INDUSTRY groups are demanding that policy-makers raise the threshold for investments required to get the Finance chief’s approval, as they warned that adding another level of bureaucracy aggravates red tape in the government.
Private sector leaders told the BusinessMirror they will push for the adjustment of the threshold for investments that need to go through the Fiscal Incentives Review Board (FIRB). Last week, senators voted 20-1 to approve the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) bill on third and final reading.
The measure created the FIRB, tasked to review and approve fiscal incentives for projects worth P1 billion and above; chaired by the secretary of finance and cochaired by the secretary of trade and industry. Because of the low threshold of P1 billion, bulk of investments will go through a longer process with the FIRB, and this is why business groups want investment promotion agencies (IPAs) to be allowed to continue approving majority of new businesses, which can only happen if a higher cap— or beyond P1 billion—for investments that must go through FIRB is set.
The lone dissenting vote in the Senate was cast by Sen. Richard J. Gordon, who had opposed creation of the FIRB, which he deemed a needless layer of bureaucracy that contradicts the call for cutting red tape and right-sizing the government.
Under the bill, IPAs, such as the Philippine Economic Zone Authority (Peza), are left to assess investments of less than P1 billion. Industry leaders said they favor the setup wherein regulators like Peza approve their applications.
Threshold too low
Danilo C. Lachica, president of the Semiconductor and Electronics Industries in the Philippines Foundation Inc., argued the P1-billion threshold could work against the economy, as the added bureaucracy may turn off especially foreign investors.
“The FIRB limit of P1 billion delegated to Peza and IPAs may be too small,” Lachica said. “There is a concern that approval lead time may discourage investors.”
John D. Forbes, senior advisor at the American Chamber of Commerce of the Philippines, said foreign investors had recommended setting the threshold at $500,000, or close to P25 billion.
With the proposal ignored, they expect the FIRB to comply with its mandate to review projects within 20 days. Likewise, Forbes said foreign investors hope the soon-to-function committee will adjust the threshold on its own.
“Foreign investors usually invest much more than P1 billion per project, and will have concerns that the FIRB review adds more bureaucracy and uncertainty in a country in which bureaucracy and corruption are rated the top concerns of business,” Forbes explained.
Finance Secretary Carlos G. Dominguez III, however, sought to ease these concerns, saying in a statement at the weekend that placing the governance of tax incentives under the FIRB mirrors international best practice and is a major win for the Filipino people. It ensures accountability and transparency in the grant of tax incentives, he added.
It has yet to be made clear if the House will challenge the Senate version of the CREATE bill. If it does, Forbes vowed industry groups will ask lawmakers to raise the threshold to $500,000 as petitioned by foreign investors.
Albay Rep. Joey S. Salceda last week announced the House will adopt the Senate measure to skip convening the bicameral conference committee, wherein lobbyists from both the public and private sectors can make their final insertions to the bill.
However, other information indicated that House Speaker Lord Allan Q. Velasco still wants a bicameral conference committee to make a final review of the bill, a crucial part of the overall tax reform program.
Peza Director General Charito B. Plaza, for her part, declined to comment on how the passage of the CREATE bill will affect investment inflows to economic zones next year. Belying Salceda, she said the measure will undergo bicameral deliberations as instructed by Speaker Velasco.
Can PHL stay competitive?
Francisco S. Zaldarriaga, president of the Philippine Ecozones Association, said industries can only hope the country keeps up with its regional competitors in terms of ease of doing business with the inclusion of the FIRB in the review process.
In the World Bank’s Doing Business Report 2020, the Philippines improved its score to 62.8 out of 100 to land in the 95th spot of the survey. In the 2019 edition, the country obtained 57.68 that sank it to 124th, from 113th the prior cycle.
In spite of the jump in 2020, the Philippines stayed behind its Southeast Asian rivals Singapore, second; Malaysia, 12th; Thailand, 21st; Brunei Darussalam, 66th; Vietnam, 70th; and Indonesia, 73rd.
The Philippines received its poorest ranking of 171st in starting a business. For this very reason, industry groups had asked legislators to allow Peza and similar agencies to retain their one-stop shop services, including the authority to approve new projects.
The CREATE bill, on one hand, slashes corporate income tax to 25 percent, from 30 percent—the highest rate among Southeast Asian nations.
On the other, the measure lifts the incentives, including the 5-percent tax on gross income paid in lieu of all local and national taxes, being enjoyed by investors. Firms are provided with up to 10 years to surrender their tax perks, by then the new set of incentives takes effect.