Deputy Speaker Lray Villafuerte is calling on the Department of Trade and Industry (DTI) and the Board of Investments (BOI) to work double-time in conducting roadshows abroad to attract foreign investors set on leaving China to relocate to the Philippines.
Villafuerte at the same time called on the Senate to approve the state economic team’s modified version of the Corporate Income Tax and Incentives Rationalization (CITIRA) bill that aims to immediately lower the corporate income tax (CIT) to 25% this year to help enable the DTI and BOI to entice investors to set up shop here instead of in other investment hubs in the region.
“We can take advantage of this exodus if we act swiftly in making sure our economy is investor-friendly.”
Aside from a bigger and faster CIT cut, the modified CITIRA or CREATE bill now being pushed by President Duterte’s economic managers to help businesses amid the COVID-19 induced crisis provides for the retention of certain tax incentives that were up for rationalization under the original version of the CITIRA.
A co-author of the House-approved CITIRA bill, Villafuerte said the Senate’s approval of the modified CITIRA version, which the government’s economic team now calls the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, would let the Philippines catch up with its neighbors in the region, particularly Indonesia and Vietnam, where many foreign investors now based in China plan to relocate.
“DTI and BOI should work double time on convincing manufacturers who want to move away from China to transfer here so that we can speed up our efforts in helping the Philippine economy recover from the impact of the COVID-19 (coronavirus disease) crisis and create more jobs. We are losing to Indonesia and Vietnam,” Villafuerte said.
“Attracting more foreign investors to do business in the country will help our country achieve a V-shaped or quick recovery from the coronavirus pandemic’s economic fallout in lieu of a feared U-shaped one,” he added.
However, the Deputy Speaker for finance added that even if the DTI and the BOI do conduct roadshows abroad to attract investors into relocating here amid our current corporate taxation setup, the Philippines cannot compete with countries like Indonesia, where the CIT is only 25%, or Vietnam, which imposes an even lower 20% CIT rate
The Philippines imposes a CIT of 30%, the highest in the region.
“The House has already passed the CITIRA last September. We urge the Senate to adopt the proposals of the economic team that would immediately lower the CIT from 30% to 25%, instead of the previous plan of gradually lowering the tax by 1 percentage point each year over a decade until it reaches 20%,” Villafuerte said.
“If our senators act fast, we can have the new improved version of the CITIRA bill approved before Congress adjourns next month.”
In the event that the Senate passes the revised CITIRA–or CREATE–bill, Villafuerte said the House could adopt the bigger CIT reduction and other amendments during the would-be bicameral conference committee (bicam) negotiations.
“Even if we have a young, highly skilled workforce, investors would think twice about moving here owing to the high CIT and the uncertainty brought about by the undue delay in the Senate’s approval of the CITIRA bill, which the House already passed last year. Investors want certainty, and we cannot give them that if the corporate tax reform bill, which would determine the kind of incentives they would get, remains in limbo,” Villafuerte said.
Last week, Acting Socioeconomic Planning Secretary Karl Kendrick Chua revealed the state economic team’s proposed PH Progreso recovery program for the economy, which include the immediate lowering of the CIT to 25% beginning July this year, and the extension of the companies’ net operating loss carryover (Nolco) from three years to five years while losses for this year can be credited to future tax payments.
“Even if we have a young, highly skilled workforce, investors would think twice about moving here owing to the high CIT.”
To help businesses recover faster from the adverse economic impact of the 2019 pandemic, DOF Assistant Secretary Antonio Lambino II said in a separate report that the DOF will propose to further lower CIT beginning 2023 from 25% to 20% by 2027.
The report said the DOF is also amenable to keeping the present tax incentives being enjoyed by existing investors for the next four to nine years, and that the proposed incentives for new investors will be targeted, time-bound, and tailor-fitted to attract the right types of businesses that the government wants to set up shop in the country.
Villafuerte, who has co-authored three other House-approved bills under the Comprehensive Tax Reform Program (CTRP), also agreed with the economic team’s proposal to fit incentives to the particular needs of specific investors, as part of the a comprehensive plan to bring in investments to help the economy recover quickly from the Covid-19 crisis.
He said the economic team is also on the right track in proposing to keep the current set of incentives for existing investors for the next 4 to 9 years so as to ensure that they maintain their investments here.
“The plan to come up with tailor-fitted, targeted incentives for investors will also help support the Balik Probinsiya, Bagong Pagasa program because investors would opt to locate in the countryside if there are better incentives waiting for them there. This would, in turn, create more decent-paying jobs that would convince more of our countrymen in Metro Manila to return to their home provinces and stay there for good,” Villafuerte noted.
The COVID-19 pandemic has exposed a key weakness in the global supply chain—that of the global economy depending on China for many of its products.
With the virus forcing factories in China to stop production, a problem exacerbated by the country’s ongoing trade dispute with the United States (US), many manufacturers there are now firming up plans to leave and relocate elsewhere in the region.
These include American, European, Korean and Japanese companies manufacturing a wide range of products—from electronics parts to pharmaceuticals and health care products.
“We can take advantage of this exodus if we act swiftly in making sure our economy is investor-friendly,” Villafuerte said.
Aside from the CITIRA bill, Villafuerte has also co-authored the House-approved HB 1908 or the Real Property Valuation (RPV), which aims to put in place a just, equitable and impartial real property valuation system for local government units (LGUs) based on international standards; HB 1907 or the Passive Income and Financial Intermediary Tax Act (PIFITA), which aims to encourage the development of the capital market by making the tax system in the financial sector fairer, simpler, more efficient and revenue-neutral, and HB 1906 increasing the excise taxes on alcohol products and heated tobacco and vapor (vaping) products.