economy
Amid the downtrend, PEZA investments are already on track for their third straight year of decrease, as coronavirus fears continue to trump the magic of tax perks that ecozones offer to investors.
AFP/Ted Aljibe, file
PEZA inflows drop with jobs as agency steps up CREATE fight
Ian Nicolas Cigaral (Philstar.com) - October 12, 2020 - 6:36pm

MANILA, Philippines — Investments lured by the country’s largest economic zone operator dipped by over a fifth in September, while employment they generated also sustained a historic downtrend ahead of an expected Senate vote on a bill ultimately trimming down tax perks in years to come.

Data released to Philstar.com showed approved investments at the Philippine Economic Zone Authority (PEZA) amounted to P68.5 billion in September, down 22.41% from P88.3 billion recorded a year ago. 

That translated to 215 job-generating projects in September, down by nearly half from previous year’s level. PEZA exports also declined 3.2% annually to $30.2 billion. PEZA did not cite reasons for the decline.

“I think the dimming economic outlook had more to do with the substantial drop off in in PEZA investments. The Philippines is currently in a recession but so is most of the world economy, which will definitely put a damper on demand for electronics on a global scale,” Nicholas Antonio Mapa, senior economist at ING Bank in Manila, said in an e-mail.

“With demand expected to be depressed in the near term and with corporates likely looking to conserve cash, we do not foresee a quick turnaround to these trends,” Mapa said when sought for comment.

With the downtrend persisting even with 87% of PEZA locators back in business as of September 26, PEZA investments are on track for their third straight year of decrease. Last year, total investments reached P117.54 billion, down 16% year-on-year. 

It gets worse when one considers the impact of fewer investments on jobs generated inside ecozones. As of July, employment in PEZA dipped 1.69% year-on-year to 1.5 million, a decline seen from June that if would persist until yearend, would mark the first time on record that employment in PEZA zones would drop.

CREATE opposed

The latest dismal figures provide ammunition for PEZA to oppose the passage of Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill, a measure pushed by economic managers to cut taxes of companies to encourage them to funnel savings in hiring people or retaining workers during the hard times.

As the measure faces a critical vote at the Senate this week, PEZA Director-General Charito Plaza renewed calls to drop CREATE which apart from lowering corporate tax rates to 25% from 30% would also see tax perks ultimately lessened after a brief extension period granted by the measure for pandemic recovery.

“Passage of CREATE bill is in bad timing. Its passage is insensitive with the companies struggling to operate, keep jobs, and that contribute to keep the economy afloat. Also it will badly affect competition for new investments in our export industry,” Plaza said in a statement.

“In terms of tax incentives, it is a crucial factor for export-based investors as part of ease and cost of doing business,” she said.

But ING Bank’s Mapa disagreed. “Should the CREATE bill be passed soon, we could see this bolstering our case for an investment destination,” he said.

“However, a recovery will likely be predicated on the Philippines returning to 6% growth form in the next few months, which as of this moment, appears rather slim,” he added.

NOVEL CORONAVIRUS PHILIPPINE ECONOMY THE PHILIPPINE ECONOMIC ZONE AUTHORITY
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