Japan firms hit asset tax, new BIR rule

Japanese firms have slammed the new asset taxes being levied on foreign companies in certain economic zones as well as a new government circular clarifying the claiming of value-added tax refunds, stressing that these new tax policies once again demonstrated the lack of stability and predictability in the Philippine business environment.

These developments might also dampen the growing interest not only of Japanese companies, but of other foreign firms in setting up their offices and manufacturing facilities in the country, warned Tetsuo Tomino, president of the Japanese Chamber of Commerce and Industry of the Philippines Inc. (JCCIPI).

“The interest of Japan in the Philippines has been increasing and many Japanese companies are seriously thinking of putting up their own manufacturing facilities and new facilities here. That is why we, together with the Japanese Embassy, are requesting the Philippine government to make business circumstances to be better, meaning to address many issues such as the value-added tax and other tax matters,” Tomino said.

Tomino disclosed that one local government has started imposing this year a new fixed asset tax on a Japanese firm working within the economic zone managed by the Philippine Economic Zone Authority (Peza).

“Peza locators should be free from that tax but some local government tax authority decided to impose that. [Peza Director General Lilia] de Lima promised to check it while the Department of Interior and Local Government is creating a fact-finding committee to look into this. But we feel that such kind of actions are very slow. We submitted this issue three months ago and yet they are still in the fact-finding stage,” he said.

“What I want to say is that business circumstances should be very stable and trustful. Many foreign investors believe Peza is a very great system, that’s why they invest. But if some local government violates the national rules, then we’re in a very pessimistic situation. We’re doubtful of the ability of the central government as they cannot control the local governments,” he pointed out.

Another issue, Tomino said, was Revenue Memorandum Circular No. 54-2014 issued by the Bureau of Internal Revenue in June. This, he said, contained provisions that effectively denied them their rights and disallowed them to negotiate with the BIR, as provided under the current Tax Code. The circular sought to clarify the application for VAT refund/tax credit, as made by the Supreme Court in relation to the case of the BIR against San Roque Power Corp.

JCCIPI secretary general Masazumi Nishizawa noted that this circular would affect mostly their construction and logistics companies, particularly those that were in negotiations with the BIR for their claims over the last three to five years.

“Before, a company, following the submission of  documents to BIR on VAT refund, could choose whether they will file or continue to negotiate with BIR. But the new circular states that a company can no longer do that. And if the BIR doesn’t answer within the 120-day period, the claims are automatically considered denied, after which you have to file before the CTA,” Nishizawa said.

Tomino has also urged the government to further open up the Philippine economy to foreign investors and to be fair to all companies operating in the country.

Tomino noted that the Philippines has strong points that could encourage more foreign firms to locate here, among them a skilled, English-speaking labor force, a young population, proximity to Japan and incomparable Filipino hospitality.

The country, however, suffers from having unstable government policies, and lack of fundamental or basic industries here that can make up the critical supply chain. Tomino noted that, for instance, there were no big steel mills and chemical facilities in the Philippines, unlike in Thailand and Indonesia, which meant they have to import a lot of their raw materials.

Although many Japanese firms were looking at putting up factories here, the ideal location for a regional headquarters for many of them was Singapore, while manufacturing hubs were ideally placed in Thailand, he added.