GERMAN investors are holding off until they achieve clarity on the direction of tax reform, with a key bill that will determine the future of corporate taxes still pending, a German chamber of commerce official said.
“I do understand it takes its process in a democracy to get the law passed but at the same time of course for investors it’s difficult at the moment to decide because they’re not sure how will it be,” German-Philippine Chamber of Commerce executive director Martin Henkelmann told reporters Tuesday.
The Corporate Income Tax and Incentives Rationalization Act (CITIRA), which seeks to lower corporate income tax rates and rationalize fiscal incentives, is expected to hurdle the Senate Ways and Means committee this week.
Mr. Henkelmann said investors know that corporate income tax will be reduced, but still face uncertainty over the final form of the incentive regime and the timeline for implementation.
“They look around and say ‘we need a new company site outside of China’, they say ‘where do lots of others grow? I’d like to be part of the group.’ And secondly, ‘who has a stable legal framework?’,” he said.
“(Countries) like Vietnam and Thailand are quite attractive at the moment, while we still wait what we can propose to the German companies. Then hopefully in April we can show them what has been approved here.”
“(What will happen with the) incentives? We’re not sure about this. We know the corporate income tax will be lower… but over a quite long period. This is already the right direction. But when it comes to the other incentives aspect, we still have to look at how it will be.”
Senator Pilar Juliana S. Cayetano, who chairs the committee ushering CITIRA through the legislative process, said Wednesday that the lowering of the corporate income tax from 30% to 20% will span 10 years, reducing the rate by two percentage points every two years.
Without disclosing the details of the incentives program, Ms. Cayetano said the reform would limit the duration incentives are applied. The Fiscal Incentives Review Board would grant incentives, based on recommendations from investment promotion agencies.
Mr. Henkelmann added that the Philippines is distant from key markets for German companies.
“When you are in Vietnam, Thailand you are closer to many important markets. That’s why companies would go there.”
He said the Philippine archipelago requires more transport.
“On the mainland, in Asia, you have perhaps trains or you just have roads that go 500 kilometers along the coastline to go to China and you don’t cross your own sea.”
The chamber sees investment opportunities in the renewable energy, agriculture, and outsourcing sectors this year. — Jenina P. Ibañez