Written by: Alicia Tan
This article aims to highlight the main impacts of the recently enacted Bayanihan 2 legislation in the Philippines, as well as address the potential issues that arise from the Philippines government’s attempt to hasten economic recovery.
Background on the Legislation
In response to the ravaging effects of the COVID-19 pandemic, the Philippines government rolled out the Bayanihan to Recover as One Act, also known as Bayanihan 2, in September 2020. “Bayanihan” is the Tagalog word used to refer to a spirit of communal unity to achieve a goal. The Act represents a consolidation of bills filed by Congress. Its stipulated aims, as stated in President Rodrigo Duterte’s first report to Congress, are to “reduce the adverse impacts of COVID-19, enhance the capacity of the Philippine healthcare system, … accelerate the recovery and bolster the resilience of the economy, and enhance fiscal and monetary policies to sustain COVID-19 measures.” In the wider legislative context, the Act’s role is to supplement the relief provided under the Bayanihan Act enacted in May 2020. The preceding Act gave the President temporary special powers to carry out emergency measures in response to the pandemic. Those powers expired in June 2020. As the Philippines grappled with a resurgence in case numbers, there were further calls for a larger fiscal stimulus package to expand healthcare infrastructure and support the economy.
Bayanihan 2 was thus introduced. The Act provided for a P165.6 billion (US$3.4 billion) fund to fortify the country’s pandemic response. Drafters of the Act had ambitious aims, intending that the stimulus package would cover a myriad of different industries, including the healthcare, transportation and agricultural sectors. P25.5 billion was allotted to the hiring of skilled doctors and nurses, the purchasing of personal protective equipment (PPE) and the construction of additional medical facilities. A further P39 billion was assigned to government institutions to provide loans for businesses hit hard by one of the longest enforced lockdowns in the world.
Response to Legislation
Bayanihan 2 has been lauded for its prioritisation of the healthcare sector. According to a Department of Health report, almost half of the stimulus package is to be channelled towards supporting healthcare overall. The Act proposes to improve healthcare infrastructure through procuring additional medical equipment, expanding government hospital capacity and constructing temporary treatment management facilities in various provinces. Furthermore, it extends benefits to healthcare workers in direct contact with COVID-19 patients through the allocation of a COVID-19 Special Risk Allowance. The country’s past efforts have garnered the commendation of World Health Organisation (WHO) representative to the Philippines, Dr Rabindra Abeyasinghe, who stated that expansions of clinical and hospital capacities were highly effective in saving lives. This is expected to continue with the introduction of Bayanihan 2.
The Act also provides for numerous tax reliefs, a welcome addition to businesses and individuals struggling as a result of the pandemic. Section 6 of the Act repeals the tax imposed on sale of shares through IPO as required under Section 127(B) of the Tax Code. Section 5 of Bayanihan 2 provides for the exemption from tax of retirement benefits received by officials and employees of private firms from 5 June 2020 to 31 December 2020. As businesses endeavour to keep operations going and avoid insolvency, many have turned towards offering early retirement packages as an alternative to laying off employees. Section 5 thus helps to lighten the load on displaced retirees. However, the vague language of the provision results in potential issues arising in relation to its implementation.
One potential issue pertains to the interpretation of “received” under Section 5 of the Act. As the provision is time-sensitive, it necessitates the question of whether the provision includes constructive or only actual receipt of retirement benefits. As highlighted in a report by PwC Philippines, constructive receipt ‘requires … that the income is available to the taxpayer without substantial limitation or restrictions.’ If an employee retires before 5 June but obtains actual receipt of the retirement benefit between 5 June and 31 December, the Act is unclear on whether the tax exemption would apply. Additionally, the Tax Code only allows for a one-time availment of tax exemption on retirement benefits. It is unclear whether, given the exceptional nature of Bayanihan 2, an employee who subsequently receives retirement benefits from a different employer would be able to take advantage of the tax exemption under the Tax Code. The uncertainty of the provision renders it challenging for taxpayers to comply with the regulations accurately and to understand the restrictions under which they are bound.
