Foreign companies operating in economic zones are preparing to exit the country once the proposed Corporate Income Tax and Incentive Rationalization Act is passed into law, the Philippine Economic Zone Authority said over the weekend.
PEZA director-general Charito Plaza said these firms including manufacturers of electronics, garments, leather goods and semiconductors were very vocal of their opposition to the CITIRA bill.
“These industries feel we have unstable investment policies and laws. They are scared to expand if we keep on changing the rules in the middle of the game. We fear that this will destroy our credibility, losing their trust and confidence on our incentives and governance,” Plaza said.
She said a likely scenario might create “world market delays in the production and delivery that will make them lose their buyers [amid] the uncertainties created by CITIRA.”
Plaza said this would force companies to transfer to “countries that won’t disrupt their operations with the fear of inefficiency that is caused by a major change of incentives policies affecting their production costs.”
PEZA appealed to Malacañang to exempt PEZA from the rationalization of tax incentives under the CITIRA bill.
“Instead of trying to change [tax] incentives and causing instability, the Philippines should seize the opportunity to take advantage on US-China trade war, the Hong Kong turmoil and GSP plus zero tariff privilege, which are opportunities for us to attract new and transferring investments towards our country,” Plaza said.
She said even Indonesian President Joko Widodo had called on his cabinet to not miss the silver linings in the global economy where export-producers from the world’s two largest economies aim to avoid paying increased tariffs amid the trade-war.
Plaza said a part of Indonesia’s efforts to attract investors is to improve or enhance fiscal incentives, and not to rationalize incentives, to ensure they get a share in the transfer of companies moving out of China or the US.
Plaza said the Philippines is not in a position to haggle with investors, much less lose investments. She said that apart from dilution of incentives, the country should grapple with the reality of a lack of good supply chain, infrastructure and transportation facilities that foreign companies tend to overlook due to the lure of incentive packages.
She said that under the status quo, big industry associations and foreign chambers in the Philippines were satisfied with current PEZA incentives.
Business groups called for the retention of PEZA incentives, which were “tried, tested and proven effective” and even globally competitive. Plaza said the one-stop-shop of PEZA was recognised by the IFC and the World Bank for having the best practice among the ecozones worldwide.
“Major revamp of incentives under CITIRA is dangerous legally and economically. Export-oriented companies are in contract with PEZA when they registered in our economic zones and aimed to enjoy Philippine fiscal incentives. Tax revamp hindered exporters that supposedly were aiming to expand nationwide,” Plaza said.
She said, “CITIRA must be tested for domestic enterprises that should also be incentivized to support and encourage Filipinos to increase their production, manufacturing and export capability”.
“Domestic industries shall complete the supply chain, eradicate importation and thus attract more exporters because of the increase in the value chain of supplies in the country. However, CITIRA must not be applied to export-oriented enterprises in PEZA’s ecozones,” she said.