Japanese investors anxious on TRAIN 2 impact

MANILA, Philippines — The second package of the Tax Reform for Acceleration and Inclusion (TRAIN) law gives “anxieties” to Japanese companies in the country, particularly the rationalization of the tax incentives in Philippine Economic Zone Authority (PEZA) companies, a diplomat at the Japanese Embassy in Manila said.

“There are some concerns that they will be affected by the TRAIN 2 or Trabaho particularly the rationalization of the tax incentives in PEZA,” minister and deputy chief of mission Takehiro Kano told reporters in a press briefing.

“The Philippine government rationale is they’ll decrease the corporate tax and they can’t continue the tax incentives in the PEZA forever,” he added. 

Although there are reasons for pushing the passage of the measure, Kano said “on the other hand for the view point of the companies which are making investment decisions here they take various factor including tax incentive.” 

But Kano pointed that  it is up to individual Japanese company that may take into account positive factors such as labor cost and English proficiency of Filipino workers.

“Yes, some anxieties (because of TRAIN 2) but I’m not sure how strong it is,” Kano said. “It’s really up to the individual companies.”

The American Chamber of Commerce of the Philippines, Inc. (AmCham) said TRAIN 2 creates uncertainty for existing and new investors as the measure is likely to lead to reduced revenues and job losses on a large scale as a result of damaged investor confidence.

In a position paper on Corporate Income Tax and Incentives Reform Act (TRAIN) 2, AmCham said it supports the 25 percent corporate income tax (CIT) but would prefer 20 percent, as proposed in House Bill 7458. 

As the country moves upwards on its path to becoming an advanced nation by 2040, AmCham said the accompanying tax regime for this new era should ensure that growth is sustained and that new wealth is inclusively distributed to all Filipinos. 

A 20 percent rate would be close to the ASEAN average, and these countries have more inclusive economies that the Philippines, as measured by levels of poverty.

In March and April, AmCham conducted a survey among multinational members likely to be affected by the fiscal incentive policy changes proposed for TRAIN 2. Most of those who replied benefit from the current fiscal incentives.

PEZA director general Charito Plaza said incentives are the primary reason foreign industries are investing in the Philippines, and the possibility of removal under the second package has caused some companies to hold back on their new investment and expansion plans.