Events are fast coming to a critical point in the government move to remove some of the tax incentives that previous administrations had used to persuade so many foreign firms to locate in the Philippines.
Early this month, the Joint Foreign Chambers of the Philippines (JFC), whose members now have over $30 billion worth of investments in the country, asked that the Philippine Export Zone Authority (PEZA) be exempted from the proposed Comprehensive Income Tax and Incentive Rationalization Act (CITIRA), House bill 4157.
In particular, the JFC opposed the provision that would remove the present 5 percent Gross Income Earned (GIE) tax that companies in the ecozones pay in lieu of local and national taxes. For decades, foreign firms have been operating in PEZA under this tax system. If it is now removed, it would disrupt their operations and so many are now preparing to leave for other countries like Vietnam.
The JFC is a coalition of American, Australian, New Zealand, Canadian, European, Japanese, and Korean chambers and companies and the Philippine Association of Multinational Companies. They represent some 4,000 foreign firms now located in ecozones all over the country.
Last Friday, following reports that President Duterte had directed all Philippine agencies to suspend all talks of financial deals, including donations to the Philippines, with 17 countries which had voted in favor of a United Nations resolution to investigate alleged human rights violations in the Philippines. Executive Director Florian Gottein of the European Chamber of Commerce of the Philippines (ECCP) said the European companies are now considering leaving the country.
Presidential spokesman Salvador Panelo was quick to deny there is such a presidential directive, but the European firms’ reaction shows how the situation has deteriorated because of CITIRA.
CITIRA – which used to be known as TRAIN 2, then TRABAHO – would reduce the corporate income tax from 30 to 20 percent, thus providing more funds for private firms to expand their operations. It is projected to create 1.5 million jobs.
But the down side is that so many foreign firms have threatened to leave, once CITIRA removes the special tax arrangements that induced them to come years ago. PEZA’s over 4,000 enterprises now employ over 1.5 million workers.
How realistic is the government expectation of 1.5 million new jobs? And how many of the foreign firms now employing 1.5 million Filipinos may actually leave the country?
Let us hope our officials will make the correct assessment and judgment, as so many hundreds of thousands of jobs are at stake.