REFORMS on foreign equity and tax structure are needed to build the country a strong manufacturing base, which, in turn, can sustain GDP growth, Trade Secretary Ramon M. Lopez put forward on Thursday.
On the sidelines of the 3rd Philippine Construction Industry Congress, Lopez said he is satisfied with the country’s 6.1-percent GDP growth in the third quarter. This was in spite of its slowdown from 7.2 percent during the same period last year, and the 6.2 percent in the second quarter.
“I would consider sustained momentum over 6 percent. [The third-quarter figure is] 6 percent still, although it is a little over 6 percent,” Lopez said in a mix of English and Filipino.
What matters to the trade chief are the strides made by the manufacturing sector. He said a strong production base will result in better exports and lesser imports, and will reflect on the country’s GDP.
“I have been saying that we really need to connect our capacity to export by having also a bigger manufacturing capacity. To have that, we have to pursue the investments [needed] that, thankfully, we are also getting right now,” Lopez argued.
The numbers are in favor of Lopez’s desire, as Manila’s Purchasing Managers’ Index (PMI) breached a 10-month high in October at 54, from the 52 PMI in September.
The PMI measures the health of a country’s manufacturing sector, and is computed on a weighted average of five separate subcomponents. To score above the 50 threshold signals a growth, while to hit below 50 means a slowdown.
The Philippines in October had the highest PMI among Southeast Asian economies, trailed by manufacturing giant Vietnam at 53.9 and Indonesia at 50.5. Malaysia, Thailand, Myanmar and Singapore all performed below the 50 mark.
Lopez said, however, that reforms must still be enacted to sustain this progress. He said one reform that will bolster the sector’s development is the lowering of corporate income tax (CIT)—one of the two components of the controversial Tax Reform for Attracting Better and High-Quality Opportunities (Trabaho) bill.
Under the Trabaho bill, CIT will be gradually reduced to 20 percent in 2029 from 30 percent. The measure, however, faces opposition from economic zone locators, as it will rationalize tax incentives granted to them.
“To continue with that [growth of the manufacturing sector], there must be reforms,” Lopez said.
“This lowering of CIT, part of the tax reform, is one that we will have. [The other is] liberalization of many more sectors. Hopefully, we can liberalize the two remaining sectors with the law,” he added. He is referring to retail trade and public utilities.
“It can open up more sectors where foreign investments can come in and own up to 100 percent. Liberalize more so that we can really [attract investments], then lower tax rates. The business environment is in good condition. The demographic is still working in our favor,” the trade chief argued.
The liberalization of retail trade, or House Bill 4595 filed by Rep. Arthur C. Yap of the Third District of Bohol and Senate Bill 1639 filed by Sen. Sherwin T. Gatchalian, is still pending deliberation in their respective chambers. On the other hand, HB 5828, which amends the Public Service Act by redefining utilities, hurdled the House’s third and
final reading September of last year, and is now awaiting action from senators.
“[On] the FDI [foreign direct investments], there is also a big chunk there that is being raked in to manufacturing. We really have to sustain the flow of investments in manufacturing to really expand the sector,” Lopez said.
FDI from January to October went up 156 percent to P39.3 billion, from P15 billion in the same period last year, according to the Board of Investments.