Department of Trade and Industry allays investors’ fears on lost perks under TRAIN 2

MANILA, Philippines — The Department of Trade and Industry (DTI) has allayed fears in the foreign business community that the government’s second tax reform package would harm the country’s investment climate, assuring them its implementation would entice even more investors. 

Trade Secretary Ramon Lopez, together with officials of the Department of Finance (DOF), in a recent dialogue addressed the issues and clarified the concerns raised by Japanese investors on the Tax Reform Acceleration and Inclusion (TRAIN) Package 2 which seeks to rationalize fiscal incentives and reduce corporate income tax rates.

Lopez said there are aspects of TRAIN Package 2 that would benefit both new and existing investors.  

“While Japan is our number one source of investments, there are still a large number of Japanese investors who have not located in the Philippines. The TRAIN Package 2 provides us with the mechanisms both to encourage existing investors to further expand their business, and to attract new investors into the country,” he said.

According to the DTI, Japanese investors have expressed their concerns on the new tax incentives for new and existing investors as well as the preferential corporate income tax.

Lopez, however, pointed out that the proposed legislation is not meant to remove incentives, but instead recognizes the important role of incentives and the need to make them more responsive, relevant, and effective which is why they should conform to the principles of being performance-based, time-bound, focused and transparent.  

Board of Investments managing head and Trade Undersecretary Ceferino Rodolfo, for his part, said the second tax reform package would provide better incentives.

“First, investors will no longer be limited to just the income tax holiday and the five percent tax on gross income earned (GIE) – but will now be able to choose other incentives that may be more relevant, including long enough net operating loss carry-over, accelerated depreciation, and double-deduction of certain expenses critical to upgrading competitiveness such as research and development, training, and others,” Rodolfo said.

Rodolfo added that equally important is that the TRAIN Package 2 will remove the nationality bias as well as the export bias of incentives.

‘This means that as long as an activity is listed under the Strategic Investments Priorities Plan, this will be eligible for incentives regardless of citizenship of owners or the markets they will serve. For Japanese companies, they can receive incentives even if they will sell to the domestic market,” Rodolfo said.

Meanwhile, DOF director Juvy Danofrata addressed the concerns of investors on the sunset provisions for existing tax incentives.

“While transition mechanisms will be provided including replacing the five percent GIE with a reduced 15 percent corporate net income tax, we are open to suggestions on how we can design better transitions, as long as these will comply with the basic principles of being time-bound, performance-based, focused, and transparent,” Danofrata said.

According to the DTI, the discussion on TRAIN Package 2 with the Japanese investors was part of the agenda of the 10th Philippine-Japan Economic Partnership Agreement sub-committee on the improvement of business environment meeting last March 22 co-chaired by Lopez and Japanese Ambassador Koji Haneda.