The House Committee on Ways and Means on Monday approved the tax exemptions of government financial institutions under the proposed “GFIs Unified Initiatives to Distressed Enterprises for Economic Recovery,” or Guide, Act.
Albay Rep. Joey Sarte Salceda said committee members approved the Guide bill to strengthen the capacity of GFIs by providing incentives and exemptions to Philippine Guarantee Corp. (PGC), LandBank of the Philippines (LBP) and Development Bank of the Philippines (DBP). The same perks are also sought for the special holding company that will be created through the measure the committee dubbed as the “Accelerate Recovery to Intensify Solidarity and
Equity,” or Arise, Inc.
Salceda said the proposal also authorizes additional funding to be utilized by the PGC, LBP and DBP in undertaking their expanded roles of credit-refinancing under the proposed Guide Act.
“The programs that [the] Guide [Act] will authorize and enable [seek] to encourage distressed enterprises to continue operations and to maintain employment levels,” Salceda said. “The refinancing and equity rescue portions of [the] Guide [Act] are critical to economic recovery.”
Under the substitute bill, transactions of the DBP, LBP and special holding company and its subsidiaries shall be exempt from the following: documentary stamp tax; capital gains tax; creditable withholding income tax; value-added tax; gross receipts tax; and, other taxes that may be imposed under Republic Act 8424 (National Internal Revenue Code of 1997 as amended), whichever is applicable pursuant to the regulations to be issued by the Department of Finance, upon the recommendation of the Bureau of Internal Revenue.
Moreover, Salceda said the creation of the holding company will infuse equity “under strict conditions” to strategic enterprises and make more loans available to micro-, small- and medium-scale enterprises (MSMEs).
According to Salceda, the proposed Guide Act “was the culmination of our work on structural credit reforms, starting with what I then proposed to be the National Emergency Investment Corp., which became the Arise Inc. under this proposal.” The lawmaker was referring to the holding company for “too-big-to-fail” enterprises that he proposed created in his stimulus proposals last March.
“When my office was studying the core ideas that became [the] Guide [Act], we wanted to ensure that no strategic enterprise would go bankrupt. Many businesses—either by their size or by their relationship with other enterprises—are systemically important; and their closure carries systemic risks,” Salceda explained. “That’s why it is important that we establish a national emergency investment vehicle.”
However, Salceda said parts of the proposed Guide Act, particularly additional funding for the GFIs, are already incorporated in the Bayanihan to Recovery as One bill.
Salceda said that two weeks ago, he recommended to the Speaker via an aide memoire, “that we just incorporate Guide provisions in the Bayanihan to Recovery as One bill.” “That was adopted by the House leadership. We heard the substitute bill to Guide still, as a matter of the committee’s regular practice,” the lawmaker said. “This also manifests that we fully support the provisions in the proposal.” By approving the substitute bill, Salceda said the committee manifests its clear support for the Guide Act’s elements incorporated in the Bayanihan package.
Loss of competition?
Meanwhile, former Philippine Competition Commission (PCC) commissioner and now Marikina Rep. Stella Luz A. Quimbo expressed concerns on the provision under the proposed law exempting all mergers and acquisitions undertaken by Arise Inc. from PCC scrutiny.
“This poses the risk of anti-competitive behavior,” Quimbo said. “An Arise-owned company can end up with undue competitive advantage simply because it is state-owned.”
She cited as an example that the company can avail of government loans and guarantees with greater ease compared to its private sector competitors.
“They can also be exempt from regulatory fees and other requirements, even payment of taxes,” Quimbo added.
According to her, this “loss of competition will ultimately harm consumers “because this state-owned dominant firm can end up providing more expensive goods and services yet with poorer quality.”
“That has been our constant experience with state-owned corporations. Thus, I object to completely exempting Arise Inc from the jurisdiction of the PCC,” Quimbo said.
If the intention of the Guide Act is to ensure that swift action can be taken to rescue distressed firms, Quimbo said the PCC should continue to have the power to conduct a motu proprio review of the holding firm’s transactions and can fully enforce Section 14 on anti-competitive agreements and Section 15 on abuse of dominance of the Philippine Competition Act against any of the Arise-acquired entities or holdings.
“While the interventions proposed under [the proposed] Guide [Act] seek to promote accelerated economic recovery and, thus, are laudable, the additional funds proposed for LBP, DBP and PGC for purposes of helping MSMEs during the pandemic is best done under a singular and comprehensive economic stimulus package,” she said.
“This way, Congress can do a proper monitoring of all interventions, from loan programs, unemployment assistance, subsidies for critically impacted sectors, regulatory relief, to infrastructure,” Quimbo explained. “Having a singular platform that will address the most important economic concern today which is the unprecedented level of unemployment is needed to boost confidence. Without confidence of businesses especially the MSMEs, no one will take out the loans anyway.”