Though the Act has been met with positive responses in some regards, in the government’s rapid effort to hasten economic growth, certain issues have been overlooked. Moreover, there have been further issues arising relating to competition law and the general execution of the Act.
Competition Law Issues
The Act poses potential antitrust issues. Under Section 4(eee) of the Bayanihan 2, mergers and acquisitions (M&A) deals with transactions valued below P50 billion, if entered into within 2 years of the enactment of the Act on 15 September 2020, will be exempt from a compulsory notification requirement to the Philippine Competition Commission (PCC). Additionally, motu proprio review by the PCC on these transactions to determine if they cause a substantial lessening of competition, will be suspended for a year. This is a drastic increase from the current threshold, where transactions worth more than P2.4 billion are subject to compulsory notification. On its face, the Section 4 provision seeks to expedite the business process thereby promoting business continuity in the short term. However, it seems to be a step back from the country’s progress in promoting competition and prohibiting abuse of power. The country’s desire to promote competition in the marketplace was enshrined fairly recently in the Philippine Competition Act (PCA) on July 2015, which vests power in the PCC to conduct inquiries, investigate and decide cases involving any violation of the PCA motu proprio.
This new provision has attracted its fair share of criticism, with House of Representatives member, Arlene Brosas, contending that this exemption threatens transparency and curbs the authority of the PCC. Under these relaxed restrictions, it would be much easier for businesses to escape scrutiny. Research has shown that out of over 200 M&A transactions reviewed by the PCC since 2016, only 14 had a valuation over P50 billion. Additionally, these deals were mostly global transactions that had little impact on the domestic market. On the contrary, anti-competitive deals amended or blocked by the PCC were entered into by domestic parties and were usually worth as much as P10 billion. Under Bayanihan 2, such deals would likely escape scrutiny by the PCC before being entered into.
The PCC has acknowledged that a balance needs to be struck between ‘implementing the policy objectives of promoting business continuity … and looking after market efficiency and consumer welfare under the [PCA]’. It has insisted it would intensify action in alternative areas to curb anti-competitive and abusive practices. However, it is arguable that the extreme approach of the legislation has effectively tipped the balance in favour of promoting short-term economic recovery at the expense of long-term market efficiency and consumer welfare.
Issues with Execution
The ambitious aims which the Philippine legislature sought to achieve with Bayanihan 2 has been curtailed to an extent by the executive branch’s slow execution. As of October 2020, the Department of Budget and Management (DBM) had only released P4.4 billion to government departments, amounting to 3.2% of the P165.5 billion stimulus package. Over P20 billion assigned to the Department of Agriculture to provide cash subsidies and loans for struggling farmers and fisherfolk have yet to be released. Various senators have urged the DBM to fast-track the release of critical funds assigned to various government agencies under Bayanihan 2. Budget Secretary, Wendel Avisado, has asserted that necessary administrative processes are being followed, under which agencies have to submit budget documents detailing their financial plans, for approval by the DBM and the President prior to receiving funds. However, concerned senators have argued that while procedures should be followed to ensure judicious spending, it cannot come at the expense of effective implementation. This is especially true as the funds are subject to an expiry date of 19 December 2020. To prevent these funds from being wasted, the government should identify and correct bottlenecks within the review process so as to ensure the funds are distributed efficiently.
The Bayanihan 2 arose from the Philippine government’s desire to mitigate the devastating impacts of the pandemic and for the country’s economy to emerge more resilient than before. While the Act has been praised for its prioritisation of the healthcare sector and generous fiscal spending, it occasionally suffers from a lack of clarity and a prioritisation of short-term economic recovery over long-term market welfare. Additionally, more conscientious execution is required to make the government’s ambitious goals a reality. As the government continues to implement the Act in response to the changing nature of the pandemic, its long-term impact remains to be seen.
Disclaimer: The opinions expressed in this post are those of the authors, and do not reflect the views or opinions of the Durham Asian Law Journal.
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