Putting up the necessary infrastructure and eliminating red tape, and not additional incentives, will attract investors to the Philippines, according to economists from the Ateneo Center for Economic Research and Development (ACERD).
While incentives could help, bad roads, lack of transportation, and difficulties in doing business would discourage investors from setting up shop in Philippine areas in need of more jobs.
“Our problem is not really incentives per se,” ACERD Director Alvin P. Ang said in a recent forum. “We are really worse off in infrastructure; this is where we need to catch up.”
Ang said that based on data from the World Economic Forum (WEF), the three main areas of concern of investors in the Philippines are inefficient government bureaucracy, inadequate supply of infrastructure and corruption.
Previous years would show a different order of the top 3 issues but would still remain the top three areas of concern of investors when it comes to the Philippines.
Data presented by former Socioeconomic Planning Secretary Cielito F. Habito showed Total Approved Foreign Investment by key Investment Promotion Agencies posted a 37.9-percent contraction in the first quarter of the year.
“We still need a lot of catching up. As you know, we are the lowest among Asean,” Ang said. “We need to improve on it further but with the data coming from the investment agencies showing negative [growth], we need to do a lot of work. Hopefully, the recently passed ARTA law [Anti-Red Tape Act] which should simplify business registrations in the country.”
Habito said data showed that the Philippines was the laggard in terms of foreign direct investments (FDI) among the Asean-5.
In 2017 Habito said Bangko Sentral ng Pilipinas (BSP) data showed the country only booked $10.1 billion worth of investments. While this was higher than those that flowed into Thailand and Malaysia, he said this may just be a “fluke.”
Habito said in terms of exports, the country only earned $69 billion last year. This was the lowest among the Asean-5 and the gap between the country’s export earnings and those of its neighbors have widened.
“Thirteen years ago, Vietnam was still lagging behind us. And we were only $45 billion away from Indonesia. Look at where we are now, we are now $100 billion lower than Indonesia, Vietnam has since overtaken both the Philippines and Indonesia,” Habito said.
‘Generous’
Ang said the country’s tax- incentive system is actually one of the “most generous” in the Asean. The Philippines offers a minimum of four years of incentives plus an eight-year extension, as well as a “forever” gross income earned tax of 5 percent.
Other Asean countries offer a maximum of 20 years of incentives, such as Brunei Darussalam, Indonesia and Lao PDR. Worth noting was the fact that Singapore, which offers only a three-year incentive to investors, has the highest FDI in the region.
Further, Ang said, only the Philippines offers income incentive “forever.” This has also been pointed out by the Department of Finance (DOF) in previous Congress hearings.
The DOF said these “deal sweeteners” are enshrined in 123 laws and even 192 non-investment tax incentives. These incentives have been in existence for the past 50 years.
The 123 investment-led fiscal incentives has protected many firms across at least 25 major industries. There are also incentives extended for various sectors under the Board of Investments; enshrined in the Local Government Code of 1991; the National Internal Revenue Code; and the Customs Modernization and Tariff Act.
The most number of incentives are given to communication and postal services with as much as 42 investment-led fiscal incentives followed by a far second, the energy/oil industry with 14 fiscal incentives.
Other industries that have more than two fiscal incentives are agrarian reform/agriculture, eight incentives; games and amusement and banks/financial industry, five incentives each; air transport services and BOI-registered firms, four incentives each; and environment/pollution control and shipping industry, three incentives each.
These concerns will be addressed by the Tax Reform for Attracting Better and High Quality Opportunities bill which is now pending in Congress.
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