Tax incentives law seen bringing ‘rapid’ FDI growth

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Freeport Area of Bataan
Freeport Area of Bataan

THE SECOND PACKAGE of the tax reform program will lift uncertainty over incentives and reverse the slump in foreign direct investment (FDI), a bank economist said Tuesday.

“Very crucial is the TRABAHO bill because the problem with being left in dark about what the final incentives or absence of incentives is going to look like,” Bank of the Philippine Islands lead economist Emilio S. Neri, Jr. said during an economic forum in Manila Tuesday.

He was referring to the name of one of the tax reform bills — Tax Reform for Attracting Better and High-Quality Opportunities (TRABAHO) — that did not pass the previous Congress. It was refiled this year under a new name, the proposed Comprehensive Income Tax and Incentive Rationalization (CITIRA) act.

The bill seeks to eventually reduce the corporate tax rate to 20% from 30% currently and introduce changes to the incentives regime.

“The sooner the bill is passed into law, I think, the less uncertainty about foreign investment in the Philippines. It’s also good for the tax effort…,” BPI’s Mr. Neri said.

“If that is put in place, the FDI in the Philippines will start growing at a rapid pace.

FDI net inflows in May was the smallest in more than four years, dropping 85.1% to $242 million from $1.625 billion a year earlier.

In the year to date, FDI net inflows amounted to $3.145 billion, down 37.1% from a year earlier. The indicator is coming off a record $10.256 billion in 2017, which fell off by 4.4% last year.

The central bank projects net FDI to hit about $10.2 billion this year.

“As far as the country is concerned, we just need to open up the economy. We have too many restrictions,” Socioeconomic Planning Secretary Ernesto M. Pernia said at the same forum.

As the foreign investors wait for the passage of the bill, Bangko Sentral ng Pilipinas (BSP) Governor Bejamin E. Diokno said he is confident that the bill will become a law before the year ends.

“Foreign investors will always be wait-and-see… because of the TRABAHO bill… Once we get this approved I’m sure foreign investment will be coming in. Incentives really don’t matter. They are looking at profitability. Incentives come and go except in our case, incentives are perpetual,” he said.

“I’m confident that that bill will be resolved before the end of the year. The window of opportunity is six months to one year,” Mr. Diokno said. — Mark T. Amoguis