MNCs nix fiscal policy changes under TRAIN 2

Richmond Mercurio (The Philippine Star) – June 6, 2018 – 12:00am

MANILA, Philippines — Multinational Corporations (MNCs) would likely stop expanding and “go elsewhere” should the proposed changes in fiscal incentives under the second tax reform package push through, resulting in the loss of billions of pesos worth of foreign investments, a survey by the American Chamber of Commerce of the Philippines showed.

Results of the survey, conducted by AmCham among its multinational members last March and April, were detailed in the group’s position paper for TRAIN 2.

Asked if fiscal incentives compensate for higher costs of business and if investors would go elsewhere without such incentives, AmCham said 83 percent of respondents agreed that they do compensate and without incentives, investors would locate elsewhere.

In line with the proposed transition periods in TRAIN 2, the survey showed that 61 percent viewed the transition would force them to end further expansion.

78 percent of respondents, meanwhile, said the proposed time limit for fiscal incentives would worsen their business.

The survey also found out that 78 percent see fiscal incentives as a very important factor for companies to consider before investing, while 22 percent believed it is somewhat important.

AmCham, in its position paper, said investors consider a large number of factors in choosing where to invest, likening the process to a beauty contest in which the Philippines must be competitive in several factors a particular investor measures in order to win the firm’s investment.

As such, the group noted that fiscal incentives are an important factor in most investment decisions since taxes, duties, fees, and deductible expenses add to business expenses.

It said fiscal incentives compensate for higher costs in the Philippines.

“With higher costs of doing business in the Philippines, fiscal incentives play an important role in making an investment in the country more attractive to efficiency seeking foreign investors. For this reason, the incentives the Philippines offers should go beyond being equal to competitors. They should be more attractive in order to narrow the marginal advantage of other locations,” it said.

According to AmCham, a full cost-benefit analysis will show that the benefits from the country’s fiscal incentives fully outweigh foregone revenues, which the government has been using to justify the rationalization of the incentives.

“Without incentives, most of these investors would not have invested in the Philippines,” the group stated.

Overall, AmCham is concerned about the second tax reform package which will cover both rationalization of fiscal incentives and reduction of corporate income tax (CIT) rates, saying the proposed bill “creates uncertainty for existing and new investors.”

“Until the proposed TRAIN 2 bill is enacted, investors will face uncertainty about the future CIT and fiscal incentives. Tax projections, an important part of calculations of future revenues, will be handicapped by this uncertainty. CIT and fiscal incentives in countries competing against the Philippines for investments will be more certain and predictable,” it said..

AmCham stressed that a status quo for the country’s fiscal incentives is preferred by its members, and recommend for the current incentives package of PEZA and other investment promotion agencies be retained.

“Our main argument is that it has been successful in attracting a large number of foreign investors and creating millions of jobs. Our members have cautioned that the radical changes proposed in HB 7214 and HB 7458 will lead to an end to expansions by many foreign investors and a reversal of the success in recent decades in attracting thousands of foreign firms to invest in the country. The bills as drafted, if implemented, will most likely lead to reduced revenues and job losses on a large scale as a result of damaged investor confidence,” the group said.

Source: https://www.philstar.com/business/2018/06/06/1821871/mncs-nix-fiscal-policy-changes-under-train-2