MANILA -- The remarkable increase in foreign direct investments (FDIs) entering the country in the last 17 months best illustrates that investors are now flocking to the Philippines because of its exciting growth prospects, rather than the fiscal incentives it continues to offer to businesses, according to Finance Secretary Carlos Dominguez III.
Dominguez in a statement on Thursday said Bangko Sentral ng Pilipinas (BSP) data show that FDIs rose to USD10 billion in 2017, or double the amount recorded in 2015, and surged further in the first half of 2018 although “approved investments” — or those coursed through investment promotion agencies (IPAs) that give out tax incentives - went down.
The latest Economic Bulletin on Investments issued by the DOF shows that FDIs increased by 21.4 percent to USD10.05 billion in 2017 compared to 2016 and further by 48.9 percent in the first five months of 2018 alone at USD4.86 billion as compared to the same period in the previous year. As a percentage of GDP, this shows a rise from 2.7 percent in 2016 to 3.7 percent in 2018.
“Last year, our FDIs increased to USD10 billion. That is 100 percent more than it was in 2015. This year, in the first five months, it has increased by close to 50 percent (compared to the same period in the previous year),” Dominguez said. "Now, they also say approved investments are down. Now, ‘approved’ means you asked for a tax benefit. Those investments are down but the investments that are coming in are not asking for tax benefits, they're just coming in. Now that is very encouraging.”
Dominguez said reducing the corporate income tax (CIT), while modernizing the country’s investment incentives under the second package of the Duterte administration’s comprehensive tax reform program (CTRP), would make the business climate more conducive for small and medium enterprises (SMEs) to thrive and correct fundamental flaws in the tax system that favor big firms, many of them already on the list of Top 1,000 corporations.
“I'm not against giving tax credits. But it's time to modernize our system. It's time to move ahead,” Dominguez said.
Package 2 will also bring the Philippines’ CIT rate at par with the rest of the region, making the Philippine economy more competitive and even more attractive to investors, he said.
According to Dominguez, every administration since the term of President Fidel Ramos had proposed the modernization of the country’s investment incentives system, but it is only now that the Department of Trade and Industry has been fully supportive of the proposal.
Dominguez said providing tax incentives would prove useless to investors if the economic climate remains unsafe and lacks the infrastructure, logistics and communications networks that they require to encourage them to relocate here.
“We are correcting the fundamental problems that will make this economy perform at a higher horsepower rating. We are increasing the horsepower rating of the economy. We are removing the blockages that increase costs, that prevent trade from moving quickly,” Dominguez said.
He said Package 2 will “incentivize” smaller companies by reducing the CIT rate from 30 percent to 25 percent and provide them with a more level playing field where incentives are made “transparent, targeted, more accountable, performance-based, and time-bound.” (DOF PR)
