An executive from the Philippines’ largest industrial estate has thrown his support behind the resolution of investors and business groups urging the President to suspend the implementation of new rules that have started to take away tax incentives and other fiscal perks.
In an expression of solidarity, the Clark Investors and Locators Association (CILA), Subic Bay Freeport Chamber of Commerce (SBFCC), the American Chamber of Commerce (Amcham), Metro Clark Chamber of Commerce and Industry (MACCII), Tarlac Chamber of Commerce and Industry (TCCI), Metro Clark ICT Council (MCICTC), and IT and Business Process Association (IBPAP) passed a joint resolution calling for the immediate suspension of RR-21-2021, RMC 24-2022 issued by the Bureau of Internal Revenue (BIR).
The business groups are also urging the government to conduct a review on the Implementing Rules and Regulations (IRR) of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act or Republic Act 11534.
“I agree that the Bureau of Internal Revenue (BIR) and Department of Finance (DOF) should heed the clamor of investors to suspend and review the IRR,” said the executive, who declined to be named since he is not authorized to officially comment on the matter.
“In the past, every time there was a hearing in Congress about taking away perks, the Department of Trade and Industry (DTI), Board of Investments (BOI), and Investment Promotion Agencies (IPAs) always tangled with DOF. The position of IPAs like PEZA, SBMA, including PHIVIDEC-IA, is that if ever government reduces or takes away incentives, it must be for prospective applications, not existing locators.”
The joint resolution appealed “in the strongest terms” for the government to cure the situation by ordering the review and amendment of the IRR and the immediate suspension of RR-21-2021, RMC 24-2022 in order to preserve the original intent of the CREATE Act.
The CREATE Act, approved into law on February 3, 2021 is meant to lower the corporate income tax rate, rationalize and streamline fiscal incentives. It stipulated a so-called sunset provision that allows registered enterprises to continue enjoying the five percent tax on Gross Income Earned (GIE) up to 2031. Payment of GIE is an incentive in lieu of all national and local taxes.
The IRR and BIR issuances effectively stopped the enjoyment of the tax incentive and other fiscal perks as some investor firms are now levied with Value Added Tax and other forms of taxes, the resolution stressed.
“The IRR and BIR revenue regulations RR-21-2021, RMC 24-2022 went beyond and against the provision of the CREATE Act insofar as the transitory provision in Section 311 of Chapter VI is concerned,” the resolution stated.
The IRR and assailed BIR issuances have also “caused massive confusion as well as substantive impairment to the cost structure, business models and the viability of existing and potential investors.”
“If almost all chambers sign a petition, it is a clear signal already that something is wrong,” the executive stressed. “Let the existing locators enjoy what has been granted to them, or else Philippine Laws shall be perceived to be unstable thus scaring away investors.”
Officials of the business groups lamented how the business climate in Subic, Clark, and economic zones has deteriorated and may lead to the Philippines’ further lagging behind in the share of Foreign Direct Investments in the ASEAN region.
Data from the World Bank show that the Philippines only account for a mere 5% of the total average FDI for the ASEAN region for 2011-2021 while neighbors like Singapore, Indonesia, Thailand, Malaysia, and Vietnam account for 53%, 11%, 11%, 9%, and 8%, respectively.
Economic zones like Clark and Subic Freeports are magnets to FDIs where competitiveness like fiscal perks are critical to bringing in investments. CILA fears that if the issue on tax perks is not resolved, the Philippines’ ranking in the Global Competitiveness survey of World Bank may slide down further (109th among 141 countries under the Burden of Government Regulation category).
“The intention may be good but a good balance must be considered not solely focusing on revenue, but also factoring in employment generated, especially salaries and wages paid,” the executive argued. “If the BIR IRR goes beyond the intent of the CREATE Law as alleged, it must be corrected immediately to assure investors.”
He recounts how the DOF has presented foregone revenue as the reason for the removal of the perks if we continue granting exemptions to existing and new locators.
“However, what foregone revenue is there to talk about when existing locators move elsewhere and no new investors come?”
The joint resolution was signed by: Dr. Francisco L. Villanueva, Jr., and Christopher Magdangal, CILA President and Chairman, respectively; Amcham Executive Director Ebb Hinchliffe; MACCII President Elizabeth Carlos-Timbol; SBFCC President Benjamin E. Antonio III; MCICC Chairperson Grace Fabros-Tyler; and IBPAP President Jack R. Madrid.
“I hope for the early resolution of the issue, or else again big investors who are here will consider leaving and prospective ones will not come anymore,” the executive rued. “That’s not good for our economy. We need more manufacturing firms which are the drivers of our economy.”