From 25% corporate tax to 20%, why is this both a good and bad thing?
Marcos signs law cutting Philippine corporate taxes
The message is about signaling foreign capital to invest in the country. Corporations paying 5% less tax means that money could be used to reinvest in growth. The Banks already lowered the required cash reserve ratio to have more money available for lending.
For the none financially inclined folks, that 5% isn't just a small reduction. We're talking about hundreds of millions in profits that corporation get to keep and the same hundreds of millions of pesos the government can't collect which increases the fiscal deficits.
Governments collect taxes to fund their programs and this 5% loss means other solutions to compensate can include increasing other taxes related to consumption, personal tax, or the government taking on more loans. I'm not saying all of these will happen but these are still options on the table in how a government tries to raise funds to keep supporting its programs.
We need jobs. We need a lot of them. While the Philippines has been blessed with a relatively high fertility rate unlike the Western countries, this advantage isn't capitalized unless there are jobs being created to absorb this work force. The lowered interest rates and cutting of corporate taxes helps with businesses to thrive as more capital is retained and is used for further growth.
If anyone has been keeping tabs on the Philippine markets and macros, you'd know that forecasts relating to it's growth have been a mix of positives and negatives (nothing new). The country has been poised to be a leading performer in ASEAN next year but growth projections have dampened since US election results drove off hot institutional money off the country.
We're still a country that relies on imports because we have a lack of infrastructure that can process the raw materials we heavily export. Even our currency (Peso) has weakened relative to the US dollar but from the fundamental side of things, inflation has been going down, unemployment rates have been going down, interest rates have been cut, and local companies have reported a lot of profit growth over the past few quarters.
So locally, there's nothing really wrong about the country, it's just that there are better places to park your capital elsewhere and that's one of the reasons why we're not seeing it reflected on the Philippine stock market (in my opinion anyway). If I check out the companies that aren't gaining traction from foreign investors, I see some relatively stable growth long term but these companies are overshadowed by more established names which gain more attraction from the global players.
On the wealth inequality side of things, when you reduce the corporate taxes, you also get to have more rich people keep their wealth. While the assets are still registered under the corporate names, we know that these corporations are owned by the wealthy social classes. I'm still a supporter for a fairer wealth tax which is nowhere to be seen at the moment.
Thanks for your time.