Investment incentives emerged as a top factor attracting businesses to invest and expand in the country, according to a cost-benefit study by Trade Assistance Secretary Rafaelita Aldaba on the country’s incentive scheme under the Board of Investments (BOI).
In the study, there were five factors that affect firms’ decision to invest in the Philippines: investment incentives; transparent government policy; low tax rates and liability; low incidence of labor strife; and legal framework for dispute resolution.
Aldaba said in the study that the Philippines is currently giving fiscal incentives — and other special incentives if needed — to locators in the country to “compensate for the obstacles in the business environment” that drive up the cost of doing business in the country.
This was also noted by Lilia De Lima, the director general of the Philippine Economic Zone Authority (PEZA), which also issues special incentives to locators in the PEZA zones. De Lima explained that PEZA uses tax grants to locators to compensate for inadequate infrastructure in some areas, as well as high costs of doing business in the country.
De Lima said the Rationalization of Fiscal Incentives Bill that is being pushed in Congress for passage in the next administration is not in line with the country’s drive to attract more investments.
The fiscal incentives rationalization bill creates a single tax incentive scheme for all sectors in place of the current grants given by investment promotion agencies (IPA) like PEZA.
“Good [to rationalize incentives]if we have infrastructure, then remove. But for now, what is it that we can offer in exchange [to attract investors]?” she added.
In the study, Aldaba said Philippine industries face two challenges, which are intense competition from imports within the domestic market, and improving the capacity to penetrate export markets and take advantage of market access opportunities emerging from free trade agreements and engagement in the Asean Economic Community.
Aldaba said the country — through the Department of Trade and Industry (DTI) and the Board of Investments (BOI) — is currently implementing new industrial policies such as the Comprehensive National Industrial Strategy (CNIS), the Industry Roadmaps Project (IRP) and the Manufacturing Resurgence Program (MRP) to address the most binding constraints to industry development and to revitalize the industrial sector amid growing external competition.
At present, the Philippines is behind when it comes to corporate income taxes, having the highest CIT in the region at 30 percent. This is higher compared with the 17-percent tax rate in Singapore, 25 percent in Indonesia, Malaysia and China, 20 percent in Thailand and Cambodia, and 22 percent in Vietnam.
Aldaba said government incentives and subsidies are a “highly significant determinant of firm survival,” noting that firms receiving subsidies are more likely to survive than those who do not.
The study said that the country might reduce incentives — if not do away with them entirely — by creating a proper environment and strengthening industries that will enhance healthy competition, promoting industries and enterprises, as well as allotting more resources to innovation and research and development.
By sustaining the right manufacturing environment, Aldaba said inclusive growth would come after and result in quality job creation and poverty reduction in the long run.