Investment pledges registered by the Philippine Economic Zone Authority (Peza) for the manufacturing sector last year plunged by close to 50 percent due to the uncertainty brought about the Tax Reform for Acceleration and Inclusion (TRAIN).
New investment commitments registered by Peza dropped to P48.38 billion last year from the P90.24 billion reported in 2016, data showed.
This was the worst performance of the sector in the agency’s history, according to Elmer San Pascual, manager of Peza’s promotion and public relations. He said the sector even managed to post a flat growth during the global financial crisis in 2008.
“The TRAIN [law] is the number one cause of uncertainty. You cannot get serious investors when there is uncertainty. Investors won’t invest especially in the manufacturing sector where huge costs are involved particularly for machinery,” he told reporters in Filipino.
Some local transactions are on hold, he said.
The TRAIN law has been a subject of concern for many stakeholders, both in government and private sector. The law, which is the first comprehensive tax reform package passed under the Duterte administration, lowered the personal income tax of millions of Filipinos starting this year.
However, the law introduced offsetting measures to compensate for the revenue loss. These included a proposal to slap a 12-percent value added tax (VAT) on gross sales for local transactions made by Peza-registered companies.
Prior to the tax package, Peza-registered companies enjoyed zero-rated VAT for their local transactions, with the amount estimated to reach P250 billion yearly. The TRAIN law temporarily kept this zero-rated status, but would remove it under the condition that an enhanced refund system was been put in place.
Companies were confused particularly with the President’s veto of some TRAIN provisions in December last year. One of those vetoed was the provision that intended to remove the zero-rated status immediately.
Prior to last year, the manufacturing sector normally accounted for 80 to 85 percent of investment commitments under Peza, Pascual said. However, in 2017, the sector accounted for just a little more than 20 percent.