The Philippine Economic Zone Authority (Peza) registered a 41-percent decline in investment approvals for the whole of last year, as firms held on to their capital in anticipation of the rationalization of tax incentives.

Investments registered with the Peza in 2018 slumped 40.97 percent to P140.24 billion, from P237.57 billion in 2017. A total of 529 fresh projects represented these investment pledges, down 4.51 percent, from the 554 projects applied in 2017.

Peza Director General Charito B. Plaza attributed the double-digit decline to the uncertainties brought about by the Tax Reform for Attracting Better and High-Quality Opportunities (Trabaho) bill.

The Trabaho bill will gradually reduce corporate income tax to 20 percent in 2029, from 30 percent. In exchange, it will restructure the menu of incentives, such as the 5-percent tax on gross income earned (GIE) in lieu of all local and national taxes, granted to firms in economic zones.

Plaza said potential investors held on to their capital to wait for the final provisions of the measure, while existing locators postponed their expansion plans in fear that their tax perks could be removed soon.

The House of Representatives in September swiftly passed their version of the second tax reform package, dubbing it “Trabaho” bill to highlight a supposed feature of the bill to enhance job opportunities. The Senate, however, opted to deliberate further on the measure amid an uproar over the unintended consequences of its predecessor law, the Tax Reform for Acceleration and Inclusion (TRAIN).

“The drop is for new investments caused by the uncertainties of change of policies [and] incentives. Peza’s existing IT-BPM [information technology and business-process management] industries are expanding and [were at their] highest in the last two quarters when the uncertainties were removed by the Senate’s nonpassage of their version,” Plaza told reporters.

Total investments in the IT-BPM industry in 2018 improved 32.20 percent to P20.56 billion, from P15.55 billion in 2017, but only saw an increase of one project to a total of 188.

The uncertainties also failed to hamper the performance of locators, as their export receipts from January to October of last year grew 6.58 percent to $45.17 billion ,from $42.38 billion during the same period last year. Direct employment also increased 7.33 percent to 1.49 million from 1.39 million.

“Peza industries export income [and] employment did not drop, but continuously increased because [the locators] are maximizing their production before [the] Trabaho bill, which might change the policies, [takes] effect,” Plaza explained.

Still, she told senators to assess the impact of the Trabaho bill on investments before they decide to pass the measure. She also assured her constituents—the firms in economic zones—that the Peza is “doing its best to retain the incentives that are working and even enhance the existing, so we become very competitive with other countries in attracting investors.”

“Peza industries are exporters and are efficiency seekers, so they weigh the advantages and disadvantages of countries’ incentives and other factors [for] production given the huge capital investments they will [bring to] the country of their choice,” Plaza pointed out.