PEZA-approved investments down 25% in January-April

by Louella Desiderio (The Philippine Star), June 3, 2019

MANILA, Philippines — Investments for projects registered with the Philippine Economic Zone Authority (PEZA) continued to decline by 25 percent in the January to April period from a year ago on lingering concerns of both existing locators and prospective investors on the government’s plan to change the incentives regime as part of its tax reform program.

Data from the PEZA showed investments approved by the agency reached P29.49 billion as of end-April, lower than the P39.09 billion in the same period last year.

The number of projects registered with the PEZA also slid to 159 from January to April compared with the previous year’s 161.

A breakdown of investments for all sectors was not available, but investments for the information technology (IT) sector were down by 7.08 percent to P4.63 billion in the January to April period compared to the P4.99 billion in the previous year.

PEZA director general Charito Plaza said both existing and prospective investors remain concerned about what would happen to incentives given to firms under the second package of the tax reform program or the Tax Reform for Attracting Better and High Quality Opportunities (TRABAHO) bill.

Approved on third and final reading at the House of Representatives, the bill seeks to bring down the corporate income tax rate to 20 percent by 2029 from 30 percent at present, and rationalize fiscal incentives including removing the five percent tax on gross income earned (GIE) incentive enjoyed by PEZA locators.

The five percent on GIE which is paid in lieu of all taxes enjoyed after using the income tax holidays, is a key consideration for firms opting to locate in PEZA zones.

This, as it makes it easier to do business with no need for firms to deal with local government units (LGUs) for payment of taxes with PEZA remitting the LGUs’ share.

Elmer San Pascual, manager for promotions and public relations group at the PEZA, said the agency could not convince manufacturing and IT firms that have held off expansion plans to proceed as there is no assurance the grandfather rule or existing investors would continue to enjoy the current perks under the bill.

For prospective investors, he said while they are impressed with what they have seen in the PEZA’s ecozones and the ease of doing business, they are asking about what changes would be made in incentives.

Plaza said there are about 20 companies which have signified interest to transfer from China to the Philippines amid the ongoing trade war between the US and China, but they could not proceed because of uncertainties on the incentives regime.

Plaza declined to name the firms, but said these were engaged in manufacturing of electronics, garments, as well as steel.

As some of the 20 firms could no longer wait, she said they have opted to invest and set up facilities in other countries like Indonesia.

“As long as we are are not able to say whether to go on or not with it (TRABAHO bill), it will really be creating uncertainties. What is needed is we take advantage of this situation. Right now, we are not the only country investors are looking at,” she said.

While the TRABAHO bill has yet to be passed and the 17th Congress is set to officially adjourn by June 7, she said investor uncertainties are likely to continue as the proposed measure could still be refiled when new members of the Senate and House of Representatives start their term.

She said the upside so far, is none of the existing locators have decided to pull out of the country to move elsewhere.

Despite lower amount of investments and projects, the number of jobs generated by the projects in the PEZA zones rose by 7.36 percent to 1.48 million as of end-April from 1.38 million in the same period a year ago.

Exports from PEZA’s ecozones also went up slightly to $12.95 billion in the first quarter from $12.87 billion last year.