Japanese firms say the transition period towards rationalized tax incentives is too short, which will leave them struggling under a business climate seen as “one of the worst in Asia Pacific.”
This is according to a top official of the Japanese Chamber of Commerce and Industry of the Philippines (JCCI) in a recent interview with the Inquirer.
JCCI president Naoto Tago said Japanese firms wanted a transition period of at least 10 years, twice the period being considered by lawmakers tackling the Duterte administration’s second tax package.
This latest package, now called the Tax Reform for Attracting Better and High-quality Opportunities, will lower the corporate income tax (CIT) from 30 percent to 20 percent while rationalizing incentives offered to companies.
The proposal was only favorable to companies catering to the domestic market since they would benefit from a lower CIT, Tago said.
This would not be the case for export-oriented firms, especially those registered under the Philippine Economic Zone Authority (Peza) that rely on tax perks to make up for the high cost of doing business in the country, he added.
“Now, what happens [is] we suddenly need to explain to our head office that because of certain political changes … after two years, all the taxes [will] change,” Tago said.
Close to 60 percent, or around 900 of these Japanese firms are registered with Peza, according to official data cited by the chamber.
“There is a big risk Japanese investors may run away from the Philippines and seek other countries [instead],” he said.
While the second tax package still offers some perks, it will remove the 5-percent gross income earned (GIE) tax applied to Peza-registered firms in lieu of all other taxes.
This is a concern for Japanese investors. Removing this GIE tax, proceeds of which are automatically deposited in national and local coffers, would make it difficult for firms weighed down in the past by excessive red tape.
The latest tax package allows for a transition period of two to five years, depending on how long the company has been benefiting from the 5-percent GIE.
If a firm has been using it for more than 10 years now, it can only keep the perk for two more years, according to the bill.
Tago said they wanted a longer transition period to give time for Duterte to fulfill his promises of improving infrastructure and eliminating corruption, among others.
“During the 10 years, if the environment is improved, then the story [will be] different,” he said.
“For the time being, as far as infrastructure, telecommunications, electricity [costs], water supply [and public transportation are concerned], the Philippines is one of the worst in Asia Pacific,” Tago added.