Investors may leave PH if incentives removed, Japan chamber warns

by Michelle Ong, ABS-CBN News, Apr 26, 2018

MANILA – Some Japanese companies may relocate their operations to other countries in Southeast Asia if fiscal incentives are removed in the second package of tax reforms in the Philippines, the head of the Japanese business lobby warned on Thursday.

The Japanese Chamber of Commerce and Industry (JCCI) of the Philippines said that by removing the fiscal incentives, the government is changing the rules and deviating from its commitment.

The second package of the Tax Reform for Acceleration and Inclusion (TRAIN) aims to lower corporate income taxes to 25 percent from 30 percent, while “modernizing” fiscal incentives.

“All of manufacturing companies have medium or long term projections. Suddenly once TRAIN package implement next year [sic] suddenly there is no tax benefit,” said JCCI President Naoto Tago.

One of the incentives currently enjoyed by Japanese and other foreign companies registered with the Philippine Economic Zone Authority (PEZA) is paying a 5 percent tax on gross income earned.

The second package of TRAIN proposed to remove this incentive after 5 years and replace it with a preferential corporate income tax rate of 15 percent based on net income.

“The Japanese Chamber cannot make recommend [sic] a company to invest in the Philippines anymore. They may leave in case this is implemented as it is,” Tago said.

He said that while the Japanese chamber understands and supports government’s tax reform efforts, it is seeking a compromise on certain provisions in the second package of reforms.

The group wants the government to lengthen the transition period from 5 years to 10 years, and have clearer process or timeline for the VAT refund.

It said that while large companies involved in manufacturing will find it difficult to leave immediately, they may find other countries more attractive.

“Thailand, Indonesia, and in case of you know, thinking about labor cost, Vietnam is better or Myanmar,” Tago said.

Tago also called on the government to keep PEZA as it is. There are around 1,400 Japanese companies in the Philippines, with over 900 located in areas under PEZA.

European businessmen earlier also cautioned the government against the removal of fiscal incentives.

A tax reform advocate said lowering corporate income taxes should not be delayed by objections to the removal of fiscal incentives.

The Department of Finance (DOF) meanwhile stood pat on its position that fiscal incentives need to be “modernized.”