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Economy

Duterte restyles himself as tycoon-friendly corporate tax cutter

Philippine leader once threatened oligarchs but now needs their support

Rodrigo Duterte
Philippine President Rodrigo Duterte's tax reform package is expected to yield a windfall for conglomerates -- the country's top taxpayers.   © Reuters

MANILA -- Philippine President Rodrigo Duterte is doubling down on efforts to win over the country's tycoons, as he seeks to drum up political support for an ambitious campaign to rewrite the constitution.

During his state of the nation address on Monday, Duterte made a strong pitch for passing the second part of his comprehensive tax reform program. "Package 2," as it is known, centers on reducing the corporate income tax to 25% from 30%, the highest in Southeast Asia.

"Package 1," signed in December last year, restructured personal income taxes, raising the take-home pay of the majority of workers, according to the Finance department.

"This matter is urgent," Duterte told legislators during a joint session of the House of Representatives and the Senate. "Do not be part of the problem by ignoring it. I hope to sign Package 2 before the year ends."

The new package would also revamp rules on tax holidays, making them time-bound and granted only to companies that meet certain criteria -- say, introducing new technology or hitting performance metrics. This would hurt call centers and traditional manufacturers in economic zones, which have been enjoying tax breaks for many years.

Duterte said the policy would benefit small enterprises. "The enactment of Package 2 is what stands between today and millions of jobs in the near future," he said.

All in all, the second package is expected to yield a windfall for conglomerates, the country's biggest taxpayers. This jibes with Duterte's goal of improving relations with business magnates, including those he confronted in the past.

On July 17, the president was among the well-wishers at the 83rd birthday celebration of Lucio Tan, founder of LT Group and the fourth-richest person in the Philippines last year according to Forbes. "Dr. Tan, I wish you a happy birthday, good health and countless blessings and achievements," Duterte said. "May God grant you a thousand more years of your life."

Just a year ago, Duterte publicly blasted Tan's Philippine Airlines for being a tax delinquent and even challenged the tycoon to bankroll a plot to oust him. In February, however, Duterte said he would "forever shut up" about Tan's past tax liabilities, after Philippine Airlines paid 6 billion pesos ($112 million) to the government and ferried distressed overseas Filipino workers from Kuwait back to Manila for free.

Duterte's chastising of Tan was reminiscent of an earlier threat to Roberto Ongpin. The former trade minister was forced to divest from his listed online gambling company after Duterte identified him as one of the oligarchs he wanted "to destroy" in 2016.

Duterte, the longtime mayor of Davao in Mindanao, prided himself as a man of the people who won the presidency that year without the help of Manila's rich and powerful. Duterte said he had rejected Tan's offer to donate to his campaign.

But Duterte's attitude toward the tycoons has changed. Last year, he praised two Spanish clans -- the Aboitizes, behind Aboitiz Group, and the Zobels of Ayala Corp. -- for being good corporate citizens.

"There's no doubt about it, they are imbued with the sense of responsibility," Duterte said of the Zobels.

Ramon Casiple, executive director at the Institute for Political and Electoral Reform, called Duterte's engagement with the tycoons "political maneuvering."

"He doesn't want a united opposition -- both on the political and economic side," Casiple told the Nikkei Asian Review.

Casiple said Duterte is the only president who has not been backed by oligarchs, but their support is crucial for pushing reforms, such as a switch to a federal system of government, especially at a time when Duterte is facing declining public support.

He explained that the charter change could loosen the grip of Manila elites on the countryside, once powers are decentralized and regions are free to set their own investment rules.

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