Transcript of Interview with Senator Pia S. Cayetano (Ways and Means Chairperson) and Undersecretary Karl Chua (Department of Finance)

Media Conference after the Ways and Means hearing on Package 2 of CTRP: Corporate Income Tax and Incentives Reform Act (CITIRA)

Senator Pia S. Cayetano (SPSC): I summarized it just before the hearing ended that it's clear to me that the different IPAs (Investment Promotion Agencies), the different representations of economic zones, investment groups, sectors - each obviously would protect their own turf. Of course that's normal, that's self-preservation. I really understand it. Now, the burden really is to come up with a simple and yet as general, as we can, goals that will govern everybody because sa kanila rin naman nanggaling eh. We're after simplicity. But right now, our existing system isn't simple.

And honestly, my takeaway here is that Congress has to take responsibility, also because a lot of these economic zones were created by law. So, we are duty-bound to all these creations of ours, rationalize them, kasi iba-iba 'yung draft eh. So, moving forward, we will not be doing the next administration a favor by just leaving it as is. And I'm actually very excited about this because I like order, I like systems, I like the people that I deal with to be able to know what they will expect. I'm excited and I'm happy to be part of rationalizing and cleaning up this system. Now, it may be tricky from the beginning, hopefully not so messy, but a bit tricky. But we'll do the job and we'll do our homework so that less injury, less downtime for everybody.

Q: The proposals of the industry are not really new. The GIT rate and the longer transition period. Is the DOF ready to compromise?

Undersecretary Karl Chua (UKC): I think the first, most important thing we learned today is that many of them are increasingly moving from oppose to negotiate. And many of them are understanding the principles that we are fighting for, which are performance-based, time-bound, targeted, and transparent. So, we hear them, I commit to responding to each of their position paper, but it's not something we can agree piecemeal. We have to put them all together and see the package work.

Kasi, 95% of Filipino corporations and small firms like to see their corporate income tax go down. But as Senator Pia said, dapat package deal. Hindi naman pwedeng ibaba natin ang rates, and we have so many projects and priorities in government, and we don't put some accountability in the incentives. So, what we will go, what we will do onwards is to go through all their position papers, put together all their requests, and see if this is something that is doable. And I'll discuss with Senator Pia and the team how we can proceed on this.

Q: For Senator Pia, with the progress of the hearing and seeing the opposition, seeing what they present, how long do you think it will last in the Senate, given na ayun nga, mayroong mga laws related to the ecozones? How long kaya?

SPSC: How long? I can't answer that. What I can respond to is that I'm willing to take the lead in putting together, working with the DOF and the DTI, together at that comprehensive solution. Comprehensive and then present it to [the Senate]. That part I will commit to do. As to how long it will take, each of them would also come up with their different concerns, I can't answer. I can give them a preliminary presentation, maybe after one or two TWGs, then I can make a closer assessment.

Q: But your personal target, how long will you like it?

SPSC: Personally? I can debate for a year or two, but I don't see any benefit to that because time is of the essence. The Filipino business community, and therefore the Filipinos, demand that we provide for stability and predictability. So, there's nothing to gain even if I say I can be patient, I'll listen to all the questions. We don't gain from that eh. So, I would be able to ask my colleagues once I present it to them to work with me within a reasonable period. And I cannot tell you yet what that is.

Ang hirap pangunahan kasi a lot of them [senators] had very strong feelings about it, a lot of them have studied about it, 'di ba? So, I want to give them that leeway to appreciate that I will also recognize the concerns that they have. Kapag sinabi kong ganito lang, sabihin naman nila minadali ko sila. Ayaw ko naman ng ganoon.

Q: You agree with Senator Zubiri na, that the House version is unacceptable?

SPSC: If you look at my history, I've championed many legislation including Reproductive Health Law, the Divorce Bill that passed in the House, but did not pass in the Senate. You don't see me finger-pointing, so that's not my style. I won't comment. They have their reasons for passing the version that they passed. And I will have reasons for passing the version that I will pass.

When we sit together, we will probably find out that we agree on 90% of the things pero we may have approached it in a different way. We all know that a lot will still happen between the Senate version and the Bicam, so I'm very conscious of that. That's why there's no point for me commenting on the work that has been done in the House.

Q: The job losses - each presented different numbers, that there will be job losses. Is it taken into consideration?

SPSC: Yes. Anytime there is instability, anytime that there is unpredictability, you will always veer on the side of caution. You will always say, teka muna, who is the most vulnerable here? And they're the breadwinners, right? You affect the breadwinner, you affect the whole family. That's why I am personally affected by that statement because the committees I used to chair, as you know, are the Committee on Women and Children, Committee on Education, Committee on Health, so I need to protect the breadwinner to ensure that these families are okay. So, I am very much concerned about it. It is rightfully the position of the different sectoral representatives to be concerned about it.

But I do need to also look at the long-term plan. I do need to take cognizance of what DOF, DTI, and all the rest of the economic team are doing to make this a better place for business. That's why if we're addressing inefficiencies, if we're addressing infrastructure, Build, Build, Build, that's why I took time to talk about New Clark City. That's creating jobs. So if lang, if. There are industries, and there is a cycle of life (like) Darwin's theory. I'm not talking about a particular industry here [but] there are certain industries that have an actual [life-]span, right?

