JCCI warns tax reform will drive out investors

by Janina C. Lim, Businessworld, Apr 24, 2018

THE JAPANESE business lobby has warned that the second tax reform package may prompt investors to leave the Philippines, in response to the reduction in incentives called for by the proposed reforms.

Asked whether the second package will trigger divestment, Nobuo Fujii, vice-president and executive director of the Japanese Chamber of Commerce of the Philippines, Inc. (JCCI) said withdrawals from the country are possible if the final version of the tax legislation turns out to be “very harsh.”

“Companies are considering withdrawing from this country. So many companies,” he said in an interview with BusinessWorld at JCCI’s headquarters in Makati City.

He said proposals to rationalize incentives for economic zone locators leave no possible room for compromise, though he held out hope that the government may soften its terms.

“I am busy persuading Japanese investors located here not to leave. Maybe a compromise can be reached. Just wait,” Mr. Fujii added.

The rationalization of incentives to make them more time-bound and targeted applies to new applicants to invest in economic zones, and removes the incentives from those currently enjoying them after five years.

Japanese investors, Mr. Fujii said, consider this period to be too short, and want a period of 10 years, during which they will continue to enjoy the 5% Gross Income Earned (GIE) rate.

For new investors, the JCCI proposes that time-bound incentives be in force for a minimum of 15 years, including several years of income tax holidays.

It also called “unattractive” the preferential corporate income tax (CIT) rate of 15% based on net income.

“For potential investors, the CIT rate of 15%… is unattractive compared to Vietnam and neighboring countries,” the JCCI said in a March 19 position paper addressed to Trade Secretary Ramon M. Lopez and sent to officials of the Finance department and the Philippine Economic Zone Authority (PEZA).

The JCCI proposed a preferential CIT rate of 10%. This will replace the 5% perpetual GIE rate currently enjoyed by PEZA-registered locators.

Mr. Lopez has expressed his backing for a sunset provision period of 10-15 years, though his input has yet to be factored into the proposed legislation.

The JCCI said it has made its concerns known to the leadership of ways and means committees — Quirino Representative Dakila Carlo E. Cua and Senator Juan Edgardo M. Angara.

The JCCI said it will meet again with Finance Secretary Carlos G. Dominguez III next month.

Some of the leading Japanese investors are Toyota Motor Philippines Corp. and Mistubishi Motors Philippines, Inc. which are fifth and 37th in BusinessWorld’s latest ranking of the Top 1,000 Corporations.

Sought for comment, Froilan Dytianquin, Mitsubishi Motors VP for marketing services said that there are no plans to exit the Philippine market, although he added he is unaware of any internal discussions on the second package of tax reform, noting that the matter is not within the scope of his division.

“At this moment there’s no plan to exit the country considering also that we participate in the government’s CARS program. We’ve invested a lot in the plan,” Mr. Dytianquin said in a phone interview on Tuesday, referring to the Comprehensive Automotive Resurgence Strategy, which seeks to encourage domestic manufacturing in large volumes to create jobs and sustain an ecosystem of auto suppliers.

He said the company is more concerned about the excise tax on automobiles imposed under the first package of tax reform.

Toyota Motor was also asked for comment but has not responded at deadline time.

Although the chamber recognizes that new investors may be granted incentives in accordance with the second package, perks enjoyed by investors of long standing must not be modified.

“Don’t touch already existing locators. Do not touch,” he said.

Preliminary data from the Japan External Trade Organization indicate that Japanese investment in the Philippines in 2017 fell 56.28% to $1.014 million.

“It’s hard to expect investment to improve in this situation,” Mr. Fujii added.