Top Philippine Promoter Tries to Soothe Investors Spooked by Tax

(Bloomberg) -- The woman tasked to lure investment to Philippine economic zones is seeking to calm investors spooked by a government proposal to scale back tax incentives.

The Finance Department plans to take away tax breaks given to businesses, valued at over 300 billion pesos ($5.8 billion) a year or about 2 percent of gross domestic product.

Charito Plaza, head of the agency which oversees hundreds of industrial parks, is confident officials will apply tax changes only to new investment.

“Don’t be afraid,” Plaza, director general of the Philippine Economic Zone Authority, said in an interview at her office in Manila. “The government won’t renege on contracts.”

Tax Reform

The Philippines is in the midst of an ambitious tax reform to raise revenue to help pay for a $180 billion infrastructure plan. But a part of the proposal to cut income tax holidays and duty-free imports is causing some companies to put expansion plans on hold. A newspaper report showed PEZA investment pledges fell 22 percent from a year earlier in the first two months of 2018.

“It’s certainly the case now that some are putting their business plans on hold,” said Guenter Taus, president of the European Chamber of Commerce in the Philippines, whose about 800 members are mostly in outsourcing and manufacturing. “I don’t see a very, very rosy picture in the future.”

While foreign direct investment surged to a record $10 billion last year, the United Nations ranks the Philippines behind major Southeast Asian economies in terms of investment.

Balancing efforts to boost revenue and attracting investment is a tough task. Former President Benigno Aquino also mulled dialing back on incentives but disagreements on which sectors they’ll take perks away from ended in a stalemate.

Plaza is fighting hard. At a meeting with policy makers, Plaza went armed with data showing industries located in these economic hubs contributed about 3.3 trillion pesos annually to the economy, trumping the estimated foregone taxes.

“We have to look at the total picture,” said Plaza, a former lawmaker who co-authored the bill creating the economic zone authority. “There’s also the social progress that cannot be quantified.”

Policy makers are also now looking at making incentives for new investors performance-based and targeted to basic industries like steel and agriculture, she said.

“Industries are the goose that lays the golden egg,” Plaza said. “We won’t kill the goose.”

©2018 Bloomberg L.P.

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