It’s been 1 year since the novel coronavirus spread across the world, the Philippines has become one of the hardest hit countries in Southeast Asia. Many of our clients are asking: what did the Philippines government do to recover the economy from the pandemic? In this blog post, we will try to summarize the latest events and measures.
Following the confirmation of the first localized transmission in March 2020, the national government, together with the local governments, have responded with various declarations of emergency, closure of schools and public meeting places, lockdowns, and other restrictions intended to slow the progression of the virus. The department of Industry issued a directive ordering that retailers should only allow the sale of two bottles of each type of disinfectant per person as a measure against hoarding. In line with the public health emergency declaration, the department imposed a 60-days price freeze on basic commodities.
“Bayanihan to Heal as One Act” is the first law implemented to carry out urgent measures to cope with the national emergency related to COVID-19. This act contains basic rules, such as the Filipinos must follow the WHO guidelines to prevent or suppress further transmission and spread of Covid-19. To help the eighteen million low-income households during the lockdown, poor families received 150USD per month as cash-aid for their daily expenses. Even the frontline government officials and employees such as public nurses and police, have received a daily hazard pay of 10USD as am award for their valiant actions against the corona virus. The immigration authority has issued precautionary measures, mandatory protocols and requirements for travelers. Foreign nationals are currently unable to enter the Philippines, apart from very few exemptions.
In terms of taxation, the Philippines is preparing to issue the “CREATE Act” – or Corporate Recovery and Tax Incentives for Enterprise Act – to accelerate reforms of the country’s corporate tax systems and to help the business to recover its loss. With this Act the corporate income tax rate will be reduced from 30 to 25 percent immediately and then by one percent increments until 2027, yearly, to bring the rate to 20 percent. The government hopes this will benefit more than 90,000 businesses in the country, and it will attract foreign investments. The CREATE Act will organize a national board to supervise the country’s investment promotion agency. The board has the power to advise the President on tax incentives, logistic support, training, easing in obtaining certification from the government agencies, and customs facilitation for investors. Businesses must coordinate with the board to obtain these benefits. The CREATE Act will also give income tax holiday of four to seven years to export and domestic enterprises in activities classified as critical industries and a 5-percent special corporate income tax rate (SCIT) based on gross income earned, in lieu of all national and local taxes for 10 years. CREATE seeks to vigorously fight the impact of COVID-19 and help businesses to get back on their feet as quickly as possible. A lower CIT rate, combined with the country’s strong demographic and financial fundamentals, will strengthen the country’s economy for more and better investments.
“Bayanihan to recover as one Act” was signed into law last September 2020. It is an act that offers covid19 response and rescue interventions, providing mechanisms to accelerate the recovery and bolster the resiliency of the Philippine economy. The act will provide government funds to stimulate the economy while strengthening the health sector and the government’s pandemic responses.
In 2019, the International Monetary Fund had forecasted that the Philippine economy would grow by 6.2 percent in 2020, but covid-19 has put the Philippines into recession. Economists expect 2021 will still be a challenging year for the Philippines, after posting a 9.5 percent contraction last year, but they remain optimistic on a positive economic performance on the back of fiscal spending. The national Economic and Development Authority is keeping its growth target of 6.5 percent to 7.5 percent next year 2022.
Glyndel Rodrigo, Tax and Legal Advisor at Kelmer Philippines Inc.