The head of the local aerospace industry group says the government should review the Corporate Recovery and Tax Incentives for Enterprises (CREATE) law, particularly certain provisions that cause uncertainties over the future of tax breaks as they are turning off foreign firms from investing in the Philippines.
John Lee, president of the Aerospace Industries Association of the Philippines (AIAP) told the Inquirer on Friday last week that some of the existing provisions in the tax reform law were putting off new investors from choosing the Philippines.
“The initial changing of the incentives is a big issue for investors. The [Philippine Economic Zone Authority’s] 5-percent GIE (gross income earned) will end in 2031 thereby subjecting all prior investors to the 25 percent or 20 percent,” Lee said, explaining that the change in the tax regime made in previous years is detrimental to the industry.
Before CREATE was passed into law, the duration of the GIE incentive was not time-bound and locator firms could enjoy it without limit.
“CREATE also has an annual review that can cancel incentives if certain performance fields are not met. When there are uncertainty and things that can happen beyond the investors’ control, they will be risking losing incentives for periods,” Lee said further.
“For high investment businesses like aerospace, it’ll fall under FIRB (Fiscal Incentives Review Board) for approval and most multinationals avoid meetings with the government unless necessary,” he added.
The FIRB is the Philippines’ interagency government body given the authority by law to grant tax incentives to registered business enterprises.
“The numerous layers of reportorial requirements are enough to turn off investors. Most investors in the industry chose other Asean (Association of Southeast Asian Nations) neighbors ever since the discussion of TRAIN (Tax Reform for Acceleration and Inclusion),” said Lee.
“Peza’s (Philippine Economic Zone Authority) investment performance has dropped dramatically in the last four years that retention might even be an issue with some industry players looking at Asean neighbors to relocate,” he said further.
Peza approved P69.3 billion worth of investments in 2021, P95.03 billion in 2020, P117.54 billion in 2019 and P140.24 billion in 2018.
From January to September 2022, Peza has approved P39.6 billion worth of investments covering 148 new and expansion projects.
The AIAP official said they were drawing up an updated road map of the Philippines’ aerospace industry, which will be submitted to the government to make sure the goals of both parties are aligned.
The group is also planning to meet with President Marcos to discuss the current situation of the local sector, but no definite schedule has been set yet.
“The CREATE law isn’t really something he can sell. It [has] too much oversight [such] that businesses are looking at Vietnam these days instead of us,” he said. INQ