VAT, uncertainties blamed for investment slowdown

by Malaya, Oct 10, 2017

Eight large industry associations and members of the Joint Foreign Chambers (JFC) in the Philippines are echoing calls for Congress to retain the zero value-added tax (VAT) provisions of export-oriented companies registered with the Philippine Economic Zone Authority (PEZA).

The groups warned of the danger to investment the introduction in Senate Bill (SB) 1592 of a VAT refund scheme in processing VAT exemptions saying this would be a “step backward for locators and (would) create unnecessary red tape, adding to their cost of doing business.”

The groups said this would make the Philippines a less competitive investment destination.

“In order to maintain and to expand foreign investment in PEZA zones, the incentive structure must be attractive in comparison to what competing countries offer in fiscal incentives, labor incentives, electricity and logistics pricing, number of paid holidays, and other costs,” the groups added.

The groups blamed uncertainties in the tax regime among others as the reason for the slow investments in PEZA zones.

“There are provisions in the Tax Reform for Acceleration and Inclusion (TRAIN) bills which may alter the current tax regime for investors, and this creates uncertainty. Some investors are delaying decisions to invest in the Philippines or deciding to invest elsewhere,” the groups added.

A long-time challenge for some foreign investors is the requirement to pay VAT and then seek refunds.

But the groups lament government has a poor record of making these refunds.

As revealed by Senator Angara in the Senate plenary discussion of the TRAIN bill, some P30 billion in refunds are currently pending payment. Foreign investors would prefer not to have any refund arrangement for zero-rated firms.

The electronics industry said SB 1592’s VAT provision will render local supplies more expensive than imported materials, and would be detrimental to the electronics industry’s initiatives to develop small and medium enterprises and the local supply chain.

For example, the electronics industry imported some $22 billion worth of materials in 2016.

Even a 10 percent reduction in imports will translate to $2.2 billion, and this would be a significant infusion into the local economy as well as employment and taxes.

The statement was issued by the American Chamber of Commerce, the Australia New Zealand Chamber of Commerce, the Canadian Chamber of Commerce, the European Chamber of Commerce, the Information Technology and Business Process Association of the Philippines (IBPAP), the Japanese Chamber of Commerce, the Korean Chamber of Commerce, and the Semiconductor and Electronics Industries of the Philippines Foundation Inc.