SHOULD the second package of the government’s tax reform program push through, most companies in the Mactan Economic Zone will be holding off expansion plans, a survey conducted by the Mactan Export Processing Zone Chamber of Exporters and Manufacturers (Mepzcem) found.
Initial results of the survey dated Aug. 15, which had 96 respondents, showed that 50 percent of companies will likely postpone expansion plans. Over forty percent said they will reduce existing headcount to cope with the anticipated impact of tax adjustments in their business operations.
Over forty percent may also close and transfer operations to another overseas location, while a similar number said they will remain in the country but will reduce the level of operations.
Surveyed companies also considered fully passing on additional costs to customers (15 percent) while around five percent will shift material sources from importations to local supply to remain competitive.
Recently, the House of Representatives passed its version of the Tax Reform for Attracting Better and High-quality Opportunities (Trabaho) bill.
Its priority measure seeks to encourage investments by bringing down the corporate income tax rate from 30 percent to 20 percent, and modernize investment tax incentives to enhance fairness, improve competitiveness, plug tax leakages and attain fiscal sustainability.
But this also means repealing some 120 special laws on investment incentives and consolidating them under one omnibus incentive code.
Sixty to 70 percent of the country’s exports are inside the economic zones.
One of the surveyed companies raised concerns that the Philippines is already a difficult country to expand in, as every year, it continues to become less competitive due to rising labor and material costs, poor infrastructure and unregulated freight-costs, among others.
“We moved here from Indonesia. However, if 20 percent income tax becomes a reality, there is little to no incentive for us to stay and continue operations in the Philippines,” it said.
Another company admitted that what attracted them to invest in the Philippines is the current incentives it offered.
The survey showed that among the preferred incentives by exporters are zero value-added tax (VAT), exemption from local taxes and fees, exemption from custom duties, local purchase incentives and subsidy for power cost.
Notably, the export companies also oppose the proposed VAT refund process, saying the 90-day refund mechanism would be an additional burden.
One of the respondents expressed concerns that such move will result in corruption on the part of the Bureau of Internal Revenue “because you need to give money to them so that your application for refund will be given priority.”
“If there is no efficient refund system, then companies may be compelled to absorb the input VAT and may add it to their cost and subsequently to the selling price,” another company said.
If they are to transfer locations, the survey showed Vietnam as the next country of choice, followed by China or Thailand, then India and Indonesia.
“At this time of intense competition for attracting foreign investors, the government should think twice before implementing reforms that in the first place was one of the selling points why they decided to come here,” a company official said. “Our competitive advantage is in our young and dynamic workforce and adaptability to various cultures will be meaningless if complementary fiscal incentives will not be in place.”
MEZ houses over 150 locators employing over 60,000 workers.
During the Department of Finance roadshow in Cebu last July, Jonathan Pasadana, director of shared services at TMX Philippines Inc., said incentives are what keep companies in the country.
“They also have factories within the Asean region and should these incentives be taken out their existence, the country will no longer be viable and it will be beneficial for them to consolidate their operations to other countries that offer better incentives,” he warned.