DOF says 112% hike in FDI pledges dispels fears over tax perk reform

A more than 100 percent increase in foreign direct investment (FDI) pledges in the first half of 2019 should dispel fear that investors overseas are being put off by the Duterte administration’s bid to phase out tax perks of companies that no longer qualify for the incentives, according to a Department of Finance (DOF) official.

In a statement, Finance Undersecretary Karl Kendrick Chua said the latest report of the Philippine Statistics Authority on long term equity commitments showed that dire predictions of investment flight in the wake of the expected passage of the Corporate Income Tax and Incentives Rationalization Act (CITIRA) were unfounded.

“It goes to show that the noisy naysayers against the long-due efforts to reform the country’s convoluted corporate income tax system are mistaken,” he said, citing the PSA’s report of a 112-percent increase in FDI pledges in the first half of the year.

“Despite the persistent fear-mongering activities of certain groups, the international investment community continues to signal its confidence in the policies of the Duterte administration and in the strength of the Philippine economy and its workforce, as illustrated by the surge in FDI pledges in the year’s first semester,” Chua said.

The PSA reported last week that foreign investment pledges in the second quarter amounted to P49.5 billion, up 60.2 percent from P30.9 billion a year ago. This added to the P46 billion of pledges during the first quarter, bringing total pledges during the first half of the year to more than double the amount last year.

President Rodrgo Duterte reiterated in his 4th State of the Nation Address last July his request for Congress to pass the second package of the Comprehensive Tax Reform Program which aims to boost micro, small and medium enterprises by gradually reducing the corporate income tax rate from 30 percent to 20 percent.

The bill also seeks to reform the country’s fiscal incentive system to make it performance-based, targeted, time-bound and transparent.

Finance Secretary Carlos Dominguez III said the proposed corporate income tax cut and rationalization of incentives will boost the growth of small businesses because, under the current corporate taxation system, a select group of 3,150 corporations registered under investment promotion agencies enjoy discounted effective tax rates of 6-13 percent while small and medium-sized businesses — which employ the majority of Filipino workers — pay the regular tax rate of 30 percent, which is the highest in the region.

The CITIRA bill was approved on second reading by the House of Representatives on Monday night./TSB