a sustainable Corporate Pension System.
Apart from these critical reforms, we will drive up domestic economic activity by proceeding full-steam with Build, Build, Build. We have kept our budget for infrastructure investments even with the ongoing pandemic. With its high multiplier effect, we are expecting the infrastructure program to be the main driver in rebuilding the domestic economy.
Let me assure you that this administration is fully supportive of our small and independent businessmen. The recovery of our economy relies on your innovation, dynamism, and boldness in making investments.
I encourage you to continue your expansion plans and accelerate the shift to digitalization in order to meet the demands of the New Economy. I also urge you to start adopting measures that would make your businesses climate-resilient and a contributor to our climate mitigation initiatives.
Together, let us rise to the present challenges we are facing and build back a stronger economy and a more sustainable future for the Filipino people.
Thank you.
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