Poll: Japanese firms want to keep current incentives

Uncertainties brought about by the government’s plan to rationalize fiscal incentives will keep on hounding the country’s business climate, as firms from Japan—one of the country’s largest sources of foreign capital—are seeking a status quo for their tax perks.

In a survey by the Japan External Trade Organization (Jetro), Japanese firms in the Philippines said they appreciate the incentives they are receiving under the existing setup. Any changes in their tax perks as proposed under the Corporate Income Tax and Incentives Rationalization Act (Citira) bill will impact on their operations, they added.

As such, the number of Japanese firms that listed the menu of incentives as an advantage for investing here declined to 33 percent, from 40 percent last year, the survey reported.

“Like last year, many of Philippine respondents highly appreciate current tax incentives, while they are concerned about complicated taxation procedures. In fact, possible impacts of tax reform second package really matter to Japanese companies in the Philippines,” it read.

On the other hand, 44 percent of Japanese firms flagged complicated taxation procedures as a risk for operating here, though this is an improvement from last year’s 50 percent.

Further, they lamented the lack of infrastructure, including roads, electricity, telecommunication and ports, in the Philippines, which, if sufficient, should offset the looming lifting of incentives. The survey reported 61 percent of Japanese firms identified insufficient infrastructure as a risk for investing here.

In spite of these uncertainties and risks, over half of Japanese firms in the Philippines said they are eyeing to expand their business in a few years.

According to the survey, 52 percent plan to expand operations between next year and 2021. On the other hand, about 45 percent will keep their present size.

Japanese firms are expanding to raise added value of their products and strengthen their sales function, as they anticipate demand growth from the domestic market, the survey disclosed.

These expansions will most likely generate additional jobs for the local labor force. Proof of this is that 44 percent of those surveyed committed to increase the number of their Filipino staff, while the remaining 46 percent will maintain their present count.

The Joint Foreign Chambers of the Philippines, of which the Japanese Chamber of Commerce and Industry of the Philippines is a member, estimated over 700,000 workers are bound to lose their work as a consequence of passing the Citira bill.

The Citira bill will trim corporate income tax to 20 percent by 2029, from 30 percent at present, on one end. On the other hand, it will overhaul the menu of incentives granted by the government to firms operating in economic zones.

Economic zone firms, most of which are multinationals, warned they will be compelled to pack up operations here and relocate to another Southeast Asian country if their tax perks are lifted, resulting not only in capital flight but in job losses as well.

Last year—at the height of the debate on rationalization of incentives—Japan’s investments to the Philippines declined 38.33 percent to P19.72 billion, from P31.98 billion, according to data from the Philippine Statistics Authority (PSA). In spite of the drop, Japan is the country’s third-largest source of foreign capital next to China and Singapore.

The Jetro conducted the survey between August and September, and covered the insights of 139 Japanese firms in the Philippines, 73 of which are manufacturers, as part of a yearly study on the business conditions in Asia and Oceania.

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