PROGRESO plus Taxes?

"As usual, taxpayers will bear the burden."

Family breadwinners may be losing sleep as the extensive disruptions bought about by the pandemic forces our society to rethink the way we live and work. Millions of daily wage earners who suddenly lost their only means of livelihood are now struggling to provide basic sustenance to their dependents. Assistance from government and the private sector have been mobilized but cannot be sustained for too long.

Government has cited the Philippine Statistics Authority - Labor Force Survey which identified the top 10 Sectors that are hardest hit with job losses. These are jobs lost in Micro, Small and Medium Enterprises (MSME) where the bulk of wage earners are employed.

Most affected sectors are construction, education, repair of motor vehicles and motorcycles, tourism, finance and insurance, entertainment and recreation, sports and fitness, professional, scientific, and technical activities, repair of other items, and real estate. These sectors are estimated to lose over 1.1 million jobs.

The Enhanced Community Quarantine is projected to push unemployment rate to 10.2 percent by the second quarter of 2020 – approximately 4.6 million unemployed. In response, the government provided P205 billion for the social amelioration emergency subsidy and 51 billion pesos for the small business employees’ wage subsidy for a total of P256 billion . The National Economic Development Authority (NEDA) estimates P846 billion pesos will be needed as initial stimulus for both budget and non-budget interventions/policies for recovery programs.

The proposed Philippine Program for Recovery with Equity and Solidarity or “PH-PROGRESO” would grant targeted equity support to match bank lending for large firms. The program will initially address the “Emergency phase” with budget and procurement flexibility, support for small business through wage subsidy and grace periods, support to key sectors such as agriculture and overseas Filipino workers. strengthen the capacity of health systems and insurance, and support for front-liners.

By June, they expect to transition to the Recovery Phase which aims to boost the demand side by restoring the income and jobs of consumers. The 2020 budget will be reprioritized to enhance health system capacity and restart the most impactful Build, Build, Build projects. The supply side will be supported with liquidity and equity infusion and targeted tax incentives. The bills on Spending and Capital support (Bayanihan II) and Tax incentives (CREATE: Corporate Recovery and Tax Incentives for Enterprises Act) will be prioritized.

Come 2021, if all goes well, we will move on to the Resiliency Stage where a re-prioritized 2021 and 2022 budget and structural reforms will prepare the country for the new normal. Government hopes to push the so called Balik Probinsya and Bagong Pag-asa Programs at this stage. The Bayanihan Heal as One Act will be extended to continue budget and procurement flexibility and allow reallocation and re-appropriation of 2019 savings and 2020 budget to meet health and recovery needs.

All these will of course need huge amounts of funding which, according to this plan, should achieve the goal of rebounding to pre-crisis Gross Domestic Product of 4.4 percent. PH PROGRESO will need P846 billion, of which P173 billion will be from the National Budget and the balance sourced from the re-allocation of 2019 savings and 2020 budget, off-budget sources such as Government Operated and Controlled Companies (GOCC), monetary policy, financial sector regulatory relief, and private sector contributions.

Anticipating the negative revenue impact of the CREATE bill, estimated to total about P1 trillion from July 2020 to 2022, the government plans to raise some existing taxes and impose new ones to off-set the revenue loss. Yes, more taxes for everyone.

A 10-percent temporary tariff increase on fuel has already been implemented and a new bill increasing the Motor Vehicles User tax every year has passed on second reading in the House of Representatives. They will propose the indexation of sweetened beverage tax to 6 percent (remember the inflation right after TRAIN 1 and how millions of sari-sari stores were affected) and 8 percent ad valorem tax on Junk food (high trans-fat, high salt), and now that all us are now shifting to online transactions, a new Digital economy Value Added Tax will be imposed on e-Commerce platforms.

Banking on pre-crisis estimates that Philippine e-commerce will reach P200 billion by 2020, government wants to tax this market which has been growing at a rate of over 101 percent since 2016, but at the expense of the ordinary Filipino who are mostly unbanked and pay cash on delivery. Micro entrepreneurs are just learning to operate home-based online stores. A discouraging move for an ecosystem that should be nurtured because of its accessibility to over 70 million internet users of the country and works well with social distancing. The only agreeable tax measure is the POGO tax which will prove very popular, if ever.

As usual, it will be us, the already stressed-out and locked-down fatigued taxpayers, who will be burdened. New taxes, especially at these times, will fan frustration with and distrust of the government. Why not focus on unleashing our suppressed potential by trashing overly protectionist policies that have stymied the country’s attractiveness to quality long-term investments that all economies will be aggressively competing for to finance their own economic recovery? The only way this will happen is if the governance and regulatory environment inspires trust and confidence in long-term partnerships.