Japan firms poised to pull out of PH

By: Roy Stephen C. Canivel, Daily Inquirer, Sep 12, 2018

More than a quarter of Japanese firms located in economic zones in Cebu plan to pull out their investments in the country if an opposed tax reform pushes through.

This is according to the survey done by the Japanese Chamber of Commerce and Industry of Cebu, Inc. (JCCICI) on 99 member firms caught in the crosshairs of tax reform.

The survey respondents are registered under the Philippine Economic Zone Authority (Peza), where they were offered tax perks to offset the high cost of doing business in the Philippines.

Their perks, however, are now at risk under the second tax reform package of the Duterte administration, which wants to rationalize tax incentives despite Peza’s protests.

If tax reform is pushed without considering the “plight” of Peza-registered firms, 27 percent say they might withdraw their investments in the country, according to a copy of the survey results seen by the Inquirer.

Moreover, 17 percent might shift their operations overseas, while 29 percent might reduce their production scale, which will “consequently reduce their labor force.”

The chamber conducted the survey from May to June this year, months before lawmakers inched closer to passing the tax package.

Now called the “Trabaho” bill, the package was recently approved on third and final reading in the House of Representatives.

The bill will lower the corporate income tax (CIT) here in the country, a benefit that many domestic companies will enjoy after years of paying one of the highest, if not the highest, CIT in Southeast Asia.

However, export-oriented firms, such as those registered under Peza, are a different story. These companies seek to cut down on costs, choosing the most cost-efficient country to use as export hub. Thus, tax perks play a role in their decisions.

While the Trabaho bill will still offer tax perks such as income tax holidays of a few years, it will eventually remove the 5-percent gross income earned (GIE) tax applied to Peza-registered firms in lieu of all other taxes.

JCCICI called this incentive an “effective tool to attract investors,” as 75 percent of survey respondents said they had benefited from this for more than a decade now.

Under the Trabaho bill, these firms will only have a short transition period, keeping the perk for two to five years.

Essentially, the group said in its position paper that it wants to keep the status quo “as much as possible,” including the perks listed under the Peza law “for which they invested in the country.”

85 percent of the respondents said they would still choose the Philippines for business expansion if Peza’s benefits continue.

Moreover, the survey suggested that tax perks may be the only reason they still stay in the country.