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” socio-economic agenda underlining its readiness to drastically reduce poverty and lift the economy to high middle-income status in six years’ time, Department of Finance (DOF) Secretary Carlos Dominguez 3rd told the business community here on Friday.
Dominguez said that President Duterte, who is in Japan this week, has put in place a “clear and coherent” strategy, a 10-point economic program to maintain policy stability, achieve high and inclusive growth, and make doing business in my country easier” in the months ahead.
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.
Dominguez said at an investment forum that the current 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 forum participants that the 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 Organisation for Economic Co-operation and Development (OECD)-funded projects.
“I have also instructed our Internal Revenue commissioner to prioritize the resolution of the VAT issues on Japanese contractors undertaking ODA projects,” he said.
(According Assistant Secretary Mark Dennis Joven of the DOF-Revenue Operations Group, this issue pertains to Revenue emorandum Circular 45-2015, which the BIR issued during the previous administration.)
Dominguez said the Duterte 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. The opportunities are many and the possibilities are large. The Philippines is an economy that is finally ready for more regionalization,” he said.
He assured his audience at the forum that, “The Duterte administration has taken a definite pro-business policy.”
Dominguez added 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 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,” he said.
As the Philippine economy grows, the domestic market is expected to “expand dramatically,” which, Dominguez 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 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.”
Dominguez pointed out that the president 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 the Securities and Exchange Commission has simplified the process for incorporation,” he said.
Freeing 10 million people from poverty over the next six years 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 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.
“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 percent of public spending directed toward social services.”