Delayed CTRP-2 causes investment uncertainty
DOF assessment
The delayed passage of the measure aiming to rationalize the government’s tax incentive program is creating uncertainty among investors who are planning to do business in the Philippines, a ranking finance official said.
Finance Assistant Secretary Maria Teresa S. Habitan, said that the second tax reform program, once passed into law, would not discourage investors to invest in the country as it does not aim the elimination of tax incentives being provided by the national government.
“Let us be clear: Government is not removing tax incentives,” Habitan said in her letter to the editor in response to the Manila Bulletin’s editorial cartoon published last March 21, 2019 entitled “Stop TRAIN 2 before it turns away more foreign investments.”
The editorial cartoon illustrates a foreign investor carrying a suitcase overflowing with dollars, who is facing an open door blocked by a lady in a tight, short dress and posing like a model — slightly leaning forward with one arm on the hip and the other positioned on the side of her head. Written on her dress is “TRAIN 2.”
For Habitan, the editorial cartoon “seems to insinuate that ‘TRAIN [tax reform for acceleration and inclusion] 2,’ which is actually Package 2 of the comprehensive tax ref or program (CTRP) based on the context of the editorial, stands in the way of an investor’s decision to invest in our country that is seemingly unattractive.”
According to the finance official, the illustration is “an insult to our country, and, moreover, an insult to women especially during international Women’s Month.”
To provide context about the issue, Habitan explained the second part of the CTRP is necessary to address the “overly generous fiscal incentives” currently being provided by the national government “to draw investments into our economy, with disappointing results.”
“In fact, if you examine the proposal more closely, you will see that the new incentive regime being pushed by the Duterte administration is even more attractive for those who wish to do the country good while doing well,” Habitan said.
Under the CTRP-2, she said companies granted incentives can avail of 50 percent more deductive on labor costs; 100 percent more deduction on training, research and development; and 50 percent more deduction on purchases of local raw materials.
“All these are designed to incentivize the proper behavior to create jobs and invest in high technology. Let us put the unfounded fears of a total removal of incentives to rest,” Habitan said. “It’s the delay that causes uncertainly in the investor community.”
She, likewise, cited a global survey conducted by the World Economic Forum in 2017 indicating that tax incentives are only the fifth most important concern of investors.
“The first four are: Government inefficiency, the infrastructure gap, corruption and high cost of doing business. This government is addressing these top concerns decisively,” the official said.
Habitan, meanwhile, said that the DOF is confident that, as the country is expected to achieve its inflation targets this year, the reforms will push through full stream ahead.
“We strongly believe in the proposal to modernise the tax incentives system by making it performance-based, targeted, transparent and time-bound, but we need to get it passed urgently and decisively,” she said.