Peza forecasts recovery of ecozone investments this year
The Philippine Economic Zone Authority hopes to get back on its feet this year after investment pledges dropped for two years in a row under the weight of the uncertainty over tax breaks.
Investment pledges fell 16 percent last year to P117.5 billion as Peza struggled to attract more commitments at a time when it was not even sure how the government’s tax breaks would look like anytime soon.
The rate of the decline, however, was slower than the 41-percent plunge in 2018 to around P140 billion, which was the worst decline in terms of the value of new projects since the year that followed the 9/11 terrorist attacks in the United States.
The agency hopes to bounce back this year, looking at a growth target of 5 to 10 percent, according to Peza Director General Charito Plaza. At best, this would bring pledges in 2020 to P130 billion.
Exporters register under the Peza and set up in economic zones where they are promised tax breaks to help bring down the cost of doing business in the Philippines.
Among the industries that register under Peza are manufacturing and information technology and business process management, both of which posted declines last year.
The manufacturing sector pledged P30.35 billion worth of investments in 2019, down 5 percent from 2018. The IT-BPM industry, on the other hand, was nearly 15-percent lower at P17.58 billion worth of investment pledges.
The drop in investment pledges has often been attributed to the uncertainty over Duterte’s tax reform package now called the Citira, or the the Corporate Income Tax and Incentives Rationalization Act (Citira).
The bill will slowly lower the corporate income tax for companies that do business in the Philippines, an aspect that many players welcome since the tax rate is currently the highest in Southeast Asia.
But the bill, which was already passed in the House of Representatives and is pending in the Senate, has drawn a lot of criticism for its move to rationalize tax incentives.
Plaza said she was banking on 2020 growth on some new entrants that she expected to register under the Peza, among them Chinese steelmaker Panhua Group, which wanted to put up a $3.5 billion integrated steel project in an economic zone in Mindanao.
Growth this year “would be higher if an investor-friendly Citira is passed,” she said last week.
The Peza is an attached agency of the Department of Trade and Industry. While the Peza-registered investments continued to drop, the Board of Investments — another DTI-attached agency that offers tax breaks — had breached its P1-trillion mark in investment pledges last year.
The apparent immunity of the BOI from uncertainty does not invalidate the impact the Peza had fought hard to endure in the past two years.
Companies that register under the BOI cater to the consumer-driven domestic market, which is an attractive factor to invest already, while incentives only sweeten the pot.
On the other hand, Peza covers projects that cater to the overseas market such as call centers and manufacturers that make products for export.
This makes Peza more vulnerable to the uncertainty since tax breaks form a big part of why these companies invested here.
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