Philippines: Duterte spooks foreign investors with tax ‘sword of Damocles’

  • Philippine President Rodrigo Duterte’s administration received an impassioned plea from within its ranks on the night of 11 Apr 18.
  • “May I appeal to the government not to kill the goose that lays the golden eggs, our industries and investors,” Charito Plaza, director general of the Philippine Economic Zone Authority, said before a crowd of foreign investors at the World Trade Center in Manila.
  • Plaza was speaking to more than 2,000 executives at an event celebrating investors’ contributions to the country’s USD305bn economy over the last two decades. The speech could not have been timelier.
  • Her audience is growing more anxious by the day. Congress is set to reconvene in May, and Duterte’s allies have filed a bill for part two of his Comprehensive Tax Reform Program. The initiative is a major policy overhaul aimed at funding a USD160bn infrastructure drive.
  • Currently, the authority grants export-oriented companies income tax holidays of up to eight years. After that, their gross income is subject to a perpetual 5% tax.
  • The Department of Finance, however, wants the tax breaks to be based on performance — meaning they might not be extended to all. The 5% tax, meanwhile, is to be replaced with a 15% levy on net taxable income.
  • “TRAIN 2 has become a sword of Damocles hanging over the head of PEZA and the industries and investors,” Plaza told reporters after her speech. “All industries have submitted their position papers and everybody is against it.”
  • The numbers do not lie: Approved foreign investments, or so-called investment pledges, fell by 51.8% in 2017 to PHP105.6bn, according to the Philippine Statistics Authority. That is the lowest level in 12 years.
  • “TRAIN created fears in 2017 that the government might change rules in the middle of the game,” Plaza said in Feb 18.

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