Business groups urge retention of zero VAT for PEZA locators

MANILA, Philippines — Local business groups and the Joint Foreign Chambers (JFC) of the Philippines jointly called on Congress yesterday to retain the zero value-added tax (VAT) provisions for Philippine Economic Zone Authority (PEZA) locators in Senate Bill 1592. 

In a statement, the groups warned about the risks to investments should long-committed investors be placed under a VAT refund scheme.

“This would be a step backward for locators and create unnecessary red tape, adding to their cost of doing business and making the Philippines a less competitive investment destination,” they said.

“In order to maintain and to expand foreign investment in PEZA zones, the incentive structure must be attractive in comparison to what competing countries offer in fiscal incentives, labor incentives, electricity and logistics pricing, number of paid holidays and other costs,” the groups added.

According to the business groups, PEZA hosts over 3,500 investors across some of its 350 administered-economic zones nationwide.

These investors, they said, employ around two million Filipinos and have selected the Philippines because of the quality of the workforce and the incentives of the government.

“Competition for these locators is intense, and other countries have usually been preferred by investors instead of the Philippines. One example is the success of Vietnam which now exports almost $200 billion in goods, almost five times the $43 billion of Philippine exports of goods. Over a decade ago, the total of Philippine exports of goods was more than that of Vietnam,” the business groups said.

The business groups said new foreign investment in PEZA zones this year has slowed because of various uncertainties, one of which is the future of the tax regime under which locators operate.

“There are provisions in the TRAIN bills which may alter the current tax regime for investors, and this creates uncertainty. Some investors are delaying decisions to invest in the Philippines or deciding to invest elsewhere,” they said.

“A long-time challenge for some foreign investors is the requirement to pay VAT and then seek refunds. The government has a poor record of making these refunds. As revealed by Sen. Angara in the Senate plenary discussion of the TRAIN bill, some P30 billion in refunds are currently pending payment,” they added. 

The groups said foreign investors would prefer not to have any refund arrangement for zero-rated firms, as this would be consistent with President Duterte’s policy of making doing business in the Philippines easier.

Those issuing the statement include the American Chamber of Commerce, the Australia New Zealand Chamber of Commerce, the Canadian Chamber of Commerce, the European Chamber of Commerce, the Information Technology and Business Process Association of the Philippines, the Japanese Chamber of Commerce, the Korean Chamber of Commerce, and the Semiconductor and Electronics Industries of the Philippines Foundation Inc.