That's why I was very excited to talk to the semiconductors group because they need to be ahead. Very concerned sila na malagyan na natin ng certainty itong plano natin kasi their investors, their locators, are the type who need to be investing in the next great idea - in the next version of a cellphone, in the next version of a television or whatever. Laos na nga television eh. So, that is our job - to create that climate for them, so that they will have that sense of stability. That they can keep investing in this country because we're moving forward. And that will address the jobs. So, I can't be that reactive and say, konting change, [or] let's not do it dahil maapektuhan ang jobs. That's lacking foresight on my part. If on that note alone, let's not do anything. Change doesn't happen if you're scared of rocking the boat.

Q: Maam yung 2 to 3 TWGs hanggang ano yun, before the break?

SPSC: No, we're working through the break, wala kaming break, because these TWGs are opportunities to learn, to consolidate the information, so we don't need to be in session for that. So I will be having hearings and TWGs during the break.

Q: So within the year?

SPSC: Yes actually it's just a break from having session, but we continue to have our hearings. Yes because shortly after that we will have the budget hearing so I will not be able to defend anything on the floor. So I want to try to finish the hearings if possible, consolidate the report, if I have enough information, then I'll be ready to come up with a committee report.

Q: Do you think that concern on jobs would stall or slow down consideration of CITIRA? Shouldn't we study why the previous Congress... what were the reasons why they didn't pass or didn't move forward because of the fears of job losses?

SPSC: I wasn't in the previous Congress in the Senate so I cannot answer for what reasons they had, but the only thing that I will stand by is that in the next hearing, not just TWG, what I would like the economic team to present are addressing these factors that were mentioned by the World Economic Forum that affect decision for investors to invest in the Philippines or not to. Because if we can show that we will have growth, regardless of the particular incentives, then that's assurance that there will be jobs.

So I can speak just because I am more knowledgeable on the development happening in the north, in New Clark City area, there's going to be so much growth, because the infrastructure is already in place, from heath facilities, sports facilities, business centers. When government offices move there, automatic may development in the area. So that's a micro picture of how this works, but the bigger picture is to really look at it from a macro level and see if indeed, some jobs will be affected, anong sasalo? Anong industries pa ang papasok? And I tie it into, that's why, sorry, paulit-ulit ako sa SDGs, pero doon pumapasok yung role ng education sector, di ba? So kung mamamatay ng natural death ang isang industry, kailangan ready yung ating education sector na yung mga kabataan natin, they are prepared for the next wave of job opportunities available to them. Because we're not doing a good job if we know that an industry is going to die and we don't do anything about it. And we can't just be looking at the incentives, we need to look at the demand.

UKC: I think what is important is we look at the reform as a package because in the past Congresses, the government proposed a fiscal incentives rationalization by itself - walang additional offsetting measures. What we have presented now are the following: Within the tax reform, we have the lowering of the corporate income tax rate, from 30 to 20 percent. That is the biggest incentive we are giving to everyone - micro, small, medium or large - and that will create the 1.6 million jobs we estimate. Second, we are providing an adjustment period, and we are listening to those who want a longer one to see if it will work for us. Number three, we are incentivizing the proper behavior. So create 1 job, deduct 150%; train your people so they can become better workers, 200%; invest in research and development, 200%. So that we can retool and rebuild the jobs of the future.

Outside the tax reform, we already passed ease of doing business, to address the concerns of SMEs; we passed the rice tarrification; we passed murang kuryente to lower power cost; we have that P8 trillion Build, Build, Build, so when investors and businesses look at the whole package and not just one thing they don't like, I think they will see the benefit of how all of these will create jobs, and not affect the jobs as some claim. We understand that there are some concerns, so our request is sana ibigay sa amin yung data, kasi it's easy to come up with a billion investment laws or 200,000 jobs, but if it is not backed up with [data on] where they are, what kind of jobs, it's really hard to respond to that accurately.

Q: USec can you respond to the [statament?] of Sen Cayetano regarding whether or not we are going to grow regardless of incentives? Also, did you make any projections regarding the worst-case scenario that the oppositors are presenting, let's say if PEZA, if the locators are gone, are we still going to be okay?

UKC: The last slide I presented I think summarized and will answer your question. Number 1, FDI last year was $9.8 billion, PEZA- and BOI-approved investments were below $2 billion each, so we see that more and more investors don't really need incentives because they see the value and benefit of [investing in the] country. Number two, PEZA investments have been declining for several years now. Perhaps it's high time they look at the other factors that do not help them like the availability of skills, the infrastructure, or the logistics. So I think dapat tignan from that perspective. Otherwise, incentives and the tax reform would be unduly blamed for something that is addressed by many other factors.

Q: Would Director-General Plaza's demeanor affect your appreciation of PEZA's position?

SPSC: Well I have other people to get my information from for PEZA, so if she thinks effective yung style nya, hindi yun effective sa akin. So kung gusto nyang maintindihan ko yung gusto nyang ipakita na information, hindi effective yung style nya. So burden nya ngayon yan.

Q: But what do you think is the motivation, the motive behind the opposition, aside from the figures that she presented?

SPSC: I have no idea. You can ask her. [end of media conference]