THE Korean Chamber of Commerce of the Philippines, Inc. said worries about the impact of tax reform on foreign investment are a minor concern compared with the country’s restrictions on foreign ownership.
Changes to the incentive system offered to foreign investors will affect only “a small portion of investment,” the chamber’s President Lee Hok-in said.
“Many Koreans want to invest in your domestic market. The problem is it’s very difficult. You know why? Your foreign restrictions are quite serious,” Mr. Lee said in an interview with BusinessWorld last week.
According to Mr. Lee, among the biggest obstacles for South Korean potential investors is the rule that limits foreigners to 40% of land ownership; the negative investment list; and the large minimum capital requirements to set up a retail business.
He stressed that the domestic market “is getting bigger and bigger” and is becoming an important factor in investment decisions compared to the ability to export products made in economic zones.
As a result, Vietnam is becoming more attractive, with a relocation trend starting two years ago, according to Mr. Lee.
He said a developing country like the Philippines should improve its manufacturing industry and move beyond its reliance on the business process outsourcing (BPO) sector and remittances from overseas Filipino workers (OFWs).
“OFW and BPO are okay, so far. But there is limit to your future. You cannot export all your people overseas. BPOs are also (coming up against) artificial intelligence and automation,” he said.
“Manufacturing is very important considering that the share of exports to GDP is very, very low,” Mr. Lee added.
Although the second round of tax reform, known here as TRAIN, is a secondary concern, Mr. Lee said, it adds to the uncertainties surrounding the Philippines that make other countries more attractive.
“Many countries are inviting investments but here, there are a lot of foreign restrictions. And now you have TRAIN,” Mr. Lee added.
“TRAIN changes the rules in the middle of the game. Investors are here because 10 years ago, they believed in the Philippine government… This is unfair,” he said.
The chamber is batting for a transition period for phasing out the old tax incentive regime that is longer than the proposed five years. Mr. Lee concurs with Trade Secretary Ramon M. Lopez, who backs a 15-year period.
On the proposed corporate income tax rate of 25%, the chamber would prefer “a more competitive level” of 20%.
The chamber also wants zero rating for value-added tax as well as duty exemptions for the importation of raw materials and machinery to remain in place. — Janina C. Lim