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[EDITORIAL] How realistic are job estimates in CITIRA row?

EDITORIAL | Manila Bulletin | September 26, 2019

Events are fast coming to a critical point in the government  move to remove  some of  the  tax incentives  that previous administrations had used to persuade  so many foreign firms to locate in the Philippines.

Early  this month, the Joint Foreign Chambers of  the Philippines (JFC), whose members now have over $30 billion worth of investments in the country, asked that the Philippine  Export  Zone Authority (PEZA) be  exempted from the proposed  Comprehensive  Income Tax and Incentive Rationalization Act  (CITIRA), House bill 4157.

In particular, the JFC opposed the provision that  would  remove  the  present  5 percent  Gross Income  Earned  (GIE)  tax  that companies in the ecozones pay in lieu of local and national taxes.  For decades, foreign firms have been operating in PEZA under this tax system. If it is now removed, it would disrupt their  operations  and  so  many  are now preparing to leave for  other countries like Vietnam.

The JFC is a coalition of American, Australian, New Zealand, Canadian, European, Japanese, and Korean chambers and companies and the Philippine Association of Multinational Companies.  They represent some  4,000  foreign  firms  now located in ecozones all over the country.

Last  Friday, following reports that President Duterte  had  directed  all Philippine agencies  to suspend all talks of  financial  deals, including  donations to the Philippines, with 17 countries  which had voted  in favor  of a United Nations resolution to investigate alleged human rights violations in the Philippines. Executive  Director Florian  Gottein of the European  Chamber of Commerce of the Philippines (ECCP) said  the European companies are now  considering  leaving the country.

Presidential spokesman  Salvador Panelo was quick to deny there is such a presidential directive, but the European  firms’ reaction shows how the  situation has deteriorated because of CITIRA.

CITIRA – which used to be  known as TRAIN 2, then TRABAHO – would reduce the corporate income tax from 30 to 20 percent, thus providing more funds for private firms to  expand their operations.  It is projected  to  create 1.5 million jobs.

But  the down side is that so many foreign firms have threatened to  leave, once CITIRA removes the special tax  arrangements  that induced  them to come years ago.  PEZA’s over 4,000 enterprises now employ  over 1.5 million  workers.

How realistic is the government  expectation of 1.5 million  new  jobs? And how many of the foreign firms now employing 1.5 million Filipinos may actually leave the country?

Let us hope our officials will make the correct assessment  and  judgment, as so many hundreds of thousands  of jobs  are  at stake.