Finance Secretary Carlos Dominguez III said the double-digit growth in sales and high profit margins of the premier retail and real estate companies in the Philippines best illustrate that the implementation of the Duterte administration’s Tax Reform for Acceleration and Inclusion (TRAIN) Law is “a hundred-percent success” in boosting the spending power of Filipino consumers.
In his speech before the Japanese business community during the recent Philippine Economic Briefing (PEB) in Osaka, Japan, Dominguez said the TRAIN Law put more money in the pockets of the consumers and ensured strong domestic demand in the economy, aside from raising much-needed additional funds for the government’s extensive spending on its “Build, Build, Build” program and on human capital development.
“Ninety-nine percent of individual taxpayers enjoy reductions in their personal income tax (PIT) rates. Filipinos earning below US$4,500 annually are now exempted from paying personal income taxes while workers earning above it now receive about a month’s extra take-home pay each year from the deductions in their tax rates. To emphasize that point, by correcting the tax rate for our average wage earners, we have basically given out a 14th month pay annually,” Dominguez said.
He said published data showing the significant growths in sales and income of corporate giants in the real estate and fastfood industries are strong indications that Filipinos have started to benefit from the TRAIN Law by way of their greater purchasing power.
Dominguez noted, for instance, that Jollibee Foods Corp., the Philippines’ largest fastfood chain and globally recognized brand, posted sales of about US$2.9 billion in 2018, 16 percent higher than the 2017 sales level. Its net income also increased by 17 percent to US$158 million in 2018 compared to a year ago.
Ayala Land Inc., the Philippines’ premier and oldest property company engaged in the planning and development of large-scale, integrated estates, posted an 18-percent increase in sales in 2018 to US$3.11 billion year-on-year. Its net income also rose 16 percent to US$558 million, Dominguez added.
Meanwhile, SM Prime Holdings, the Philippines’ owner of the biggest and most number of malls in the country as well as the second-largest high-rise condominium developer, posted sales of almost US$2 billion in 2018, up 17 percent compared to 2017.
SM Prime’s net income jumped by 17 percent to US$616 million last year, driven mainly by its new mall openings in the provinces.
“The Philippines’ leading commercial banks also posted strong interest income growth on the back of strong customer loan growth in the first nine months of 2018. For one, BDO Unibank Inc., the largest bank in the Philippines in terms of assets, saw its interest income rise by 20 percent to US$1.4 billion on the back of an 18-percent customer loan growth,” Dominguez said, citing published data.
Metropolitan Bank & Trust Co., the second-largest lender in terms of assets, also reported its interest income grew by 13 percent to almost US$1 billion in the first nine months of 2018 on the back of a 16-percent customer loan growth. The bank said net income in the first three quarters rose 18 percent to around US$352 million versus the same period a year ago.
TRAIN, the first package of the Duterte administration’s comprehensive tax reform program, has given 99 percent of the country’s workers a total of P103 billion in extra income combined in the first three quarters of 2018, or an average of P12 billion a month.
On top of putting more money in the pockets of consumers, TRAIN revenues have already far exceeded targets, providing a fresh revenue source for the government’s infrastructure and human capital investments, Dominguez said.
Dominguez said the second package of the tax reform program of the Duterte administration includes the reduction of corporate income tax (CIT) rates and the rationalization of fiscal incentives.
“We will gradually reduce the corporate income tax rates from 30 percent to 20 percent to bring us closer to the regional average. Having a corporate income tax rate higher than those of our neighboring economies at 30 percent is a barrier to investments,” he said.
He said bringing this down gradually to match regional averages is important in helping draw more of the foreign direct investments (FDIs) flowing into the region. Aside from that, he said lowering the CIT rate will also benefit hundreds of thousands of micro, small and medium enterprises (MSMEs) in the country.
A companion measure of this package is the rationalization of the fiscal incentives program, he said.
“For years, we relied on granting fiscal incentives as a means to draw investments into our economy. The results are hardly spectacular,” he said.
He cited a global survey conducted by the World Economic Forum in 2017 on investor appetite for the Philippines indicating that tax incentives are only the fifth most important concern of investors. The first four are government inefficiency, the infrastructure gap, corruption, and the high cost of doing business, which Dominguez said are being “decisively addressed” by the Duterte administration.
As expected, Dominguez said the proposed reforms under the second tax reform package have generated some headwind.
“But we are confident that as the reform is better clarified, we could push forward with it. To be clear, we are not eliminating fiscal incentives. But we want to keep granting incentives for the right reasons–and we want these incentives to be performance-based, time-bound, specifically targeted and fully transparent. This will encourage truly competitive investments to enter our economy,” Dominguez said.
Dominguez led a Philippine delegation to the 7th meeting of the Philippines-Japan High-Level Joint Committee on Infrastructure Development and Economic Cooperation last Feb. 21 in Osaka. Included in the itinerary was the third PEB session in Japan by state economic managers and members of the “Build, Build, Build” infrastructure team of the Duterte administration.
Adopting the “fast and sure” approach, Philippine and Japanese officials discussed in the Osaka high-level meeting the progress of project approvals and the processing of financing arrangements that would provide the Duterte administration’s “Build, Build, Build” program with additional financing support from Japan.
Both parties also discussed ways of further expanding economic cooperation between the two countries, particularly on infrastructure development and on peace-building initiatives for Mindanao.
Dominguez, along with other officials from the Department of Finance (DOF), also visited the National Tax College Osaka Training Center to learn from its best experiences and gain inputs on how to transform the newly established Philippine Tax Academy (PTA) in Manila into a premier tax knowledge center and an effective training arm for state officials and employees in taxation.