By
Elijah Felice Rosales - July 19, 2019
AS long as the
Philippines has the highest power and logistics cost in the region, the
government should not tinker with the current menu of tax incentives granted to
investors, economic zone firms said on Thursday.
In a news briefing,
Korean Chamber of Commerce Philippines President Ho-ik Lee said the government
should maintain the status quo in the country’s incentives regime. Tax perks,
he argued, attract investments and make locators stay here in spite of high
operational cost.
“Considering the high
operational and logistics cost, this is not the right time to change the
rules,” Lee said.
He asserted that the
government should only introduce changes to incentives once it is able to bring
down electricity and logistics costs. For one, power rates in the Philippines
are higher by as much as P7 per kilowatt-hour compared to manufacturing rivals
Thailand, Indonesia and Vietnam.
Further, the
Philippines has the highest logistics cost among four Southeast Asian
economies, according to a study by the Department of Trade and Industry and the
World Bank, titled “An Assessment of Logistics Services Performance of
Manufacturing Firms in the Philippines.”
The study reported
firms operating in the country spend 27.16 percent of their sales on logistics
services. Southeast Asian competitors spend much less: businesses in Thailand
spend 11.11 percent of their sales on logistics, 16.3 percent in Vietnam and
21.4 percent in Indonesia.
As such, South Korean
investors will hold off any planned investments in the Philippines until such
time the government makes clear its incentives policy, Lee added.
On the sidelines, he
disclosed that one South Korean electronics maker was about to invest over $1
billion of capital in the Philippines. However, the firm chose to locate in
Tianjin, a port city in China.
“From what I know,
there is a big company that would like to bring in a big investment of more
than $1 billion here. They [firm’s executives] already decided only this year
to go to Tianjin [in China]. The firm is involved in electronics,” Lee said.
At the peak of the
debate on whether to rationalize incentives last year, South Korean investments
declined 44.21 percent to P1.88 billion, from P3.37 billion, according to
records of the Philippine Statistics Authority (PSA). Lee said about 400 South
Korean firms operate in economic zones at present.
Locators’ statement
With the 18th Congress
set to open on Monday, economic zone locators called on legislators to pass a
tax-reform bill that will raise government revenues and strengthen the
country’s fiscal position without having to overhaul tax perks.
“We stand ready to
engage policy-makers in constructive dialogue that will result in a brighter
future for our country. As the 18th Congress is set to convene, we look forward
to working with lawmakers and the executive to enact legislation that will
allow the country to employ more workers, attract more investments and increase
the government’s tax revenue,” locators said in a joint statement.
“To remove or even
dilute tax incentives granted to locators now would risk the loss over time of
millions of jobs and investments that would otherwise have been committed to
the Philippines,” it added.
Under the second
tax-reform package, the government seeks to gradually reduce corporate income
tax to 20 percent by 2030, from 30 percent at present. In exchange, it will
rationalize incentives granted to economic zone firms, including the 5-percent
tax on gross income locators pay in lieu of all local and national taxes.
The joint statement was
signed by the Philippine Ecozones Association, Semiconductor and Electronics
Industries in the Philippines Foundation Inc., Information Technology and
Business Process Association of the Philippines, and the Confederation of
Wearable Exporters of the Philippines.
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