Foreign Investors Protest Over Proposed Removal Of Tax Breaks

by Mary Swire, for LawAndTax-News.com, Hong Kong

15 January 2008

The government of the Philippines has been urged by foreign investors to shelve plans for the removal of certain tax breaks.

The Joint Foreign Chambers of Commerce in the Philippines (JFC) spoke out earlier in the week to point out to government officials that removing such tax perks will only serve to reduce the country's competitiveness - especially as other neighboring still enjoy high amounts of direct foreign investment.

The proposal to remove certain types of income tax holiday comes from the Department of Finance, which considers them to be unnecessary, as many firms would have invested in the country without such incentives.

In a letter to Rep Exequiel B. Javier, Chairman of the House Ways and Means Committee sent earlier in the week, the JFC argued that:

"In our view, the Philippines should not phase out income tax holidays (ITH) for targeted new investments until AFTER it has improved its physical and social infrastructure to levels even more modern than in more developed ASEAN middle income countries such as contemporary Malaysia and Thailand."

"These countries (and also Indonesia, Singapore and Vietnam) offer ITH and are rated as more competitive (with exceptions) than the Philippines in key areas such as corruption, policy stability, political stability, energy, investment in education, labor costs and other factors. We would note that Singapore, which leads the region in both infrastructure and investment, continues to offer strategic investors ITH in sectors which the government prioritizes."

Under legislation currently being considered, the Department of Finance is reportedly aiming to restrict incentives to exporters, businesses belonging to selected priority sectors, and businesses that locate in the country’s poorest provinces.

However, the JFC opposes such a move, stating in its letter that:

"Our chambers include some 3,000 members, employing over one million Filipinos and paying substantial taxes to the national government. The world’s largest multinationals as well as the newest investors in the Philippines are our members."

"Many of our members have been in the Philippines for many decades and continue to invest. Many enjoyed time-bound income tax holidays (ITH) at the start of operations and for expansions and have long been among the largest tax payers in the country."

"Our newer members have always told us that other foreign investment sites offered them comparable or better fiscal incentives than the Philippines and that ITH and other fiscal incentives under EO 226 were essential to compensate for inadequate infrastructure, high power costs and other factors where the Philippines is less competitive than regional competitors."

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