Ecozone pledges up despite CITIRA threat
MANILA, Philippines — Foreign direct investment pledges in the country’s economic zones more than doubled last year than in the same period in 2018, even as there are indications that investors remain wary of government plans to reduce their tax perks.
A total of P390 billion in FDI pledges were approved last year, up 112.8% year-on-year from P183 billion in 2018, data from the Philippine Statistics Authority showed on Thursday.
Approved FDI measures investment pledges in economic zones where the government offers tax and non-tax breaks to lure in locators and provide jobs to people. These pledges may or may not translate into actual inflows in the near future.
They are also different from the central bank’s own measure of FDI inflows, which is on a net basis and uses a threshold of at least 10% foreign equity to be included in the tally.
For the last three months of 2019 alone, approved FDI commitments rose an annual 17% to P112.1 billion, data showed.
The government counts investment pledges from seven investment promotion agencies that include free port zones in Bataan, Clark, Cagayan, Subic (SBMA), the BoI-Bangsamoro Autonomous Region in Muslim Mindanao (BOI-BARMM), as well as Philippine Economic Zone Authority (PEZA) and Board of Investments.
Broken down, approved pledges registered under PEZA, the largest ecozone operator, continued their decline last year, dropping 27.9% on an annual basis to P49.3 billion.
“The uncertainties created a wait-and-see attitude for new investors [and] holding on the expansions of existing industries, thus affecting the performance in 2018 [and] 2019,” PEZA director-general Charito Plaza told Philstar.com when sought for comment on the latest data.
PEZA placements have been the most sensitive to government efforts to reduce tax perks in ecozones under the proposed Corporate Income Tax and Incentive Rationalization Act (CITIRA), which was just sponsored on the Senate plenary on Wednesday.
This is because unlike other ecozones, PEZA offers its locators a flat tax rate of 5% on their gross income after their income tax holidays. This incentive is at risk of being removed under CITIRA, a priority legislation of President Duterte which also intends to slowly lower corporate income tax rates to 20% from 30%.
In contrast to PEZA pledges, commitments in BoI rose more than four-fold to P335.7 billion, accounting for 86.1% of total approved placements, government data showed.
“The DTI/BoI surge of investments is due to the ‘Build, Build, Build’ program of the President attracting even FDIs who are participants to the [infrastructure] projects... which are all domestic-oriented market,” Plaza explained.
Elsewhere, approved FDI pledges in 2019 were down in ecozones in Bataan, plummeting 79.7% year-on-year, Clark (-82.4%) and Cagayan (-71.6%). On the flip side, SBMA and BOI-BARMM saw commitments grow 256.9% and 30.5%, respectively, last year.
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