THE national government could consider imposing a special tax on firms that did well during the crisis to help those who suffered during the lockdowns, according to an economist from the Asian Development Bank (ADB).
In an Asian Development Bank Institute (ADBI) Blog, ADB Economic Research and Regional Cooperation Department Senior Economist Shigehiro Shinozaki said the proceeds from such a tax could be used to help micro-scale, small-scale and medium-scale enterprises (MSMEs) who suffered because of the mobility restrictions.
Shinozaki said this would be a better alternative to providing subsidies that would eat into government coffers.
“Instead of subsidies, having more public–private sector coordination and a market-based approach would be worthy of consideration for business support programs,” Shinozaki said.
“For example, the government could consider a business restructuring fund sourced by a special tax imposed on firms or groups that benefited from the lockdown and use it to rescue contracting firms that were hurt badly by the lockdown,” he added.
Shinozaki said efforts to assist MSMEs should include allowing digital transactions. These should eventually replace physical and personal contact.
This is crucial, the ADB economist said, because digital transformation is needed to survive the potential third and fourth waves of the pandemic.
Shinozaki also said the lockdowns highlighted the deterioration of banks’ balance sheets. However, he said this should not be addressed by injecting capital in banks. Instead, the government should encourage banks to strengthen self-funding efforts by issuing asset-backed securities based on MSME loan assets, Shinozaki said.
According to the ADB economist the increased uncertainty of containing Covid-19 requires the further elaboration of a phased approach.
“Given the different abilities of MSMEs for coping with the pandemic and quarantine measures, the government should pay more attention to implementing policy measures that are differentiated by firm size, type, location and sector and devising an optimal approach that neither impedes national revenues nor increases the budgetary burden post-Covid-19,” he explained.
Based on an ADBI Working Paper authored by Shinozaki and ADB statistician Lakshman N. Rao, firms affected by the lockdown could be divided into two groups.
The first group consisted of firms negatively affected by the lockdowns, which included manufacturing, transportation and storage, construction, accommodation and food services (including tourism), education and human health and social works.
The lockdown limited the operations of these firms forcing them to implement wage cuts to survive the pandemic. Others were faced with a lack of working capital after the lockdown was imposed.
The second group included businesses engaged in power and energy, information and communications technology (ICT), and real estate services. These firms benefited from shelter in place and/or work from home arrangements, which generated new demand for electricity and gas, Internet connections and real estate services.
“MSMEs operating in the power and energy sector were less likely to have no sales or revenue and also less likely to impose wage cuts. The stable demand for household energy use supported them,” Shinozaki explained.
“ICT-based MSMEs had relatively sufficient working capital during the first month of the lockdown, while MSMEs in the real estate sector largely benefited from the stay-at-home orders under the lockdown as their revenues were somewhat ensured,” he added.
The study also found that MSMEs in Metro Manila or the National Capital Region (NCR) were more likely to have no sales than those in the provinces.
However, MSMEs with declining revenue were more evident outside the NCR and provincial MSMEs were more likely to cut employees than those in Metro Manila.
Shinozaki also stated that based on the data, trends in MSMEs’ wage payments and financial conditions also differed by region. Lockdown measures immediately affected firms that have been operating for five years or less leading to zero sales and closures.
However, MSMEs operating for over 31 years maintained their operations but saw revenue losses. Start-ups faced the lack of funds needed to survive the pandemic.
The data also showed women-led MSMEs in the Philippines faced more serious impacts from the lockdown in terms of sales and revenue than those led by men.
Shinozaki said women-led firms experienced greater difficulty in raising sufficient working capital through formal financial services. He added this was partly because of the lack of women owning immovable assets such as land and buildings as loan collateral.
Shinozaki said “internationalized MSMEs” were able to survive the first month after the lockdown compared to domestic firms. These firms involved in global value chains had sufficient cash and savings to maintain operations.
They also had better access to bank credit and funding support from their business partners. Their international nature helped them survive during the initial stage of the pandemic.
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