The Philippine Statistics Authority (PSA)’s recent report on the doubling of foreign direct investment (FDI) pledges during the first half of 2019 shows that fears of investment flight following the expected passage of the Corporate Income Tax and Incentives Rationalization Act (CITIRA) are unfounded as investors are not actually spooked by this reform measure.
Commenting on the recent release of the PSA reporting a 112 percent year-on-year (YOY) increase in FDI pledges for the first half of 2019, Finance Undersecretary Karl Kendrick Chua said, “It goes to show that the noisy naysayers against the long-due efforts to reform the country’s convoluted corporate income tax (CIT) system are mistaken.”
“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 added.
Chua said, “We are glad that investors are aware of, and appreciate, the huge strides made by the Duterte administration in implementing its Zero-to-Ten-Point Socioeconomic Agenda, which include the massive ‘Build, Build, Build’ infrastructure program, improvements in ease of doing business, and the anti-corruption and peace and order measures of the President.”
The PSA reported last week that foreign investment pledges in the second quarter amounted to P49.58 billion, up 60.2 percent from P30.95 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.
The report is based on data from 6 of the 7 investment promotion agencies (IPAs) monitored by the PSA, which include the Board of Investments (BOI), Philippine Economic Zone Authority (PEZA), Clark Development Corporation (CDC), Subic Bay Metropolitan Authority (SBMA), Authority of the Freeport Area of Bataan (AFAB), BOI-Autonomous Region in Muslim Mindanao (BOI-ARMM) and Cagayan Economic Zone Authority (CEZA).
President Duterte reiterated in his 4th State of the Nation Address (SONA) last July his request for Congress to pass Package 2 of the Comprehensive Tax Reform Program (CTRP)–the CITIRA bill—which aims to energize micro, small and medium enterprises (MSMEs) by gradually reducing the CIT 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.
As pointed out by President Duterte in his latest SONA, Package 2 will benefit MSMEs.
Finance Secretary Carlos Dominguez III supported the President, saying that the proposed CIT cut and rationalization of incentives will boost MSME growth because under the current corporate taxation system, a select group of 3,150 corporations registered under investment promotion agencies (IPAs) enjoy discounted effective CIT rates of 6 to 13 percent while small and medium-sized businesses, which employ a 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.
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