The Philippine Economic Zone Authority (Peza) had a 27-percent drop in investment commitments last year, performing even worse than it did in the first year of the pandemic, despite the promise of a new corporate tax reform law that was supposed to help bring predictability back to an uncertain investment climate.
Total investment pledges reached P69.3 billion last year, data showed. While Peza officials had not yet responded when asked to explain the drop, the figure marks a substantial decline from the P95 billion registered in 2020, despite the passage last year of the CREATE law, or the Corporate Recovery and Tax Incentives for Enterprises Act.
Pledges to develop new economic zones accounted for bulk of the commitments at P33.081 billion, data later provided by Peza showed. It was followed by P25.509 billion in the manufacturing sector, which dropped from P34 billion in 2020, and then by the business process outsourcing (BPO) industry with P7.3 billion, which dropped by more than half from P17 billion in the first year of the pandemic.
The performance was lower than even muted expectations. Peza saw its commitments drop by nearly 20 percent in 2020, but that wasn’t as bad as the drop the agency initially expected. Moving forward though, it expected to grow its pledges in 2021 by 7-percent, before lowering its year-end target to 5-percent instead.
Commitments to invest in new projects in economic zones dropped last year despite the promise of the CREATE law, which cut corporate taxes across the board and rationalized tax breaks. The CREATE law was passed last year after more than three years of uncertainty in the business community about the exact nature of tax breaks under the new law.
Peza initially opposed earlier drafts of the CREATE bill but eventually supported it after the measure went through several revisions. In earlier versions of the bill, supporters of the measure dismissed the decline in Peza pledges as a result of the uncertainty over the future of tax breaks, but not necessarily as a result of the provisions in the bill.
Ramon Lopez, chair of Peza and head of the Department of Trade and Industry, had previously said the CREATE law “is expected to bring in [a] massive inflow of investments that will create more jobs.” On the other hand, when the then-bill passed the Senate in November 2020, Finance Secretary Carlos Dominguez III also called it “one of the largest economic stimulus measures in the country’s history.”
Other factors that could have aggravated the decline in investment commitments included the 2019 ban on new economic zones in Metro Manila, which essentially meant new BPO companies couldn’t set shop in the capital if they wanted new tax breaks.