Investments registered with the Philippine Economic Zone Authority (Peza) in January to August grew nearly 8 percent despite the uncertainty created by a proposed bill that seeks to rationalize the fiscal incentives being enjoyed by economic zone locators.
However, industry groups warned that this may just be a “blip” as investors are expected to reconsider plans to set up shop in the Philippines if Congress approves the rationalization of fiscal perks under the Corporate Income Tax and Incentives Rationalization Act (Citira) bill.
From January to August, investments approved by the Peza rose 7.9 percent to P83.52 billion, from P77.4 billion during the same period last year. This translated to 374 fresh projects, nearly two dozen higher than the 351 new projects in 2018.
These new operations and expansions are projected to generate $3.19 billion worth of exports and create 58,032 jobs, according to the Peza.
However, the information-technology sector continues to suffer from uncertainties brought about by the government’s move to overhaul incentives and the ban on economic zone development in Metro Manila. IT investments in the eight-month period plunged nearly 20 percent to P9.15 billion, from last year’s P11.38 billion.
These investments, which come in the form of 111 fresh projects, are estimated to generate $487.57 million in exports and produce 31,964 jobs.
Despite the positive investments data, industry leaders said this is just for the short term and investors will soon get the jitters. They said the passage of the Citira bill at the House of Representatives may prompt investors to hold off investment plans.
Philippine Ecozones Association President Francisco S. Zaldarriaga told the BusinessMirror the passage of the Citira bill at the House will “possibly, but hopefully not” make a negative impact on investments applications to the Peza.
Zaldarriaga said whatever recovery the Peza is experiencing now is just “temporary.” He said these investments were most likely committed previously and were just recently registered, and some could be expansions and not new operations.
John D. Forbes, senior advisor of the American Chamber of Commerce of the Philippines, said foreign firms are really upbeat about investing in the country, but they are held back by planned changes in the menu of incentives granted to investors.
He raised the looming removal of the 5-percent tax on gross income earned paid in lieu of all local and national taxes as one of the factors. Firms operating in economic zones enjoy up to six years of tax break and, once that expires, they will have to pay the 5-percent tax on GIE, instead of the 30 percent corporate income tax (CIT).
Based on his recent speeches, President Duterte himself is in favor of paying taxes based on GIE, but the House-legislated Citira bill deletes that incentive.
“There is continued interest in investing in the Philippines because of its work force, but this is dampened by the uncertainty over how existing investors will be treated. Now PRRD [President Rodrigo Roa Duterte] is favoring GIE, but the House bill eliminates that,” Forbes said in a text message.
Voting 170 to eight, the House of Representatives last Friday passed on third and final reading the Citira bill, the second package of the Comprehensive Tax Reform Program.
The measure seeks to attract more investments to the Philippines by lowering the CIT rate to 20 percent by 2029, from 30 percent at present, which is the highest among Southeast Asian economies. In exchange, it will overhaul tax perks granted to investors.
Economic zone firms, mostly multinationals, warned they will be forced to pack up and relocate to another country if their incentives are removed, resulting in capital flight and, consequently, job losses.