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FOREIGN
businessmen have asked President Arroyo to issue a
policy directive categorically stating that income-tax
holidays (ITH) will continue to be granted to select
priority activities. Their request is based on
apprehension that the conflicting statements of
government agencies on the grant of tax incentives will
deter the inflow of foreign direct investments (FDIs)
here.
In a
joint position paper on the rationalization of the
fiscal-incentives initiative, the American Chamber of
Commerce (AmCham) and the European Chamber of Commerce
of the Philippines (ECCP) noted a continuing
disagreement between the Departments of Finance and of
Trade and Industry, as well their respective allies in
Congress, on the grant of ITH.
This,
the chambers said, has been generating repeated
confusing media coverage and uncertainty about the
future incentives regime, notably for foreign investors
who compare the Philippine incentive package to other
countries.
The
differences in the state agencies’ positions, the groups
said, are also glaring in the previous and current bills
in Congress on the rationalization of fiscal incentives.
The DTI
and its congressional allies normally want ITH to remain
and with a significant scope to attract more
investments; the DOF is usually averse to it because its
mandate is to give priority to revenue collection.
AmCham
and ECCP said President Arroyo should step in to give
investors a clearer picture of her future incentives
regime.
“We urge
the Office of the President to issue a directive making
clear that it is an administration policy to continue
ITH for targeted economic priority activities and to
encourage the DOF and DTI to reach a single agreed
position on the rationalization of fiscal incentives
legislation,” said the joint ECCP-AmCham paper.
They
said ITH is important for the Philippines at this time
when it continues to attract a small pie, or just 3.2
percent, of the $72-billion FDI that went to Southeast
Asian countries.
Singapore
(which imposes 20-percent corporate income tax),
Thailand
(30 percent CIT), Vietnam (25 percent), Malaysia (28
percent), and Indonesia (35 percent) attract higher FDIs
than the
Philippines
(35 percent CIT) but they continue to give ITH.
The
Philippines cannot afford to remove ITH at this time
when the government is having little success resolving
the problems that keep investors out such as corruption,
poor infrastructure, policy instability, security
problems, and high power rates, among others, said the
chambers.
Besides
maintaining the ITH granted to select activities to up
to eight years, which is also the average coverage for
the Asean, the groups said the government should also
consider giving as long as 15 years of ITH on extremely
exceptional investments, as is the practice in
Singapore.
These
kinds of investments, they said, should “create tens of
thousands of direct jobs and a multiple of that in
indirect jobs, and generate an estimated increase in tax
revenue from income, VAT and excise approximating the
lost revenue from the grant of ITH.”
An
example they cited could be an investment exceeding $1
billion in a massive resort or retirement development, a
manufacturing plant or a large outsourcing operation
that is guaranteed to create 20,000 to 30,000 jobs
during the duration of the ITH.
ITH
should remain in the electronics and business process
outsourcing sectors, both of which are accustomed to ITH,
as they have the potential to separately generate
another 700,000 fresh jobs in less than a decade, the
groups said.
“With
the many negatives in the local investment environment,
continuation of the current ITH incentive is critical to
continuing to attract high levels of investment in these
sectors,” they said.
Also, in
exceptional circumstance, the foreign chambers said ITH
may be granted to a registered enterprise upon
certification from the investment promotions agencies
that it will not invest in the country without the ITH.
A
recommendation on this particular case should be
forwarded to the President for approval containing the
summary of negotiations with the investors, and the
estimate of the impact of the investment to the economy. |
