Gov't eyes more loans, lower taxes to revive economy after lockdown

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Metro Manila (CNN Philippines, May 14) – The National Economic and Development Authority on Thursday unveiled its proposed recovery plan from the COVID-19 crisis that will make it easier for the economy to bounce back starting next month.

Acting NEDA Director-General Karl Kendrick Chua, concurrent Socioeconomic Planning Secretary, shared details of the PH-PROGRESO or the Philippine Program for Recovery with Equity and Solidarity, a three-phase approach to restarting the economy.

Chua and Finance Secretary Carlos Dominguez III spoke about the recovery strategy in a media briefing held online on Thursday.

After the "emergency stage" from March to May – or when the government focused on limiting the spread of COVID-19 and providing cash aid to millions of workers displaced by the lockdown – the strategy will shift towards the "recovery stage" by June to December, where the priority will be on income and job restoration.

The NEDA proposed a "Bayanihan II" Act for Congress to consider, as the Bayanihan to Heal as One Act which gave President Rodrigo Duterte the authority to realign budgetted funds for crisis response expires next month.

Dominguez said the proposed bill will require between ₱130 billion to ₱160 billion in additional funds to make it easier for businesses to bounce back. Support will be given through an array of tax perks and access to additional bank loans, according to the proposal.

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Under the measure, additional capital will be infused in the state-run Land Bank of the Philippines and the Development Bank of the Philippines. They will then buy loans granted by small lenders to micro firms in bulk. That way the small lenders like microfinance institutions as well as rural and cooperative banks can again grant more loans to small enterprises.

Micro-businesses usually have a hard time borrowing from commercial banks as their small operations make them a risky investment. Funds will also be infused into the Philippine Guarantee Corporation, which will allow the institution to vouch for loans made by small and medium-scale enterprises, Dominguez added.

Apart from lending, the measure will also fund improvements to the local health system capacity and the revival of infrastructure projects under "Build, Build, Build," as well as to boost the food production value chain.

Lower taxes

Chua also revealed the proposed Corporate Recovery and Tax Incentives for Enterprises or CREATE Act, which allows a sudden drop in the tax rates on incomes of corporations.

Under PH-PROGRESO, all businesses will only need to settle 25 percent of their net taxable income starting July if the measure is approved in Congress, a big reduction from the current 30 percent rate.

This is a drastic move, as the long-standing proposal of the DOF is a gradual reduction of the tax rate by 2 percent per year to end up at 20 percent by 2029. Chua also bared that government will retain existing tax incentives for the next four to nine years to help business operations stabilize, while new investors will receive targeted and tailor-fitted tax breaks to entice new investors.

Work is also underway to allow companies to report losses incurred this year up to five years to manage bottom lines, he added.

Dominguez explained that the Bayanihan II and CREATE Act proposals are different from what the House of Representatives is currently discussing – a stimulus package worth up to ₱1.4 trillion.

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"What we are proposing is a stimulus package with far larger effects that will be around nine-tenths of 1 percent... If you put it (money) in the right place, the actual value, the actual economic activity that kind of investment can make is probably ₱800 billion to ₱1 trillion because of the multiplier effect that you can get by putting it as bank capital and capital of PhilGuarantee," Dominguez said.

He added that every peso in capital added to banks will reap as much as over ₱8 in loans handed out for productive use.

The NEDA revealed that they estimate ₱2 trillion in lost opportunities due to COVID-19, which would also cause the economy to shrink by at least 2 percent this year. An even deeper slump is expected for April-June, Dominguez said.

By 2021, the plan entails shifting to the "resiliency stage," where structural reforms will be made. A crucial move would be the "Balik Probinsya" program that will push for countryside development and job creation. Tax incentives will also be given to firms that move to rural areas.

Chua said both measures are still being discussed with lawmakers and must be approved and referred to the President for signing into law.