The Market Monitor Minding the Nation's Business
By Luis Leoncio
Reforms in the country’s tax rates, considered one of the highest in the region, and the tax system itself, and a final, vigorous push for the long-shelved efforts to relax constitutional limits on foreign ownership are on top of the final wish list that the business sector has come up with for the successor of President Aquino.
Local and foreign business groups, in a forum jointly held by the Economic Journalists Association of the Philippines (Ejap) and global investment bank ING, said they wanted the next Philippine president to relax foreign-ownership restrictions, particularly in the services sector, to attract more foreign investments.
European Chamber of Commerce of the Philippines (ECCP) Vice President Henry Schumacher said more investors were looking at pouring their money into various sectors of the Philippines if the foreign-ownership restrictions were relaxed.
“The question, of course, is how open the next administration will be. Will it open up to create a fair and level playing field? Will it address the 60 percent-40 percent [foreign-ownership requirement] issues? Do we want more foreign investments coming in? These are the issues hanging in the air,” he said.
Schumacher identified utilities and construction as among the sectors that needed to be opened up to foreign ownership.
“Because you have dominating families in those areas, so from that point of view, competition is limited. If you have limited competition, Filipinos are paying a higher price for lousy service and lousy products,” he said.
Makati Business Club (MBC) Chairman Ramon del Rosario Jr. said it was beneficial for the Philippines to remove foreign-ownership restrictions from the Constitution, and allow Congress to act on whether or not there should be limitations on the service sector of the economy.
“We hope that Congress will, in fact, act and free up service sectors of the economy for a much stronger entry of foreign investments into our economy,” del Rosario, also the president and chief executive officer of Phinma Corp., said during the forum.
He added that foreign investments provide world-class management and business practices.
“All of these things together will make our economy stronger, will make our economy more competitive, but most important, these will create jobs. The key really to having more inclusive growth is having economic growth that create jobs and to me the key to that is really opening up the economy,” del Rosario said.
ING Bank Manila Senior Economist Joey Cuyegkeng said there is a need for the incoming administration to consider revamping the country’s tax rates to align these with neighboring countries and, thus, attract more foreign investments.
Cuyegkeng said the country’s tax rates were very high, compared to other members of the Association of Southeast Asian Nations (Asean).
”The income-tax reform is crucial also in terms of corporate income tax. We are in the Asean community and our corporate tax rates are so high. If we are going to try to attract foreign direct investments [FDI], we have to also be aligned with our competitors abroad. There is a need to balance it out,” he said.
Cuyegkeng also said any cut in the country’s tax rate would definitely have a negative impact on revenues, but pointed out that tax rates needed to be “responsive to the times.”
“We also have to try to unlock potentials of private-sector initiatives in terms of infra investments in the rural sector,” he added.
The Aquino administration earlier discounted an adjustment in the country’s income tax, saying it instead favors a holistic tax reform to help the Philippines become among the high-income countries.
Cuyegkeng said the government should spur spending for infrastructure buildup.
A slight drop in the debt-to-gross domestic product (GDP) ratio even in the next administration will be acceptable to foreign investors if the increased spending will ensure further improvement of the economy, according to an economist.
Cuyegkeng said the 3-percent debt-to-GDP ratio is the benchmark in the eurozone.
“And if the additional deficit is going to be used for infrastructure or for expanding the absorptive capacity of the economy, not necessarily just infrastructure, but also social infrastructure, then I think the offshore investors and the local investors will take a look at that in a positive light. So I think there has to be some balancing that needs to be done by the new president,” he said.
Cuyegkeng said priorities of the new government would have to be balanced out.
To date, investors are comforted with the drop in the country’s debt levels, which resulted in a 2-percent debt GDP as of end- 2015, he said.
“Since there’s a lot of underspending, there’s so much leeway for the new government to execute a lot of this infrastructure spending. But when you take a look at the other promises, there needs to be some offset somewhere. Otherwise, the government’s pursuit of increased infrastructure spending could also be affected,” he added.
Cuyegkeng said the economic gains achieved by the Aquino administration due to fiscal prudence could be sustained in the next government.
He said the demographic dividend the country currently enjoys would continue to boost domestic growth, add to it the fact that the current administration has prevented a boom-and-bust cycle.
”The momentum is there…but the new leader will have a significant role in moving forward,” he said.
Other factors the economist cited as factors that would sustain rise of the domestic economy were the enhancement of the good-government theme; expansion of the number of beneficiaries of growth to include the agricultural and rural areas, as well as increasing the share of infrastructure and tourism; increasing the gains on investments and productivity through manufacturing, making the country more competitive through cheap power; and infrastructure and introduction of more reforms.