Interview: Charito Plaza
How will the rationalisation of tax incentives in the proposed tax reform package affect foreign investment pledges in economic zones?
CHARITO PLAZA: The goal and objectives of the Tax Reform for Attracting Better and High-Quality Opportunities (TRABAHO), as well as its transparency, performance-based and time-bound criteria, are very positive, but the strategy to implement the programme could be improved, especially when it comes to the incentive packages. The current draft puts together the incentives for exporters and domestic enterprises, but there should be different conditions for each in order to create a tax framework for export-focused industries that is competitive compared to other countries in the region, as this competition is intense. Exporters seek efficiency, and TRABAHO should enhance competitiveness rather than change the incentives that have proved to be effective in attracting investors. There are also pre-existing contracts with investors that cannot be altered without damaging stability. When the current TRABAHO bill was being drafted in Parliament, new investments in PEZA dropped by 52% because of the uncertainty, and existing industries have placed expansion plans on hold. Companies that are 100% foreign owned are only allowed to lease land, which may facilitate the exit plans of international investors. The Philippines has to maintain the conditions that encouraged the investment levels of P3.61trn ($67.2bn) between 1995 and 2017 in the SEZs, alongside the tax revenue, job creation and stability that it generates.
What other incentives could be introduced to attract international investors to the Philippines?
PLAZA: In addition to providing tax benefits, subsidies could be offered, particularly for industries where growth is most urgently needed. For instance, in order to boost food security, basic food-related segments must be prioritised within the agro-industrial, manufacturing and processing sector. Besides reducing dependency on imports and increasing financial incentive packages, key among PEZA’s 10 new goals are attracting greater foreign investment; creating jobs and ensuring employees receive appropriate training; extending development beyond Metro Manila; and empowering local government units. An additional goal pertains to the development of “ecozones”, to which end PEZA has a 10-point programme for a host of infrastructure developments, including a comprehensive ecozone map; integrated industrial, commercial and residential ecozones; and new and enhanced PEZA structures.
Which sectors are best positioned to experience growth and reduce the trade balance deficit?
PLAZA: Tourism is another field with significant growth potential due to the wide range of destinations and the natural beauty of the country, as well as projects developing different niche markets like retirement villages. The vast, fertile soil and the wide range of options to cultivate different crops make agriculture another attractive investment option, especially for food industries from import-dependent countries. In the agricultural sector, the priority is to develop and complete the supply chain and to make all agricultural land productive.
At the same time the Philippines’ location, in the centre of the Asia-Pacific region, favours manufacturing. As an example, the defence industrial complex, being created by PEZA with the government’s support, aims to encourage defence firms to install their manufacturing plants in SEZs. The climate and multilingual manpower are other important factors that will attract investment. The Philippines is also creating a competitive IT sector thanks to its labour force, with plans to develop a designed IT park area in every region, which will function similarly to an SEZ.
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