Gov’t explains TRAIN 2 to Japanese investors

Japanese investors have expressed their concerns on the new tax incentives for new and existing investors and the preferential corporate income tax.

This was raised during a discussion with Japanese and officials of the Departments of Trade and Industry and Finance in an effort to address concerns on the Tax Reform Acceleration and Inclusion (TRAIN) Package 2, which rationalizes tax incentives to investments.

DTI Secretary Ramon M. Lopez explained that the proposed legislation is not meant to remove incentives, but in fact recognizes the important role of incentives and the need to make them more responsive, relevant and effective, i.e. they should conform to the principles of being performance-based, time-bound, focused, and transparent.

“We would like to highlight the aspects of TRAIN Package 2 that would benefit new and existing investors. While Japan is our number one source of investments, there are still a large number of Japanese investors who have not located in the Philippines. The TRAIN Package 2 provides us with the mechanisms both to encourage existing investors to further expand their business, and to attract new investors into the country,” said Lopez.

Board of Investments (BOI) Managing Head and DTI Undersecretary Ceferino Rodolfo explained further that the second tax reform package will in fact provide better incentives.

First, investors will no longer be limited to just the Income Tax Holiday (ITH) and the 5% tax on Gross Income Earned (GIE) — but will now be able to choose other incentives that may be more relevant, including long enough Net Operating Loss Carryover, accelerated depreciation, and double-deduction of certain expenses critical to upgrading competitiveness such as R&D, training, and others,” said Rodolfo.

“Equally important, the TRAIN Package will remove the nationality bias as well as the export bias of incentives. This means that as long as an activity is listed under the Strategic Investments Priorities Plan (SIPP), this will be eligible for incentives regardless of citizenship of owners or the markets they will serve. For Japanese companies, they can receive incentives even if they will sell to the domestic market,” Rodolfo added.

Meanwhile, DOF Director Juvy Danofrata noted the concerns of investors on the sunset provisions for existing tax incentives. Danofrata said, “While transition mechanisms will be provided including replacing the 5% GIE with a reduced 15% corporate net income tax, we are open to suggestions on how we can design better transitions, as long as these will comply with the basic principles of being time-bound, performance-based, focused, and transparent.”

Discussion was part of the agenda of the 10th Philippine-Japan Economic Partnership Agreement (PJEPA) Sub-Committee on the Improvement of Business Environment (SC-IBE) Meeting on March 22 co-chaired by Sec. Lopez and Japanese Ambassador Koji Haneda. Officials from the Philippine Board of Investments, Philippine Contractors Accreditation Board, Construction Industry Authority of the Philippines, National Economic and Development Authority, Philippine Economic Zone Authority, Bangko Sentral ng Pilipinas, Department of Public Works and Highways, Department of Finance, Department of Labor and Employment, Manila International Airport Authority, Metro Manila Development Authority, Bureau of Internal Revenue, and Subic Bay Metropolitan Authority were also present during the meeting.