Citira passage to remove uncertainties
Credit to Author: Tyrone Jasper C. Piad| Date: Tue, 25 Feb 2020 16:44:06 +0000
The Philippine Economic Zone Authority (PEZA) called for the immediate passage of the proposed Corporate Income Tax and Incentives Rationalization Act (Citira) to eliminate uncertainties following the recent downsizing of a United States-based bank’s local headquarters and a Japanese car maker’s decision to stop its manufacturing operations in the Philippines.
“First is, we have to admit. [The non-passage of] the Trabaho (Tax Reform for Attracting Better and High-quality Opportunities) bill or the Citira now has created uncertainties,” PEZA Director General Charito Plaza told The Manila Times.
The second package of the government’s Comprehensive Tax Reform Program aims to reduce the corporate income tax rate from 30 percent to 20 percent in 10 years. It also seeks to remove the 5-percent tax on gross income earned currently enjoyed by select firms.
She said that the uncertainties over Citira might have prompted Wells Fargo & Co. to cut down its operations in the Philippines as it sought a more predictable business environment.
In a recent Bloomberg report, Wells Fargo announced that it would be reducing its workforce in the country to 50, laying off 700 employees in the process. The allocation from the number of displaced workers will be transferred to India, which was in line with the bank’s strategy to put employees in larger market.
Wells Fargo spokesman Peter Gilchrist, in a statement cited by the report, said that the downsizing was a “global workplace strategy that emphasizes co-location and collaboration.”
Plaza said that Wells Fargo was not to be blamed as it only did what had to be done to remain competitive.
“We cannot hold them if they want to expand, to improve. We cannot keep them because they are globally competing,” the PEZA official said.
“We cannot hold these investors too long to wait because they have other branches in different countries,” she added.
While PEZA hoped for the speedy passing of the Citira bill, Plaza said that amendments to the current version of the bill should be made first to keep incentives globally competitive.
The incentives to be provided should be able to compensate for the high cost of doing business in the country to attract foreign investors, she added.
Cost-cutting
Other companies, such as cellular phone manufacturer Nokia and automobile maker Honda Cars Philippines (HCP), said recently that they would be shutting down local operations, with analysts pointing to cost-cutting as possible reason.
PEZA, in a separate statement, clarified that both companies were not registered under its agency, but with the Department of Trade and Industry’s (DTI) Board of Investments.
The DTI has urged Nokia to help its employees find another job following the closure. It also recently met with HCP to discuss “other alternative options so as to minimize the impact of any final decision [HCP] will make.”
“For Honda, the closing of its car manufacturing facility in Laguna could be largely due to economies of scale with lower production cost more than anything else,” RCBC chief economist Michael Ricafort said, noting that importation might be cheaper than local production due to free trade deals in the region.
Wells Fargo’s decision, meanwhile, “could be part of the bigger, global cost-cutting measures that may involve the consolidation of global/regional operations as well,” he said.
For Nokia, the company’s move could be brought about by “increased global competition and technological changes/challenges,” Ricafort added.
Apart from cost-cutting, UnionBank chief economist Ruben Carlo Asuncion said that global developments were also being considered by international firms given their scope of business. Their pulling out or downsizing should not be reflected as the local business environment turning sour, he said.
“In an atmosphere of stiff competition, trade wars and protectionism, the uncertainty in the realm of business for profit in a very global world has risen higher and higher,” Asuncion said.
Attracting investors
Both analysts agreed with PEZA that the Citira bill should be passed right away to establish a more predictable local business landscape.
Apart from lower corporate income tax, Ricafort said that Citira’s passage into law would make the proposed rationalization of fiscal incentives certain.
“This would help foreign investors to become more decisive in putting new/additional investments into the country, or at the very least, prevent the relocation of some existing foreign investments,” he explained.
“Lower taxes and fiscal incentives are actually not priority for foreign investments but should always be available for them,” Asuncion added.
Both analysts also said that foreign restriction should be relaxed to allow the entry of more investments.