Yearender: Investment bodies upbeat; industry groups say more must be done

by Louella Desiderio – The Philippine Star, 31 Dec 2021

MANILA, Philippines — Investment promotion agencies have high hopes that more firms will be pouring funds and expanding operations in 2022, given reforms that aim to provide a more conducive environment for business.

For industry groups, however, much more must be done for the country to attract more investments.

“We foresee Board of Investments registration to recover and hit at least P1 trillion next year (2022),” Trade Secretary and BOI chairman Ramon Lopez said, citing the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act as one measure that would help drive investments.

The year 2021 saw the passage of the CREATE, the second package of the Duterte administration’s tax reform program, touted as a game-changer in bringing investments into the country.

The law reduced the corporate income tax (CIT) rate, considered among the highest in Southeast Asia, and rationalized the incentives offered to investors.

From 30 percent, the CIT was brought down to 25 percent for large corporations and to an even lower 20 percent for those earning P5 million and below.

Under the CREATE, qualified activities can enjoy an incentives package for a maximum of 17 years, which include four to seven years of income tax holidays and five percent special CIT rate in lieu of all national and local taxes for five years for domestic market enterprises, and 10 years for export-oriented enterprises.

The law also gives the President the power to grant incentives for up to 40 years to highly desirable projects provided these have clear inclusive business approaches and high levels of sophistication and innovation. The project must have a minimum investment of P50 billion or can generate at least 10,000 direct local jobs within three years from issuance of the certificate of registration.

Lopez said the country has started feeling the impact of the CREATE law.

“Projects are already being registered under the CREATE, including five huge projects (three cement, local government unit subway, and a housing project), which are above P1 billion,” he said.

He said there are other projects that have been endorsed for the approval of the Fiscal Incentives Review Board (FIRB) including a P155-billion telco and technology-based project.

There are also investment commitments in the pipeline, he said, although some of these have been affected by pandemic-induced restrictions.

“There are a number of other big-ticket projects which are either in advanced due diligence stage or already preparing to register, but were slightly delayed in time schedule because of health protocols – globally and not just in the Philippines – in response to the previous surge due to the Delta variant,” he said.

These projects include an integrated steel mill, as well as other projects in manufacturing, infrastructure and technology industries.

“These will now form part of the pipeline for 2022,” Lopez said.

Trade Undersecretary and BOI managing head Ceferino Rodolfo said investments approved by the agency would likely reach only P600 billion in 2021, lower than the adjusted P905-billion target.

The BOI initially set a goal of P1.25 trillion for investment approvals for this year.

While the CREATE has been helpful, Rodolfo said the challenges in the global environment and restrictions being imposed due to the pandemic have made it difficult to attract investments.

“Incentives are not enough. We really need to open up the economy and allow investors to come in,” he said.

Lopez said based on actual foreign direct investments (FDIs) in the country, latest data showed a 43.8 percent increase in the January to September period to $7.29 billion from $5.07 billion in the same period a year ago.

Apart from the CREATE, he said the implementation of other measures being pushed such as amendments to the Retail Trade Liberalization (RTL) Act and the anticipated passage of the Foreign Investments Act and Public Service Act (PSA) are also seen to help the country lure more investors.

Amendments to the RTL seek to lower the minimum required investment for foreign retailers.

Meanwhile, amendments to the FIA aim to promote the entry of more foreign investments.

Under proposed amendments to the PSA, greater foreign investment would be allowed in the telecommunication and transportation sectors.

Philippine Economic Zone Authority (PEZA) director general Charito Plaza said she is also expecting higher investments to be approved by the agency in 2022 compared to the previous year as it conducts more aggressive marketing and promotion efforts.

“The easing of restrictions on travels and quarantines are very helpful, so with the CREATE incentives,” she said.

As of end-October, investment pledges approved by the PEZA dipped 14 percent to P62.72 billion from the P72.64 billion in the same period last year.

Plaza attributed the decline to the wait-and-see mode and lower risk appetite of investors given uncertainties brought by pandemic.

While the PEZA expects the CREATE would help in attracting investments, the agency also wants changes in the law particularly in the threshold of investments being approved by the FIRB.

“PEZA just hopes that our threshold will be increased to P5 billion,” Plaza said.

She said there are existing and new investors looking to expand in the country, but do not want too much bureaucracy if the investments are elevated and have to be approved by the FIRB.

Under the CREATE, incentives for investments above P1 billion have to be approved by the inter-agency FIRB chaired by the Department of Finance and co-chaired by the DTI, while those below the threshold are cleared by investment promotion agencies including PEZA.

Semiconductor and Electronics Industries in the Philippines Foundation Inc. president Dan Lachica said the group also wants the government to revisit the FIRB threshold approval and raise it to P3 billion.

He said under the PEZA regime, what is usually required from investments to be approved are one to three years of financial projections.

Based on information received from some of the group’s members, he said FIRB requires projections for up to 17 years at times, putting additional burden on the investor.

“I guess we need to strike a balance between making it difficult for investors and 17 years versus three years is a big difference,” he said.

SEIPI also recommends allowing flexibility in enforcing the performance criteria set by the Strategic Investment Priorities Plan or the list of activities qualified for incentives under the CREATE, especially during force majeure situations by lowering export sales and employment targets.

Lachica said standard lead times consistent with the Ease of Doing Business Act should be followed in approval of incentives.

Also being pushed by the SEIPI are improvements in the implementing rules and regulations of the CREATE by having more explicit guidelines on the allowable deductions and including missing items such as employee benefits of direct labor, insurance associated with raw materials, freight and handling charges, property insurance cost allocated to production and land rental cost.

Lachica said there is likewise a need for the government to determine why neighboring countries are attracting more FDIs and to act accordingly.

Investments in the electronics sector approved by the PEZA reached only P1.57 billion in the first half of the year, down 61 percent from the P3.97 billion in the same period last year.

For Information Technology (IT) and Business Process Association Philippines (IBPAP) president Jack Madrid, the country’s IT – business process management (BPM) sector would need to preserve the country’s brand of customer service and continue to show the industry’s agility and resilience to attract more investments.

He said upskilling and reskilling the workforce would be needed to cater to the requirements of future work.

“Lifelong learning is no longer a choice. It is a must,” he said.

Government policy that would allow IT-BPM firms to continue the work-from-home scheme while enjoying incentives would also be important for the sector.