THE Philippines has lost at least $12 billion worth of investments over the past two years due to the prolonged deliberations on the second tax reform bill, as foreign investors hesitate to set up shop in the country with the fiscal structure yet to be finalized.
Albay Rep. Joey S. Salceda on Thursday told reporters that $12 billion in investments has been either stalled or lost due to the delayed passage of the Corporate Income Tax and Incentives Rationalization Act (Citira) bill. Foreign firms, he explained, are thinking twice about their plans in the Philippines without a final tax policy in place.
“Around $12 billion is the notional [losses]—those that should have flowed into the Philippines—because of the two years [of Citira deliberations],” Salceda said.
Comparing the Philippines to its Southeast Asian rivals, he argued that the country has a legislative method that paves the way for longer discussions on proposed laws. He said in countries like Singapore, Thailand and Vietnam, when their government wants to pass a new rule, they can do so immediately without consulting with stakeholders.
“Here, it has been two years since President Duterte approved the Citira bill as a priority of his Cabinet. It has been two years hanging now. Foreign investors want to know what tax rate they will be paying when they enter the Philippines,” Salceda lamented.
As such, the economist turned lawmaker is calling on his counterparts from the Senate to pass their version of the Citira bill the soonest.
He argued that the measure will guarantee stability for the investment community, which is already facing several uncertainties brought about by the trade conflict between the United States and China, and the spread of the novel coronavirus.
Factory closures
Salceda went as far as saying that the passage of the Citira bill could save the Philippines from further factory closures resulting from multinationals rationalizing their global operations.
“The Citira is the answer to that. It is the solution in the sense that it can set the expectations of the business sector,” he explained.
“This Citira is competitive. We traveled around the region. This is the most competitive menu of incentives investors can get, as we turned the forever [incentives] into forever renewable,” Salceda added.
The Duterte administration’s second tax reform package seeks to lower corporate income tax to 30 percent by 2029, from 20 percent at present—the highest rate in the region. In exchange, it will rationalize fiscal incentives granted to firms operating in economic zones.
It is facing the harshest of opposition from economic zone firms, mostly multinationals, who warned they will be forced to pack up operations here and move to another country if their tax perks, particularly the 5-percent tax on gross income paid in lieu of local and national taxes, are lifted.
This looming capital flight entails a larger problem for the government, as it will result in the job loss of many workers. Last year the Joint Foreign Chambers of the Philippines estimated over 700,000 workers could lose employment as a result of firms leaving the country once the Citira bill is passed into law. That figure has been disputed as being too high by Finance officials, saying there does not seem to be solid basis for the estimates.
1 comment
I think there’s typo error on the rates.. should be “to 20%” and “from 30%”
“The Duterte administration’s second tax reform package seeks to lower corporate income tax to 30 percent by 2029, from 20 percent at present—the highest rate in the region. In exchange, it will rationalize fiscal incentives granted to firms operating in economic zones.”