How to bring the money back

It was a sharp comment from an OFW who was pitted against an astute businessman and founder of a Philippine conglomerate during a talk show. The OFW said, “The difference between us, sir, is that your dollars go out the country, but our dollars go inside the country.”

That statement rates high on audience impact. However, it does little to recognize the realities of the One ASEAN market and how globalization should not be an inbound one-way street. If we ask and encourage foreign companies to invest and do business here, there should be nothing that should be vilified about our Philippine companies investing and doing business there.

Going regional or global is about a local company getting bigger, true. But the promotion of the country as a brand along with that expansion is also true. Our trust for products made in the US, Germany, or Japan was built because of very specific products that we have been exposed to, whether they be jeans, equipment, or appliances. The presence of the companies that make these products in our country completes that trust and provides an inherent promotion of the rest of the products in those countries. (Even if the products are labelled “Made in China,” trust is preserved if the customer knows these are manufactured under license from those multinational companies.)

Experience and formal studies, including a recent one from the Asian Development Bank (ADB), recognize that being part of a global value chain is good for the country. From our own experience on the impact of inbound products and inbound investments, we learned that in building trust, it is very helpful to have presence in foreign markets. If that presence is good or strong, it inherently promotes brand Philippines and open doors.

I spent some time already to describe the big picture because it is essential to understand why I will say that our taxation system does not favor, or even discourages being a Philippine multinational. Dividends from foreign companies are subject to 30 percent tax (the maximum rate, without deductions), while dividends from domestic companies are exempt from dividend tax. Also, royalties (for use of name, trademark, or patents) received from outside the country are also subject to the maximum 30 percent tax on gross amount, compared to domestic royalty income taxed only at 20 percent.

So once the money goes out, it is very costly to bring profits back in. When licenses are given out, through franchises of a popular local brand for instance, it is so