Foreign business groups welcome infrastructure drive, but worry about changing incentives regime

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Foreign business groups welcome infrastructure drive, but worry about changing incentives regime
BUSINESS process outsourcing — a key dollar earner of the country at a time of a widening current account deficit — is one of the sectors that could face stricter incentive qualifications.

FOREIGN CHAMBERS welcome the government’s infrastructure development push and unveiled their annual list of recommendations to further push this drive, but believe efforts to streamline incentives would make the country less attractive to investments.

“We are very happy with the increased acceleration of infrastructure projects,” Michael Kurt Raeuber, head of the European Chamber of Commerce of the Philippines’ Infrastructure and Logistics Committee, said in an interview at the sidelines of the Seventh Arangkada Philippines Anniversary Forum, themed “Better Infrastructure for a Strong Economy,” at the Manila Marriott Hotel on Wednesday.

Asked to cite positive economic developments seen so far this year, a leader of the Korean Chamber of Commerce of the Philippines, Inc. (KCCI) cited the “Build, Buiild, Build” infrastructure program. “… [T]hose that are ongoing… are ongoing at a very quick pace. The Chamber sees good things ahead,” KCCI board member Ki Suk Hahn said in a separate interview.

American Chamber of Commerce of the Philippines, Inc. (AmCham) Executive Director Ebb Hinchcliffe noted that “the big issue at hand is the ability to spend fast enough.” At the same time, he acknowledged that “it’s really physically impossible to build as quick as much as we want it.”

The government has been ramping up its spending on infrastructure in a bid to push overall economic growth to a faster 7-8% annual pace until 2022, when President Rodrigo R. Duterte ends his six-year term, from the 6.3-6.5% average in 2010-2016, and has lately been hitting its targets in this regard.

However, leaders of the Joint Foreign Chambers of the Philippines voiced in a press conference after the forum their longstanding concern over government efforts to stem its bleeding by billions of pesos yearly in terms of revenues foregone due to generous incentives.

The House of Representatives on Monday approved the second of up to five planned tax reform packages which cuts the corporate income tax rate to 20% gradually from 30% currently in order to put the Philippines at par with Southeast Asian peers in attracting foreign investors on this count, as well as removes fiscal incentives deemed redundant, caps perks to a number of years and tightens eligibility requirements. The Senate will start next week deliberations on this measure.

“Leave PEZA [Philippine Economic Zone Authority’s incentive scheme] alone,” Mr. Hinchcliffe said, appealing that government honor “sanctity of contracts.”

Julian H. Payne, president and chief executive officer (CEO) of the Canadian Chamber of Commerce of the Philippines, said in the same briefing that foreign businesses “would like to see that reduction phase (for the corporate income tax rate) as fast as possible, start as early as possible, hopefully 2019 instead of 2020 or 21.”

“… [T]o encourage and increase exports, you have to look very carefully at how you manage PEZA zones because if these are made less efficient or more burdened with certain procedures, then you will see an egress impact on exports.”

ECCP’s Mr. Raeuber, CEO of Royal Cargo, Inc., said that “my biggest worry is that somebody tinkers with [incentives for] the BPO (business process outsourcing) industry” that is a key dollar earner for the country especially at a time of a widening current account deficit.

Karen Fe D. Pioquinto-Enriquez, advocacy adviser of the ECCP, brought up the current administration’s pledge to ease restrictions on foreign participation in various sectors. The 11th Regular Foreign Investment Negative List — which promises to be a shorter roster of sectors and activities still closed to foreign participation or in which such participation is restricted — is now more than a year delayed even as it had been submitted to Mr. Duterte months back.

For this year, the JFC published only three policy briefs on seaports and shipping, roads and railways, and water, unlike previous Arangkada reports that covered a wide array of sectors.

“We’d like to focus on infrastructure…” AmCham Senior Advisor John D. Forbes said, adding that a fourth policy brief on creative design can be expected to be released in November.

On the roads and railways, the JFC made 18 recommendations, including improvement of right of way acquisition; restructuring regulatory agencies and providing adequate resources; maintaining high levels of public and private sector investment in needed infrastructure; as well as conducting robust public-private partnership and privatization programs, among others.

On water policy, the JFC called for the appointment of a water czar; finalizing and implementing a unified financing framework for water supply and sanitation works; and expanding wastewater treatment coverage through adoption of new technologies, among others.

For seaports and shipping, the JFC recommended building strategic regional clusters around several ports and airports; reducing domestic shipping costs and tapping the potential of cruise tourism, among several others. — Janina C. Lim