New Economic Reform Bills: Impact on PH Tech

In a joint statement, at least 13 local business groups and foreign chambers have urged Congress to pass key economic reform bills that are yet to be ratified under the administration of President Rodrigo Duterte. They have also lauded the enactment of landmark legislation such as the Electric Vehicles and Charging Stations Act, and the amendments to the Public Service Act (PSA), Retail Trade Liberalization Act, and Foreign Investments Act (FIA).

New Economic Reform Bills: Impact on PH Tech

To recall, Congress would return to session by May 23 and would have sine die adjournment by June 3, after which the next session would be held under the next administration. Despite this show of support, the window for passage appears to be tight, considering the canvassing of votes for the 2022 election to be done also by Congress.

“In six session days including the national canvass? Unless any of those bills are in the advance stage, not possible,” Senate President Vicente “Tito” Sotto said in a Viber message to BusinessWorld.

Which economic reform measures are still pending, and how may they be expected to influence the technology sector, whether they hurdle the legislature in the near future or wait to be refiled in the next Congress?

Passive Income and Financial Intermediary Taxation Act (PIFITA)

Bills concerned: House Bill No. 304

Status: Approved by House (September 2019), Pending in Senate Committee level (September 2019)

Possible effects on tech: Regarded as the fourth package of the Comprehensive Tax Reform Program (CTRP) of the Duterte administration, PIFITA aims to simplify the taxation of passive income, financial services and transactions by reducing the number of combinations of tax bases and rates from 80 to 36. It also aims to harmonize tax rates on interest, dividends and capital gains, and business taxes imposed on financial intermediaries.

The pandemic has accelerated a number of technology-driven passive income options, like those conducted by online means, and the passage of PIFITA may affect how much of these would be taxed. How PIFITA intends to remove initial public offering (IPO) taxation would also affect tech companies implementing them in the future.

Cryptocurrency may also be a subject of discussion in this regard. Experts such as those from Taxumo assume that cryptocurrencies are likely to be taxed in the Philippines only when they generate income, i.e., when converted to fiat currency such as the Philippine peso. However, in the possibility that legal definitions for cryptocurrency in the country would expand to further clarify taxation coverage, e.g., treating them like stocks or properties, then PIFITA might be a way to begin since it covers taxation on both passive income and financial intermediaries.

Open Access in Data Transmission Act

Bills concerned: House Bill No. 8910, Senate Bill No. 45

Status: Approved by House (July 2021), Pending in Senate Committee level (July 2019)

Possible effects on tech: Aiming for a competitive and open data transmission network, the measure provides for registration of data transmission industry participants such as internet service providers (ISPs), data center service providers, and public telecommunication entities (PTEs) with the National Telecommunications Commission (NTC). The lowering of barriers to enter the market is seen as a potential accelerator for internet rollout, as industry participants will not be required to acquire a legislative franchise with the exception for those covered by a number of conditions (e.g., operators of international cable landing station, providers of nationwide backbone network).

They will also be obliged to comply with cybersecurity standards subject to audit by the Department of Information and Communications Technology (DICT). For its part, the NTC shall ensure technological neutrality, as well as maximize the allocation and assignment of finite radio spectrum resources used in the transmission of data by ensuring that spectrum is made available for the use of all registered data transmission industry participants.

In relation to this, the measure also provides for infrastructure sharing, prohibition on paid prioritization, equal treatment on traffic, and availability of information on essential services and facilities.

Philippine Creative Industries Development Act

Bills concerned: House Bill No. 10107, Senate Bill No. 2455

Status: Approved by House (September 2021), Approved by Senate on Second Reading with Amendments (January 2022), House representatives designated for bicameral conference (February 2022)

Possible effects on tech: Focusing on the creative industry (e.g., those involved in producing entertainment, cultural, and artistic goods), the measure provides for the formulation of the Philippine Creative Industries Development Plan, which includes analysis of technological trends that impacts the labor market for creative talent, technological assistance and interventions to accelerate tech transfer and commercialization, and the digitalization of creative industries. This considering how the world of creatives has been strongly related with technological advancement.

A Creative Industries Investment Priority Plan will also be implemented based on economic and technical factors to ascertain activities in the creative industry which may qualify for fiscal incentives.

Promotion of Digital Payments Act

Bills concerned: House Bill No. 8992, Senate Bill No. 2455

Status: Approved by House (March 2021), Pending in Senate Committee level (August 2020)

Possible effects on tech: National and local government, as well as government-owned and -controlled corporations (GOCCs) are mandated to adopt safe and efficient digital means of receiving payments. Merchants may also be required by local government units (LGUs) through ordinance to adopt digital payment mechanisms.

In addition, promotion on financial and digital literacy shall also be undertaken along with laying down a framework for incentives to encourage the adoption of digital payments. Earlier this year, President Duterte issued Executive Order (EO) No. 170, s. 2022 that mandates government agencies to adopt digitalization of payments, with a timeline placed at six months after the creation of the implementing rules and regulations (IRR) for full implementation. Then again, an executive order, as the name implies, is different from a republic act. For instance, EO No. 170, s. 2022 was issued using existing laws such as Republic Act No. 8792 (Electronic Commerce Act) as statutory basis, whereas legislation can only be repealed by a similar act of Congress.

The signatories of the letters sent to the Senate and the House of Representatives were reported by BusinessMirror to be as follows:

• American Chamber of Commerce of the Philippines
• Australian-New Zealand Chamber of Commerce of the Philippines
• Bankers Association of the Philippines
• Canadian Chamber of Commerce of the Philippines
• European Chamber of Commerce of the Philippines
• Financial Executives Institute of the Philippines
• IT and Business Process Association of the Philippines (IT-BPAP)
• Japanese Chamber of Commerce and Industry of the Philippines, Inc.
• Korean Chamber of Commerce of the Philippines, Inc.
• Makati Business Club (MBC)
• Management Association of the Philippines (MAP)
• Philippine Association of Multinational Companies Regional Headquarters, Inc.
• Semiconductor and Electronics Industries in the Philippines Foundation, Inc. (SEIPI)

What do you think of these pending legislative measures? What other reform measures should also be given priority to help further develop the tech industry in the Philippines?