Private sector looks beyond ‘colorful’ words

The business sector does not always like to talk about politics.

In the past two years under the Duterte administration, however, it’s been hard not to.

But much of the conversation has revolved around clarifications that business conditions still bode well for the Philippines, despite the colorful language Filipinos might hear from their chief executive.

In separate interviews with the Inquirer, top officials of business groups commended what the government has done so far, preferring to focus on figures such as the county’s economic expansion instead of President Duterte’s words.

Bigger picture

The interviews took place shortly after London-based economic research firm Capital Economics warned in June that Mr. Duterte’s leadership style poses a “longer term concern” for the Philippines’ investment climate.

This is despite some notable achievements, namely the government’s infrastructure projects and the passage of the first package of tax reforms.

Asked to comment on Capital Economics’ conclusions, the head of the country’s largest business group said the members prefer to look at the “bigger picture.”

“We, in the business [group], can read between the lines. We know exactly what he (Mr. Duterte) wants,” said Ma. Alegria Sibal-Limjoco, president of the Philippine Chamber of Commerce and Industry (PCCI).

TRAIN law chugs along

A range of issues grabbed the attention of the business community in the recent past, and one of the most controversial is the government’s push for tax reform.

Tax reform was supposedly an answer to the problem of personal and corporate income tax rates, which scored among the highest in Southeast Asia, if not the highest.

This, however, has raised other questions, especially from those that have been affected by tax measures the government imposed and want to impose to offset revenue losses.

So far, the Duterte administration has passed only the first of a series of tax packages, after much delay and jostling in Congress.

Called the TRAIN law, it lowered the personal income tax of millions of Filipinos but raised consumption taxes, which burdened minimum wage earners who do not pay personal income tax in the first place.

Next in line in Congress is the second tax package aimed at lowering the corporate income tax.

This will rationalize the tax incentives that the government has to offer—a bane for export-oriented firms, such as those registered under the Philippine Economic Zone Authority (Peza).

PCCI, many of whose members do not enjoy tax incentives, is okay with the second tax package.

However, Sibal-Limjoco said she felt sorry for those affected by the TRAIN law’s tax on sugar-sweetened beverages, with a number struggling to cope with the loss of sales as many Filipinos now find these beverages too expensive.

A top official of Zest-O Corp., for one, previously said in an interview with the Inquirer that the company’s first quarter sales dropped 20 percent, primarily due to the TRAIN law that raised taxes on sugary drinks.

Another case is Columbia International Food Products Inc., which has decided to phase out is sugar-sweetened beverage “My Juice” under the weight of the tax reform law.

Nevertheless, the business leader said she preferred to look beyond the costs and see the benefits the tax reform push is trying to reap.

Sergio Ortiz-Luis Jr., the Philippine Exporters Confederation, Inc., echoed the same sentiment, noting that tax reform is “something we have to do” despite its imperfections.

“Some of us are affected [by tax reform], in the same manner that we are not happy about the tax on sugar-sweetened beverages, but none of these can be perfect,” the head of the country’s umbrella group of exporters said.

Golden age

The bigger picture is that the Bureau of Internal Revenue will have a higher collection, “so we could finally implement our infrastructure program,” Sibal-Limjoco added.

The government plans to spend P8 trillion to P9 trillion in the medium term for its ambitious infrastructure program, which is expected to help the country reach its growth targets.

Critical to this, government officials say, is the tax reform program, which will increase the revenue pool to fund these ambitious infrastructure projects.

The question weighing on the minds of a lot of affected investors, however, is the cost of raking in more revenues. Perhaps one of the most vocal among critics is Peza, which arguably offers the best tax incentives among all investment promotion agencies.

Peza, also, might risk having the perks it offers rationalized if the Department of Finance, which pushed for tax reform, will have its own way.

The uncertainty has kept many potential investors on the sidelines.

Peza-registered investment pledges, which could later turn into actual foreign direct investments, have been declining for the past few months.

According to Peza data, pledges dropped more than half in the first semester of this year to P53.067 billion, from P120.220 billion in the same period in 2017.

Peza Director General Charito Plaza even said that a number of companies had been notified by their principal firms “to start to consider looking at possible countries to transfer to.”

