A group of private economic zone developers expressed concern over the possible impact of Comprehensive Tax Reform Package 2 on investments in the country.
The Philippine Ecozones Association said in a position paper the removal or withdrawal of the existing fiscal incentives granted to qualified registered enterprises should be reconsidered.
It said the proposed reforms such as shortened income tax holiday period, reduced corporate income tax for a reduced period, the exclusion of VAT exemption and local tax exemption as incentives could have a negative effect on ecozone operations.
Philea said the benefits of granting incentives which consistently attracted foreign investments and exponentially spurred economic growth far outweighed the costs of the projected foregone revenues.
“It should be emphasized that what the DoF has computed as foregone revenues of the government would not even be possible if not for the existing incentives that attract foreign investments. Without the incentives offered by these IPAs [investment promotion agencies], there would be no revenue to collect in the first place because investors would not be drawn to the Philippines,” the group said.
The group, citing the experience in 2016, said the projected P163 billion in foregone income was compensated by the P685 billion in approved investments by the IPAs, generating jobs for 196,003 persons and supporting a GDP growth rate of 6.9 percent.
It said the proposed removal of incentives would not necessarily improve the country’s productivity and competitiveness.
“The Finance Department claims that the Philippines offers ‘very generous tax incentives’ which are too costly to maintain. This is incorrect,” Philea said.
It said the incentives offered by the Philippines was not even at par with other countries, as other Asean members were dangling longer tax holiday periods and other incentives such as cash grants/subsidies like in the case of Singapore.
The group computed that in the absence of fiscal incentives, the Philippines’ effective tax rate or the difference between the pre-tax of return and the after-tax rate of return to those financing the investments, including the burden of personal and indirect taxes, would be high by regional standards.
“Thus, to be competitive, the Philippine government, through the different IPAs, must continue to offer various fiscal incentives to lure investors to park their capital in the country. The provision of incentives will be the only consolation for investors to stay in the Philippines. If these fiscal incentives will be removed as part of the proposed tax reform package of the Philippine government, there will be a huge risk of losing these investors,” Philea said.
It said it would be erroneous for the government to experiment on the possibility that investors would stay or leave the country once incentives were withdrawn. It said foreign direct investments had a vital role in the economic growth.
It also warned about the possible exodus of locators from the Philippines when fiscal incentives were withdrawn as in the case of China and Indonesia.
The group also argued that the removal of incentives granted to existing registered enterprises would be tantamount to a breach of contract with the government.