Amid CITIRA issues, exporters readying exit plans — PEZA

MANILA, Philippines — Japanese firm Cebu Mitsumi Inc. has dropped its plan to expand operations in the Philippines, opting instead to invest in Cambodia, due to concerns on the proposed changes in the incentives regime being pushed under the second package of the government’s tax reform program, the Philippine Economic Zone Authority (PEZA) said.

PEZA said many other exporters are also preparing exit plans on concerns over the removal of existing incentives once the proposed Comprehensive Income Tax and Incentive Rationalization Act (CITIRA) is passed.

PEZA director general Charito Plaza said in a telephone interview yesterday Mitsumi, which manufactures microchips for cellphones, appliances and medical devices, earlier expressed interest to expand at its existing facility in Danao in Cebu.

She said the firm was planning to invest P1.5 billion for the construction of a new building.

Had the expansion plan pushed through, the project would have created 3,000 jobs in addition to around 1,000 to 2,000 being provided by Mitsumi’s existing operations.

“They were about to apply (for the expansion) but they were called by the Japanese firm’s president to transfer to Cambodia,” she said.

She said the decision to expand in Cambodia was due to the firm’s concerns on CITIRA, formerly known as the Tax Reform for Attracting Better and High Quality Opportunities (TRABAHO) bill which seeks to cut the corporate income tax rate – considered among the highest in Southeast Asia – to 20 percent by 2029 from 30 percent currently, and rationalize fiscal incentives.

Among the proposed changes in the incentives under the bill is the removal of the five percent tax on gross income earned (GIE) paid in lieu of all national and local taxes.

GIE, a crucial incentive in attracting investors in the country, is enjoyed by PEZA locators after their income tax holidays expire.

“They cannot wait for the fate of TRABAHO bill because of increased demand from buyers,” Plaza said.

While PEZA would have wanted Mitsumi to invest further in the Philippines, she said the agency could not convince the firm to reconsider its decision.

“We cannot promise them anything,” she said.

Since the TRABAHO bill was put forward, many locators have put expansion plans on hold as they wait for the final form of incentives.

Plaza also said many exporters in the country are already working on exit plans, in case the CITIRA bill is passed in its current form.

“Once they are not happy with the CITIRA bill’s outcome, they will pull out,” she warned.

PEZA is seeking to be exempted from the coverage of the CITIRA bill, citing economic benefits from firms granted with incentives.

While the Department of Finance has estimated P1.12 trillion worth of foregone revenues due to grant of incentives from 2015 to 2017 and questioned PEZA’s computation of the agency and ecozone locators’ contribution to the economy for the same period, Plaza said the agency is standing by the P10 trillion figure it floated earlier.

She said the P10 trillion contribution is a combination of the investments, exports, salaries and wages, taxes paid, local purchases of capital equipment and raw materials, as well as the agency’s taxes and dividends to the national government.

“There was no double counting,” she said.

She said PEZA’s exemption from the CITIRA bill would not only allow the country to attract investments, but also promote ease of doing business and avoid possible corruption and leakages as payment of GIE can be done without investors having to go to different government offices.

In addition, PEZA would want to be excluded from the coverage of the CITIRA bill as the agency is not part of the Fiscal Incentives Review Board (FIRB) which will have the power to approve and suspend incentives under the proposed measure.

Under the CITIRA, the FIRB would be chaired by the Finance secretary and have the National Economic and Development Authority director general, Department of Trade and Industry secretary and Department of Budget and Management secretary, as well as the Executive secretary as members.

“We will just be a mere registration agency. How can we invite investors? We cannot convince investors to come if there is a body that can remove incentives,” Plaza said.

CITIRA bill, along with the remaining packages of the government’s tax reform program, was identified as a priority measure for the 18th Congress during President Duterte’s State of the Nation Address last July.

The House of Representatives’ version of the CITIRA bill was approved by the ways and means committee last week.

Meanwhile, the US-trade war has now started to become a concern of the Duterte administration as trade and economic officials are expected to brief President Duterte and the entire Cabinet about the matter during the upcoming Cabinet meeting next month.

“The China-US trade war, I think the key word for us is to be able to use it as an advantage, capitalize on it as an opportunity,” Secretary to the Cabinet Karlo Nograles said during the regular media forum at the Kapihan sa Manila Bay yesterday. – With Christina Mendez