This has been mainly blamed on the jitters caused by tax reform.

“So those kinds of apprehensions, so those kinds of fears, have to be addressed immediately,” Plaza said in a previous interview.

Investors are badly needed considering the magnitude of the government’s infrastructure push.

Socioeconomic Planning Secretary Ernesto Pernia previously said that there are almost 5,000 projects under the government’s Public Investment Program 2017-2022.

These include 75 flagship infrastructure projects, 32 of which are targeted for completion before Mr. Duterte leaves office in 2022, the official said.

Economic managers called Mr. Duterte’s term the “golden age of infrastructure,” and its success would also uplift small and medium-sized enterprises (SMEs), said Sibal-Limjoco.

“Once the golden age of infrastructure is here, it will also be the golden age of SME,” she said, noting this will bring forth robust business activities, especially in the countryside.

“That’s why we are for the big picture,” said Sibal-Limjoco, who is also considered the mother of the franchising industry.

Waiting for change

This is not to say that business groups are already satisfied with what has so far been done.

For instance, Sibal-Limjoco said PCCI would still have to see how the long-awaited law on the ease of doing business will be enacted, noting that it’s “good on paper but we still must monitor” its implementation.

For Philexport’s part, Ortiz-Luis, Jr., who recently served as the acting president of the country’s umbrella group for employers, complained about the ongoing debate on contractualization, which he said was not being handled decisively.

The Makati Business Club, which has been vocal about the implications of the political environment, did not respond to requests for comment as of press time.

The group previously flagged the slew of impeachment cases threatened against high ranking officials.

It has also spoken up on the issue of unseating the chief justice as well the electoral recount for the vice presidential position.

The American Chamber of Commerce of the Philippines (AmCham) flagged inefficient government bureaucracy, infrastructure, and corruption as concerns that the government still needs to address.

AmCham senior adviser John Forbes said these were also the “same top concerns identified by the World Economic Forum.”

Apart from these, Forbes said that they are looking at figures on the growth of economy, foreign investment, job creation, and poverty reduction—which he said “have improved in the last two years.”

“Programs are in place to improve the [three] challenges, but they must be pursued vigorously and consistently over the remainder of the term of this President and his successors,” he said.

The Management Association of the Philippines (MAP), for its part, still believes that the government’s economic agenda will push through.

Eduardo Yap, chair of the group’s National Issues Committee, clarified that the group does not usually assess a President’s overall performance.

Nevertheless, the group sounded optimistic.

“We remain hopeful that the economic reform agenda of the administration will be fulfilled,” he said.

‘Discriminatory’ rules

European businesses, whose home bloc has been at the receiving end of Mr. Duterte’s tirades, shared similar views with other business groups.

While the European Chamber of Commerce of the Philippines (ECCP) and the EU-Philippines Business Network commended the infrastructure push, ECCP president Gunter Taus urged the removal of “discriminatory licensing regulations” in the Philippine Contractors Accreditation Board.

This is so the government can “fully realize” its vision of having a golden age of infrastructure, he said.

Under current rules, local contractors are licensed on a yearly basis, while foreign contractors need to seek licenses for each new construction project.

Both the Joint Foreign Chambers of the Philippines, which ECCP is a part of, and the Philippine Competition Commission flagged this concern.

“This discriminatory regulation clearly hinders competition, creates an uneven playing field between foreign and domestic firms, and hampers potential investments in the construction industry by foreign companies,” Taus said.

“The past two years have been marked by change in key policy areas including competition, foreign ownership restrictions and peace and security. We look forward to further cooperation with the Philippine government toward a more open, progressive and dynamic Philippines,” he added.

Nevertheless, Taus welcomed the government’s efforts to ease restrictions on foreign investments, improve ease of doing business, pursue the peace process through the Bangsomoro Basic Law and amend the Public Services Act.

There is clearly much to expect from the remaining years of the Duterte administration, which is currently trying to cope with the weaker peso and rising inflation rates.

Sibal-Limjoco is heartened by the government’s political will to pursue needed reforms, even if they are unpopular.

“When we implemented the TRAIN law, we [showed] we have the political will to implement something that is not that popular,” she said.

Regardless if one calls such political will a sign of persistence or arrogance, it looks like more changes are coming.