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Foreign investment pledges down 33%

New incentives regime under CREATE pitched to investors
By: - Reporter / @bendeveraINQ
/ 05:22 AM June 04, 2021

Investments committed by foreigners fell by nearly a third to P19.55 billion in the first quarter of the year.

The government aims to address such poor performance with the new tax incentives regime that seeks to save firms badly hit by the pandemic-induced recession and, at the same time, lure new elephant-sized investment projects. The Philippine Statistics Authority’s (PSA) latest report on approved foreign investments showed that the end-March investment pledges registered by the country’s seven investment promotion agencies (IPAs) dropped by 32.9 percent from P29.14 billion a year ago.

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PSA data showed that only the Authority of the Freeport Area of Bataan attracted more foreign investments in the first quarter, with projects worth P39.4 million, up from about P900,000 a year ago.

The Board of Investments (BOI)-Bangsamoro Autonomous Region in Muslim Mindanao failed to attract any foreign investment commitment during the three-month period, while the five other IPAs—the BOI, Clark Development Corp., Cagayan Economic Zone Authority, the Philippine Economic Zone Authority and Subic Bay Metropolitan Authority—posted year-on-year declines.

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The PSA said the top three sources of the first-quarter foreign investment commitments were Japan (P10.72 billion), Cayman Islands (P1.14 billion) and South Korea (P592.63 million).

In terms of sectors, the top beneficiaries of upcoming foreign-led projects were manufacturing, which is getting P11.14 billion; information and communication, P4.58 billion, and real estate, P2.24 billion.

The majority of these new foreign investments will be located in Calabarzon (projects worth P7.54 billion), Central Visayas (P2.73 billion) and Metro Manila (P1.74 billion).

The first-quarter foreign investment approvals are expected to create 18,416 new jobs, the PSA said.

IPAs grant tax and other fiscal incentives to qualified projects. The incentive system was recently rationalized by the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act signed by President Duterte on March 26.

Under CREATE, the President “may, in the interest of national economic development and upon the recommendation of the FIRB (reconstituted Fiscal Incentives Review Board), modify the mix, period, or manner of availment of tax incentives, or craft the appropriate financial support package for a highly desirable project or a specific industrial activity based on defined development strategies for creating high-value jobs, building new industries to diversify economic activities, and attracting significant foreign and domestic capital or investment, and the fiscal requirements of the activity or project, subject to maximum incentive levels recommended by the FIRB.”

CREATE’s draft implementing rules and regulations said the government’s financial support could include land use, water appropriation, power provision, as well as budgetary support through the yearly national budget.

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In particular, the President can allow qualified firms to enjoy incentives for up to 40 years, with a maximum of eight-year income tax holiday (ITH).

In the remaining years of the incentive period, qualified companies can avail themselves of a special corporate income tax rate of 5 percent.

Before the President can decide to extend hefty perks, however, the FIRB will first “determine whether the benefits that the government may derive from such investment are clear and convincing and far outweigh the cost of incentives that will be granted.”

Upon the FIRB’s recommendation, the President can exercise his power as long as the incoming project has “a comprehensive sustainable development plan with clear inclusive business approaches, and high level of sophistication and innovation; and minimum investment capital of P50 billion or its equivalent in US dollars, or a direct local employment generation of at least 10,000 within three years from the issuance of the certificate of registration.”

This criteria will be reviewed every three years and benchmarked to global standards and economic indicators.

However, if the project fails to substantially meet the projected impact on the economy and agreed performance targets, the FIRB will recommend to the President the cancelation of the tax incentive or financial support package after due hearing and an adequate opportunity to substantially comply with the agreed performance targets and outputs, according to the draft guidelines.

In times when the economy faces an “unmanageable fiscal deficit,” as declared by the President following advice from the Development Budget Coordination Committee, this presidential power to grant tax perks under CREATE will be suspended.

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