We need to resolve investment policy conflicts

Published November 9, 2018, 10:19 AM

by Charissa Luci-Atienza & Bernie Cahiles-Magkilat

E CARTOON NOV 9, 2018The National Economic and Development Authority (NEDA) hopes that Congress will enact more laws liberalizing investment areas in the country, Socioeconomic Planning Secretary Ernesto Pernia said Monday, after the signing of an executive order promulgating the 11th Regular Foreign Investment Negative List.

The new law amends existing laws to liberalize reciprocity provisions on professions such as pharmacy and forestry, as well as limitations on foreign participation in investment areas. “We would like to be sufficiently competitive with at least our ASEAN neighbors,” Pernia said.

There is need for legislation so that more areas can be opened to participation. The President wants to encourage legislators to liberalize more areas, Pernia added.

This call for more liberalization to encourage more foreign investments goes directly against the proposed Tax Reform for Acceleration and Inclusion (TRAIN) 2 which seeks to remove the incentives granted by various laws over the years to foreign enterprises now operating in our country’s economic zones.

At the 7th Arangkada Forum of all foreign business chambers in the country last September, the Joint Foreign Chambers (JFC) warned that removing the incentives to export-oriented firms, such as lower corporate income taxes, would have such a negative impact on investors. Represented in the forum were all the foreign business chambers in the country, such as those of the United States, Japan, Australia-New Zealand, Korea, Canada, and Europe.

The American Chamber of Commerce recently issued a position paper saying that 61 percent of its member firms had taken the position that TRAIN 2, which supposedly seeks to “modernize and rationalize” incentives, would “cause the firms to end further expansion.” It cited the proposed removal of the 5 percent Gross Income Earned (GIE) tax applied to firms registered with the Philippine Economic Zone Authority in lieu of all other taxes. Without the 5 percent GIE, the companies would no longer be exempted from paying local taxes.

As early as July, PEZA had reported that because of TRAIN 2, investors had held off their expansion plans and new projects in the country. Because of the uncertainties brought about by the proposed law, PEZA Director General Charito B. Plaza reported investments in the January-June period were down by more than half from P120.22 billion in 2017 to P53 billion for the same period in 2018.

So what shall it be? Shall we have a policy of further liberalization to attract more foreign investments, as Secretary Pernia called for last Monday? Or shall we remove the incentives already extended over the years to so many foreign enterprises now operating in our economic zones, as sought by TRAIN 2? If there is a viable middle ground, it should be quickly determined and put in place before the present uncertainty does more damage to the country’s investment program.