By Bernie Cahiles-Magkilat
As foreign businessmen are now resigned to the overhaul in the country’s incentives regime and corporate income taxation (CIT), they find these reforms moving too slowly that the Philippines may be too late already to capture a share of the huge capital flows from investors that are relocating from China due a trade war with the US.
This was stressed by the Arangkada Philippines Forum 2019, an initiative of the Joint Foreign Chambers (JFC) that focuses on tourism, agribusiness and power. Officials of the JFC expressed impatience at the rate these reforms are coming through with government agencies not really united on the details as to how these new policy thrusts are to be implemented.
“We are moving slowly in the right direction but maybe we can move faster in the right direction,” said Julian Payne, president of the Canadian Chamber of Commerce of the Philippines.
“What is happening is that what the administration set out to do in 2016 was very encouraging,” said Payne citing the strong political will to do the tax reforms. As it turned out, the reforms which are needed to ensure that foreign direct investments (FDI) flow into the Philippines are taking longer than expected.
The JFC was referring to delays in the passage of the CITIRA bill, which had been passed in the Lower House and is now with the Senate facing some obstacles as to how it would impact jobs creation in the country. The CITIRA Bill seeks to reduce the CIT to 20 percent in ten years from the current 30 percent in lieu of the removal of the perpetual 5 percent tax on gross income earned to investors located in the economic zones.
Nabil Francis, president of the European Chamber of Commerce of the Philippines (ECCP), said they are in support of the government agenda but stressed, “What is important is to fast-track these reforms because our competitors are ready and moving very quickly. Some neighbors have captured extra FDIs because they take advantage of the tariff privilege that ensured following the US-China trade war.
The group noted that Indonesia alone is reducing CIT to 20 percent in two years from the current 26 percent as they position to attract new FDIs, which are mostly going to Vietnam.
Unlike the robust FDI inflows to other ASEAN countries, FDI flows to the Philippines declined by 40 percent year-to-date. The businessmen said that FDIs cannot flow in robustly if the phased reduction of CIT would still make the Philippines the highest CIT in 10 years.
Payne said that if the Philippines will make drastic reduction in CIT it may end up in a much better situation otherwise it will have a hard time capturing these capital inflows as other countries are reducing their CIT in one blow.
They warned that while Indonesia and Thailand are rationalizing their incentives regime, the Philippines is “rationalizing its incentives outside of competition.”
“Companies have to make decision now and not wait and come back until the Philippines attain that 20 percent CIT rate in 10 years.
Keiichi Matsunaga, president of the Japanese Chamber of Commerce of the Philippines, has called for “quick decision and earlier resolution” of the reforms so companies can also make their decision.
On the transition from the 5 percent GIE to CIT regime, foreign businessmen also insisted for a longer 10-year sunset clause to give members more time to adjust.
“The rate of reduction is very slow if go to 20 years in 10 years,” said Celester Ilagan, executive director of the Philippine Association of Multinational Companies Regional Headquarters Inc.