The Freedom from Debt Coalition (FDC) warns that the proposed Corporate Income Tax and Incentive Rationalization Act (CITIRA) shall deepen inequality and will not bring in more FDIs. FDC Executive Director Zeena Bello Manglinong argues that CITIRA, earlier known as TRABAHO, is a regressive measure.

She said: “In America, the presidential aspirants in the Democratic camp have been debating on how the corporate tax should be raised. One candidate is even pushing for a separate additional “wealth tax”, a tax on properties, for the super-rich. The idea is to narrow the gap between the rich and the poor.

“But here in the Philippines, why does the government want to reward the big corporations with a tax gift, in the form of a progressive lowering of corporate tax? Progressive taxation means the higher the income, the higher the tax. Regressive taxation means the poor pays more, as what has been happening under the VAT law and the TRAIN law.

“But now the principle of progressivity in taxation is being reversed, that is, by giving progressive cuts to the corporations. As it is, the top 50 corporate families have wealth equivalent to .0000021 per cent of the aggregate wealth of the 23 million families. The Philippines is clearly one of the most unequal societies of the world. With CITIRA, inequality will deepen further.”

Manglinong explains further: “The FDC agrees with the CITIRA proponents in only a few items such as the need to update and overhaul the archaic Philippines tax regime.

“Also, the FDC supports the phaseout or withdrawal of fiscal incentives to investors-locators in the export processing zones who have been in the country for 10 or more years. Fiscal incentives should not be forever. Above all they must be performance-bound and time-bound. While CITIRA rationalizes tax incentives in order to make it performance-based, time-bound, and efficient, its overall export-oriented, FDI-financed development paradigm, which is pernicious to our economy, must be replaced with one anchored on developing high value-added, technology-enabled manufacturing and services sectors.

“As to the claim that FDIs shall not come or shall be discouraged to invest in the country if taxes are not lowered and incentives not given, the position of the FDC is that this is a false claim. Foreign investors come not only the basis of taxes alone, especially if these taxes are comparable to those of our Asian neighbors. A myriad of reasons are regularly aired by the business community why the flow of investments are not as high such as the weak infrastructures of the country, red tape and so on.
“FDC research also shows that some claims of the government are not exactly accurate. Vietnam’s corporate income tax is at 20%, but what is often failed to be mentioned is that this is merely a floor rate. Vietnam’s CIT rate goes as high as 32% to 50%, especially for oil, mining, and gas companies.”

According to DOF’s own data, the country loses 300 billion pesos yearly in foregone revenues for corporate income taxes alone. By plunging the country into an unnecessary and archaic, quick-fix scheme such as tax competition, we open the possibility of dragging the Philippines into a deeper hole as it joins the region with the race-to-the-bottom ‘tax competition’ paradigm.

“Furthermore, while it is proven that lower corporate income taxes will attract FDI, this does not translate automatically to GDP growth. In fact, countries that eventually took part in tax competition by lowering their CIT rates showed a negative effect on their GDP growth. The FDC holds the opinion that resisting the tax competition is crucial to defend our domestic industries.

“The DOF’s supposed claims of the influx of FDI pledges in the Philippines will prove the “contras” wrong regarding the proposed tax measure, the Debt Coalition has this response: FDIs do not lead to capital formation in the recipient country. Instead, a myriad of other more crucial factors are considered by investors: infrastructure, availability of suppliers, sufficient workforce, labor laws in the recipient country, domestic market, legal framework, peace and order, and state of domestic industries (forward and backward linkages). The Philippine context of weak forward and backward linkages, and the shift to labor flexibility with the casualization of work (i.e. contractualization), the country will be led into a dependency on foreign investments which do not guarantee inclusive economic growth.

“To further elaborate, the time-bound and performance-bound indicators were used by South Korea in promoting target industries under its Industrial Policy regime. But how would such investment promotion incentives apply to FDIs in low value-added, high import content assembly or manufacturing which form only part (not whole) of global value chains? Thus, even if we take over the manufacture of the electric coil of a cellular phone, we cannot build an industry out of it nor a Philippine brand out of it. An Industrial Policy must support local industries, both high value-added and low value added industries, including micro, small, and medium enterprises, with importance to social enterprises and genuine cooperatives. Otherwise, we would end up killing domestic firms instead of promoting competition because of their inability to compete with multinational corporations (MNCs).”

The Freedom from Debt Coalition believes that the way forward is an industrial policy that purposely builds up the capacity of domestic firms to develop and compete. This must also mean that our method of taxation must also follow suit. We cannot pretend that technocrats in government have the sole solution to issues plaguing our country. It is time that we step forward with an alternative.