TRAIN 2 to scare away Korean investors

Korean businessmen are worried that certain provisions of the government’s second tax reform package would discourage new investments in the country, saying that its implementation could prompt more Korean investors to choose Thailand and Vietnam over the Philippines.

In its position paper submitted to Finance Secretary Carlos Dominguez III, a copy of which was furnished The STAR, the Korean Chamber of Commerce Philippines Inc. (KCCP) asked the government to reconsider some of the questionable provisions it found under the tax reform package two which includes rationalization of fiscal incentives and reduction of corporate income tax (CIT) rates, citing its potential negative impact to investments.

According to the business group, the income tax holiday incentive reduction under the package two is “too radical for existing enterprises.”

The KCCP said while it sees the rationale behind setting several time-bound incentives, the maximum five years as transition period for existing enterprises currently on income tax holiday seems to be too short to adapt to the new rules.

“Hence, we hope that there would be a longer transition period for current export enterprises to adjust their operations in accordance to the new rules,” it said.

“Foreign investment decisions take into consideration the long-term policy direction of the host country. Changes in policies may lead to an impression of unpredictability and inconsistency that may occur every time there will be a change in administration. This level of uncertainty will make it difficult to attract new investments. The regular business operations of foreign companies in the Philippines would likewise be disrupted given the changes in the regulatory environment,” the group added.

Aside from the income tax holiday incentive reduction, the KCCP is also worried about the proposed removal of customs duty exemption incentive as it may contribute to the long importation process in the country.

“We have strong concern on the planned capping of the customs duty exemption duration (maximum five years only) for the importation of raw materials and machinery,” the group said, noting that Korean companies have been experiencing long releasing and refund process in their importations with the Bureau of Customs (BOC).

“Imposing import duties would make the releasing procedure even longer. Other additional processing fees imposed by BOC would also add to the burden for exporters. Textile companies, some of which have already decided to leave the Philippines, for example are already facing difficulties from insufficient market demand and higher prices. Removal of the customs duty exemption will only aggravate the situation,” the KCCP said.

The group is proposing that the current customs duty exemption will be retained to attract new investments and not be a deterrent to the importation process of exporter firms.

Meanwhile, the KCCP also believes the CIT rate should be further reduced in the second tax reform package to attract investments.