Are we finally on the road to nirvana?

"Congratulations are due to House Speaker Alan Peter Cayetano and Ways and Means Chair Joey Salceda on the swift passage of the Corporate Income Tax and Incentive Rationalization Act and Passive Income and Financial Intermediary Taxation Act in the House of Representatives. Memorably tagged CITIRA and PIFITA by Congressman Joey, they are now in the Senate Ways and Means Committee chaired by lawyer and economist Senator Pia Cayetano.

“All these reforms are necessary if the Philippines is to move forward to a future with no extreme poverty by 2040. Together, we stand ready to support these reforms in any way we can. We urge both houses of Congress to recognize the great merits of the Comprehensive Tax Reform Program and pass the remaining packages at the soonest possible time.” [“Citira, Pifita: Now na!,” Romeo L. Bernardo, Introspective, BusinessWorld, 6th Oct 2019]

Are we finally on the road to nirvana, that is, from poverty to prosperity?

Benchmark. Benchmark. Benchmark.

"Last year, the Chinese government organized a boycott of South Korean firms and products to punish the South Korean government for deploying an American missile-defense system. Although the system was intended to protect against an attack from North Korea, China complained it could be used to undermine China's defenses too. The boycott, although now over, alarmed South Korean investors.

"Vietnam, in contrast, is liberalizing its economy to welcome foreign industry. In 2015 the government opened 50 sectors to foreign competition and slashed regulation in hundreds more. It sold a majority stake in the largest state-owned brewer, Sabeco, to an international firm last year. Vietnam's enthusiasm for free-trade deals has made it especially alluring to foreign investors.

“Vietnam received FDI worth 8% of GDP last year—more than double the rate that went to comparable economies in the region. Foreign-owned firms now account for nearly 20% of the country’s output. They have grown more than twice as fast as state-owned enterprises over the past decade, despite the country’s nominally communist government.

"Other countries in the region tend to export raw materials or components to China, where they assemble them into other products. Vietnam exports mainly finished goods.

“[Samsung Vietnam] churns out more mobile phones than any other facility in the world. It and Samsung Electronics’ other factories in Vietnam produce almost a third of the firm’s global output. The company has invested a cumulative $17bn in the country.

“But Samsung is as important to Vietnam as Vietnam is to it. Its local subsidiary’s $58bn in revenue last year made it the biggest company in Vietnam, pipping PetroVietnam, the state oil company. It employs more than 100,000 people. It has helped to make Vietnam the second-biggest exporter of smartphones in the world, after China. Samsung alone accounted for almost a quarter of Vietnam’s total exports of $214bn last year.” [“Why Samsung of South Korea is the biggest firm in Vietnam: It makes most of its smartphones there,” The Economist, 12th Apr 2018]

Note Samsung’s revenue of $58bn, almost a quarter of Vietnam’s total exports of $214bn, against the combined sales, $43.1bn, of the 8 Philippine-listed companies that made it to the Forbes list: SM Investments Corporation; BDO Unibank Incorporated; JG Summit Holdings Incorporated; Ayala Corporation; Top Frontier Investment Holdings Incorporated; Metropolitan Bank & Trust Company (Metrobank); Aboitiz Equity Ventures; Manila Electric Company (Meralco). [“8 Philippine companies among world's largest listed firms,” Sofia Tomacruz, Rappler.com, 25th May 2017]

It should not surprise us given OFW remittances plus the BPO industry drive the Philippine economy.

Industrialize. Industrialize. Industrialize.

Let’s get back to Citira and Pitifa: “Urgency is genuinely called for since this congress has less than a year before election fever grips the nation, and everything is pushed back for at least three more years. Also, the country, especially the poorest citizens, cannot wait. Philippine poverty incidence stands at over 21% vs. 11% for Indonesia, 9% for Thailand, 7% for Vietnam.

"Moreover, the world doesn't know standstill. It is especially relevant for CITIRA, which will affect the behavior of investors, the job creators. In the ASEAN, our corporate income taxes (CIT) rates stand out, i.e.,  uncompetitive, at a high 30%, even as our ASEAN peers, which now average 22%, are moving swiftly to lower them further."

Question: How will these reforms stand against what Vietnam has done and achieved? No doubt, Citira will benefit the eight largest Philippine-listed companies and would most likely invest more, which will make them even more significant than they are today.

It’s worth repeating that, “Vietnam, in contrast, is liberalizing its economy to welcome foreign industry. In 2015 the government opened 50 industries to foreign competition and slashed regulation in hundreds more. It sold a majority stake in the biggest state-owned brewer, Sabeco, to a foreign firm last year. Vietnam’s enthusiasm for free-trade deals has made it especially alluring to foreign investors.”

