TIt follows last week’s article, âThe Economic and Energy Legacy of PNoy Aquinoâ (June 28). Also good opinion pieces on the administration of the late President Benigno “PNoy” Aquino here at Business world are âPNoy and Inclusionâ (June 27) by Dr Raul Fabella, and âPNoy’s Little-Known Contribution: Rapid Industrializationâ (July 4) by Andrew Masigan.
A friend and Cabinet Secretary asked if 2020 could be separated in the assessment of the Philippines’ economic performance. So I have broken down here the averages from six years to three years under former presidents Gloria Arroyo and Benigno Aquino III, and current president Rodrigo Duterte.
For comparison and additional context, I have included data (as of 2020) on the four neighbors of the Philippines with large populations: Indonesia, which has 270.2 million people, Vietnam with 97 , 4 million, Thailand with 69.8 million and Myanmar with 53.2 million. The population of the Philippines is 108.8 million.
I used four sources to construct Table 1: the IMF’s April 2021 World Economic Outlook (WEO) database for GDP growth; AfDB, Key Indicators for Asia and the Pacific 2020 for the unemployment rate and participation rate through 2019; Economics of Trade for Labor Data 2020; and the Philippine Statistics Authority (PSA) for the Philippines Labor Force Survey in October 2020.
The numbers in Table 1 indicate the following:
1. GDP growth: The 6.6% growth in 2014-2016 – PNoy’s last three years – would be the highest economic achievement of the past four decades or more in the Philippines. The 6.4% in 2017-2019 (Duterte administration) was also high, but the growth dynamic has reversed. The -9.6% contraction in 2020 was the worst since post-war records.
Myanmar is the most dynamic economy in ASEAN and possibly the world today. It grew 12-15% per year from 2000 to 2007, and managed to grow 3.2% in 2020.
2. Unemployment rate: PNoy drastically reduced unemployment, from 7.4% of the labor force in 2010 to 5.4% in 2016. President Duterte continued the decline in unemployment to 5.1% in 2019, but it is rapidly declining. increased to 8.7% in October 2020 due to indefinite closings and numerous businesses. and school closures.
3. Labor market participation rate (LFPR): It is an indicator of optimism or pessimism at work. While many people, especially younger people, think that there is no job available anyway, they stop looking for a job and go on to further education and are not counted as unemployed. The LFPR is declining as an indicator of pessimism at work, and this is evident under the Duterte administration from 2017. For the first time since the 1990s and possibly the 1970s and 80s, the LFPR is below 62%. Then it got even worse to 59% in 2020.
Filipinos and Philippine-based companies have a lot to thank in the administration of PNoy Aquino.
The Duterte administration, however, should be credited with a significant achievement – the reduction in the Philippine high corporate tax (CIT) in response to continued tax competition in ASEAN.
The 2021 Law on Business Recovery and Tax Incentives for Businesses (CREATE) (RA 11534) reduced the CIT, retroactively to July 2020, to 25% for large companies and 20% for small and medium-sized enterprises (SMEs) with net taxable income of 5 million pesos or less and total assets of 100 million pesos or less excluding land.
Until the first half of 2020, the Philippines had the highest CIT at 30% while Singapore had the lowest at just 17%, followed by Brunei with 18.5%. Five neighbors have 20% of CIT: Cambodia, Laos, Indonesia, Thailand and Vietnam. Malaysia and Myanmar have 24% and 25% respectively (see table 2).
Recently, finance ministers and treasury secretaries in the United States and Europe have pushed for a global minimum tax (GMT) of 15%, tax harmonization and the elimination of tax competition around the world. Their plan is to impose GMT on companies where they do the most business, not where they are based or headquartered.
Global tax competition is dynamic. See these countries and economies with a low or zero CIT:
â¢ Zero CIT: Bahamas, Bahrain, Bermuda, Cayman Islands, Isle of Man, United Arab Emirates (UAE) and Vanuatu.
â¢ 3-9% CIT: Micronesia 3%, Barbados 5.5%, Uzbekistan 7.5% and Hungary and Montenegro 9%.
â¢ 10% flat-rate corporate tax: Bosnia-Herzegovina, Bulgaria, Kosovo, Macedonia, Paraguay and Qatar.
â¢ 12-12.5% ââCIT: Macao, Moldova, Cyprus, Ireland and Liechtenstein.
Small countries have few natural resources and a small land area, or they may have large resources like oil and gas but they lack highly technical personnel to develop and extract these resources, they attract businesses and professionals through an CIT weak or nil. Qatar, Bahrain and the United Arab Emirates do.
Switching to a 15% GMT is not good. We should see more tax competition, not tax harmonization and higher taxes.
Bienvenido S. Oplas, Jr. is the Director of Communications and Corporate Affairs, Alas Oplas & Co. CPAs