Labor, tax concerns sour Japanese firms’ expansion mood

By: Roy Stephen C. Canivel, Philippine Daily Inquirer, Jan 23, 2019

Fewer Japanese companies want to expand in the next two years amid concerns over labor issues and tax reform, according to a survey by the Japan External Trade Organization (Jetro).

“[Compared to 2018], more companies will refrain from expansion,” read the summary of the survey, which covered the sentiments of 127 Japanese companies based in the Philippines.

Only 52 percent of respondents said they planned to expand their business in the country from 2019 to 2020, the report read, smaller than the 63 percent who said the same for 2018 to 2019.

While the 2018 survey suggested that Japanese companies are not as bullish as they were before, the 2017 survey had fewer respondents.

Jetro said the 2017 survey only had 73 respondents, of which 63 percent were manufacturers.

In the latest survey, 69 respondents were manufacturers, or around 54 percent of those interviewed. The rest were classified as nonmanufacturers.

It was conducted in October to November last year, amid talks in the Senate on the Tax Reform for Attracting Better and High-quality Opportunities (Trabaho) bill, the Duterte administration’s second tax reform package that seeks to lower corporate income tax while rationalizing tax perks.

“We conducted the survey during the discussion on the tax reform,” said Takashi Ishihara, executive director of Jetro here in the Philippines, on the sidelines of an event on Monday late afternoon. He was referring to the Trabaho bill.

Japanese companies appreciate the current tax perks, scoring the highest at 40 percent when compared to the appreciation for tax perks in Indonesia (3.8 percent), Malaysia (13.8 percent), Thailand (12.5 percent), and Vietnam (9.5 percent)

“Many Japanese companies appreciate the current tax incentives and they are concerned about tax reform in the future,” he said.

The survey also showed that Japanese companies were concerned about labor issues in the country, such as wage increases.

“Rising wage and ongoing labor issues are likely to reduce the advantage of [the Philippines] as an investment destination,” the report read.

The report said the annual wage in Indonesia’s nonmanufacturing sector was more competitive than the Philippines and Vietnam because of the rupiah’s “significant depreciation” against the US dollar.

For those planning to expand, the report said this was because of increase in sales, the growth of the local market, and client requests.