‘Trabaho’ worries US firms in PH

By: Roy Stephen C. Canivel, Philippine Daily Inquirer, Aug 29, 2018

More than half of American companies in the country warned they would not expand their operations if the government would insist on the scheduled transition to a new tax regime under the second package of the tax reform program.

This is according to the position paper of the American Chamber of Commerce of the Philippines (AmCham).

AmCham said 61 percent of its member firms had said the proposed transition period under the Duterte administration’s second tax package “would cause their firm to end further expansion.”

This was based on a survey of around 750 member firms, mostly multinational firms that currently benefit from tax incentives under the Philippine Economic Zone Authority. It was conducted in March and April.

The majority of the companies are in manufacturing (30 percent) and business process outsourcing (30 percent).

Regional operating headquarters and regional headquarters (ROHQs/RHQs), account for 10 percent of the respondents.

The issue stemmed from what was formerly called the TRAIN 2, which rationalizes fiscal incentives (FIs) and lowers the corporate income tax (CIT) from 30 percent to 20 percent.

While lawmakers have pushed a substitute bill for TRAIN 2 earlier this month called “Trabaho,” a number of the earlier provisions remained.

Hence, AmCham’s issues also remain.

“Until the proposed [Trabaho] bill is enacted, investors will face uncertainty about the future CIT and FI. Tax projections, an important part of calculations of future revenues, will be handicapped by this uncertainty,” the paper read.

Against this backdrop, AmCham said the CIT and FI in countries competing against the Philippines for investments looked more certain and predictable.

While the second tax package still offers some tax perks, it will remove the 5-percent gross income earned (GIE) tax applied to Peza-registered firms in lieu of all other taxes.

The package allows for a transition period of two to five years, depending on how long the company has been benefiting from the 5-percent GIE.

“[When asked about] the proposed time limit for fiscal incentives, 78 [percent] of respondents stated that this would worsen their business,” AmCham said, noting that the same number of firms consider fiscal incentives before investing.

Without the 5 percent GIE, companies will no longer be exempted from paying local taxes. According to the survey, 61 percent of respondents said that paying local taxes “will negate the reduced income tax benefit.”