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Reforms pushed to attract more FDI
By Jenina P. Ibañez, Reporter
THE Trade department is making a renewed push for the passage of bills that would further open up the economy to foreign direct investments (FDI), after Philippine rules on such were again deemed among the most restrictive in the world.
The Philippines ranked fourth out of 84 economies on the FDI Regulatory Restrictiveness Index compiled by the Organization for Economic Cooperation and Development (OECD), based on 2019 data.
On a scale of 0 (open) to 1 (closed), the Philippines scored 0.374 on the index, with the biggest restriction being the Constitution’s 40% limit on foreign ownership in key industries such as telecommunications, media, real estate, agriculture, and utilities.
Ramon M. Lopez, Trade secretary and chairman of the Board of the Investments, said in a mobile message on Friday that the Philippines’ dismal ranking is the reason behind the urgent need for more reforms such as amendments to the Retail Trade Liberalization Act (RTLA) and the Public Service Act (PSA).
Changes to the RTLA include reducing the required minimum paid-up capital for foreign companies that seek to enter the Philippine retail sector, while amendments to the PSA would lift foreign ownership restrictions in certain sectors.
Mr. Lopez said the country also should work to improve the ease of doing business. He also backed the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE), which would immediately cut corporate income tax to 25%.
Foreign business chambers have been pushing for the passage of these bills as part of overall economic reforms.
“If the Senate can finish these this year, the Philippines will move up a few dozen places. It also will attract tens of billions of US dollars in new investment leading to greater competition and better services for consumers,” American Chamber of Commerce of the Philippines Senior Advisor John Forbes said in a mobile message on Friday.
The House of Representatives has already approved amendments to the PSA and the RTLA, while counterpart bills are pending before the Senate.
“We will try to prioritize all economic related legislation,” Senate President Vicente C. Sotto III said in a mobile message on Monday.
Senate Public Services Committee Chairperson Grace S. Poe-Llamanzares last month said amendments to PSA will be tackled “hopefully this year,” taking a backseat to the pandemic response bills.
LOWERING MINIMUM INVESTMENT
However, local retailers are opposing the measure amending the RTLA, particularly the provision that would significantly lower foreign entrants’ minimum investment from the current $2.5 million.
House Bill No. 59, which was passed on third reading in March, reduced the required minimum paid-up capital for foreign retail investors to $200,000 (around P10 million).
“Low minimum investment will only destroy our micro-, small-, and medium-sized enterprises (MSMEs),” Philippine Retailers Association Vice-Chairman Roberto S. Claudio said in an e-mail on Friday.
Due to the pandemic, Mr. Claudio noted major global retailers are downsizing and few foreign retailers will venture into the Philippines even if the threshold is reduced.
“We will only subject our Filipino MSME retailers to unfair competition. Also, this will negate our program of ‘BUY LOKAL’ initiative launched to help our local industries to recover from the negative economic effects of this pandemic,” he said, adding that the group is looking into compromise positions with the government.
MSMEs make up 99.5% of the total business establishments operating in the country, based on 2018 government statistics. The businesses account for 63% of the country’s total employment.
However, Senator Aquilino L. Pimentel, who chairs the Senate Committee on Trade, Commerce and Entrepreneurship currently tackling the RTLA, said they are making sure local retailers will be protected despite the lower capitalization requirement for foreign retailers.
Under the Senate version, Mr. Pimentel said the proposed capitalization requirement is $300,000, which would be just below P15 million.
“The Magna Carta for MSMEs defines small businesses as those with capitalization of P3 million to P15 million. So we set the new foreign capitalization requirement just above the maximum capitalization for small businesses to make sure they will not be subject to unfair competition from foreign retailers,” he said in a mobile message on Monday.
“A per store requirement of $150,000 will also be imposed to make sure that foreign retailers will not circumvent the law and open stores that will compete with micro enterprises,” he added.
Meanwhile, House Committee on Economic Affairs Chair and AAMBIS-OWA Rep. Sharon S. Garin also pushed for amendments to the Foreign Investment Act to allow more foreigners to practice their professions and set up small businesses in the country.
In a mobile message, Ms. Garin said the measure, along with the PSA and RTLA amendments, would help ensure the country’s economic recovery after the pandemic.