PEZA investment pledges down 41% in 2018

MANILA, Philippines — Investment pledges with the Philippine Economic Zone Authority (PEZA) fell 41 percent last year from 2017 amid investor concerns on government’s plan to change the incentives regime under its tax reform program.

Data from the PEZA showed investments approved by the agency reached P140.24 billion last year, lower than the P237.57 billion in 2017.

The investments were meant for projects at PEZA’s ecozones.

As the amount of investments declined, the number of projects also decreased 4.51 percent to 529 last year from 554 in 2017.

PEZA director general Charito Plaza, in a text message, said the decline in new investments is “because of the uncertainties brought by TRAIN (Tax Reform for Acceleration and Inclusion) 2 and the election year because investors have adopted a wait-and-see attitude as the Congress might change policies and laws.”

TRAIN 2 or the Tax Reform for Attracting Better and Higher Quality Opportunities (TRABAHO) bill, which was approved on third and final reading at the House of Representatives, seeks to gradually bring down the corporate income tax rate to 20 percent by 2029 from 30 percent at present, and rationalize fiscal incentives including removing the five percent tax on gross income earned (GIE) incentive enjoyed by PEZA locators.

The five percent on GIE, paid in lieu of all taxes enjoyed after using the income tax holidays, is considered a crucial incentive by firms opting to operate in PEZA zones.

This, as the five percent GIE makes it easier to do business with no need for firms to deal with local government units (LGUs) for payment of taxes as PEZA remits the LGUs’ share.

“TRAIN 2 is the most threatening legislation to investors in the past years, thus, affecting new investments and expansions,” Plaza said.

The breakdown of investments per sector was not immediately available except for those in the information technology (IT) sector which grew 32.20 percent to P20.57 billion last year from P15.56 billion in 2017.

Plaza said the rise in investments in the IT sector is due to the move of firms to avail of incentives offered now while the TRABAHO bill is not yet finalized and passed into law.

“The IT increased to hasten availing of incentives while the law is not yet passed,” she said.

Unlike capital intensive industries like manufacturing, she said it is easier for firms in the IT sector to exit the country when they are no longer satisfied with the incentives being offered.

Even as total investment pledges declined, the number of direct employees at PEZA zones, meanwhile, climbed 7.33 percent to close to 1.50 million workers as of end-October last year from nearly 1.40 million workers in the same period in 2017.

Exports from PEZA’s economic zones as of end-October also went up 6.58 percent to $45.18 billion from $42.39 billion in the same period in 2017.

While there are investor concerns on the planned change in the incentives regime, Plaza said the PEZA continues to encourage them to expand or make new investments in the country.

“PEZA is doing its best to retain the benefits or incentives that are working and even enhance the existing so we become very competitive with other countries in attracting investors,” she said.