Lack of clarity on corporate tax reform seen dampening foreign direct investments — HSBC

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FOREIGN direct investments (FDI) in the Philippines will be dampened in 2020 by investors awaiting the final form of the corporate income tax law, an HSBC analyst said.

“We currently expect FDI to continue to be slow in 2020, similar to the level in 2019, unless we see some clarity,” Cheuk Wan Fan, chief market strategist for Asia at HSBC told reporters at a briefing held in Taguig City.

According to the Bangko Sentral ng Pilipinas (BSP), FDI net inflows slipped on a year-on-year basis for a seventh straight month in September to $566 million, down 2.9% from a year earlier. It was 36.05% higher month-on-month.

Ms. Fan said the FDI environment has room for further development while the direction of corporate income taxes remains unresolved.

“[The] Philippines has the highest corporate tax rate within the region. So foreign investment has been waiting for clarity about corporate tax reform. That’s why they are still holding a wait-and-see attitude,” she said.

Representative Jose Ma. Clemente S. Salceda of Albay, who is also the Chairman of the House Committee on Ways and Means, has said he considers it an urgent matter to legislation that will become the Corporate Income Tax and Incentives Rationalization Act, or CITIRA.

The CITIRA bill, which was approved at the House of Representatives in September, calls for the gradual decrease of corporate income tax rates from the current 30% to 20%. philippine rates are one of the highest among major Asian economies.

CITIRA will also streamline fiscal incentives to become more time-bound and performance-based.

Ang pinaka-risk para sa amin kung ang CITIRA tumagal sa Senado. Kasi napakalaki na ng epekto sa growth natin sa investments (The biggest risk is for CITIRA to take too much time in the Senate… it will have a major impact on investments),” he told reporters at a media briefing of in Pasig.

Mr. Salcedo noted that the bill has been pending at the Senate since October.

“So ‘pag yan tumagal diyan, maraming naka-hold na investment (so if it takes longer, a lot of investments will remain on hold,” he said.

BSP Governor Benjamin E. Diokno said the lack of finality with CITIRA may have dented FDI flows.

“During the first years of (President Rodrigo R.) Duterte, FDI was around $10 billion… Last year nag-slowdown ‘yan (it slowed down). I think we can attribute that to the CITIRA uncertainty…,” Mr. Diokno said at the briefing.

Trade Secretary Ramon M. Lopez noted that the transition period for old incentive schemes and new investment incentives continue to be contentious.

While the Department of Finance backs a two to five-year transition period for the implementation of the bill, the Department of Trade and Industry (DTI) supports a five to seven-year transition period in general and a seven to 10-year transition for firms with over 3,000 employees. — Luz Wendy T. Noble