Are we neither here nor there? Consider: We are parochial and insular. We value hierarchy and paternalism, rely on political patronage and oligarchy, that at the end of the day, ours is a culture of impunity.

Unsurprisingly, “Manila worst-ranked regional city in ‘smart’ list, Vince Angelo C. Ferreras, BusinessWorld, 3rd Oct 2019. “[The] top five concerns of Metro Manila respondents were access to basic amenities, corruption, road congestion, air pollution, and security.”

Moreover, the “Water supply crisis needs long-term solution,” Marit Stinus-Cabugon, The Manila Times, 7th Oct 2019. “The World Health Organization (WHO) and the United Nations Children’s Fund had earlier identified ‘poor sanitation and hygiene conditions’ as one of three factors that made the Philippines a candidate for the resurgence of poliovirus.”

Surprise, surprise: Which of our biggest companies get chunks of their bounties from infrastructure projects?

“Will the Philippines be able to capture a hefty share of investments leaving China? To be sure, the Philippine level of FDIs, despite the rise, is still low in comparison to our counterparts in the region.

“But it is not fiscal incentives that will mainly attract new investors. The World Economic Forum’s Global Competitiveness Report 2017-2018 says that the main concerns of businessmen in the Philippines are the inefficient bureaucracy (20% of respondents), inadequate infrastructure (18%), corruption (14%), tax regulation (11%), tax rates (9%) and political instability (8%).

"[Fiscal] incentives cannot be the main instrument for FDI promotion. [At] the same time, the government must support winning sectors, which it is doing through its investment priority plan, through various means, including the prudent use of fiscal incentives.

"Fiscal incentives still play a role, albeit they have to be rationalized to curb abuses and reduce tax leakage. Such fiscal incentives address market failure and must align with the government's investment priority plan or its industrial or technology policy. The menu of incentives must be responsive to the specific needs of the sector or the firm. Ergo: incentives are not mainly about tax incentives.

"Tax incentives must be performance-based, time-bound, and transparent. The government can steer incentives towards addressing job creation and technological innovation (e.g., tax-deductibility on additional labor costs, human development costs, and research and development costs)." [Do fiscal incentives predict foreign direct investments (?), Filomeno S. Sta. Ana III, Yellow Pad, BusinessWorld, 6th Oct 2019]

In other words, how different are we approaching the challenge of nation-building today from how we did it in the past, recognizing that despite these efforts, we remain the regional laggard?

Industrialize. Industrialize. Industrialize.

The bottom line: To keep to our inward focus, our efforts in nation-building will always yield sub-optimized outcomes.

Worse, we can only fortify the 1-% phenomenon, as in the 8 Philippine-listed companies that made it to the Forbes list and undermine our goal to move forward to a future with no extreme poverty. See above re Vietnam’s enthusiasm for free-trade deals has made it especially alluring to foreign investors.

Gising bayan!

“Why independence, if the slaves of today will be the tyrants of tomorrow? Moreover, that they will be such is not to be doubted, for he who submits to tyranny loves it.” [We are ruled by Rizal’s ‘tyrants of tomorrow,’ Editorial, The Manila Times, 29th Dec 2015]

“Now I know why Paul dared to speak of ‘the curse of the law’ (Galatians 3:13). Law reigns and discernment is unnecessary, which means there is little growth or change in such people. When you do not grow, you remain an infant.” [Faith and Science, Open to Change, Richard Rohr’s Daily Meditation, 23rd Oct 2017]

“As a major component for the education and reorientation of our people, mainstream media – their reporters, writers, photographers, columnists, and editors – have an obligation to this country . . .” [Era of documented irrelevance: Mainstream media, critics and protesters, Homobono A. Adaza, The Manila Times, 25th Nov 2015]

“National prosperity is created, not inherited. It does not grow out of a country's natural endowments, its labor pool, its interest rates, or its currency’s value, as classical economics insists. [A] nation’s competitiveness depends on the capacity of its industry to innovate and upgrade.” [The Competitive Advantage of Nations, Michael E. Porter, Harvard Business Review, March–April 1990]

“You have to have a dream, whether big or small. Then plan, focus, work hard, and be very determined to achieve your goals.” [Henry Sy Sr., Chairman Emeritus and Founder, SM Group (1924 - 2019)]

“Learning and innovation go hand in hand. The arrogance of success is to think that what you did yesterday will be sufficient for tomorrow.” [William Pollard, 1911-1989, physicist-priest, Manhattan Project]

“Development [is informed by a people’s] worldview, cognitive capacity, values, moral development, self-identity, spirituality, and leadership . . .” [Frederic Laloux, Reinventing organizations, Nelson Parker, 2014]