The number of foreign-led projects approved by the government’s seven investment promotion agencies (IPAs) fell by 36.2 percent to P29.4 billion in the first quarter of 2020, not helped by a lockdown imposed to stop the spread of SARS Cov2, the coronavirus that causes COVID-19.
The Philippine Statistics Authority’s (PSA) latest report on foreign investment approvals released on Thursday (June 4) showed that the first-quarter investment pledge was the lowest quarterly figure since the P14.2 billion approved by IPAs in early 2018.
The figures were culled from Authority of the Freeport Area of Bataan (Afab), Board of Investments (BOI), Bangsamoro Autonomous Region in Muslim Mindanao (BARMM), Cagayan Economic Zone Authority (Ceza), Clark Development Corp. (CDC), Philippine Economic Zone Authority (Peza) and Subic Bay Metropolitan Authority (SBMA).
As of the end of March 2020, investment approvals were down from P45.9 billion in 2019.
PSA data showed that foreign investment pledges fell year-on-year in Afab, BOI, Peza and SBMA, while CDC and Ceza had higher commitments than last year’s. In the case of BARMM, no project was forthcoming in the first quarters of 2019 and 2020.
IPAs give away fiscal and non-fiscal incentives to investors, which the Duterte administration wanted to eventually change under the proposed Corporate Recovery and Tax Incentives for Enterprises (Create) Act, the administration’s second tax reform package.
When these IPA approvals materialize, they will be counted as foreign direct investment (FDI).
According to the PSA, the top sources of foreign investment commitments from January to March were the United Kingdom (P6.1 billion), the United States (P5.7 billion), and China (P4.9 billion).
Combined with domestic investors’ upcoming projects, total IPA approvals during the first quarter dropped 58.1 percent to P114.8 billion from P274.2 billion in 2019.
To resume investor confidence in the Philippines amid the COVID-19 crisis, the economic team is seeking the Senate’s approval of Create, which will slash the corporate income tax rate—currently 30 percent and the highest in Asean—to 25 percent in July.
The other salient features of Create included 1-percentage point yearly reduction in companies’ income tax rate between 2023 and 2027 until it reached 20 percent; keeping the 5-percent tax on gross income earned (GIE) incentive up to nine years among registered firms currently enjoying it, and extending the sunset period to four to nine year instead of just two to seven in previous proposals; extending the net operating loss carryover (Nolco) for 2020 losses for a five-year period instead of only three years under the Tax Code; and giving the President, upon recommendation of the Fiscal Incentives Review Board (FIRB), power to grant heftier tax and non-tax perks to massive investments.
At present, the DOF-chaired board only granted tax subsidies to state-run corporations, but Create will empower the FIRB to approve investors’ tax perks as well as make it the oversight body for the 13 IPAs nationwide that all give fiscal incentives.
In 2019, commitments of foreign investors to set up shop in the Philippines jumped to a record-high P390.1 billion.