Monday, November 16, 2009 | MANILA, PHILIPPINES [ BusinessWorld Online ]
FIRMS IN the Clark and Subic Freeports may shelve their expansion plans or even relocate elsewhere if the Finance department does not repeal an order that had slashed incentives back in 2008, foreign business chambers said.
The Joint Foreign Chambers (JFC), in a letter to the department dated Nov. 4, urged that the system allowing firms at the Clark Freeport to avail of income tax holidays for additional investments be reinstated. Chamber leaders later added that this is also a concern for the Subic Freeport.
The state agency in charge of Clark Freeport, the Clark Development Corp. (CDC), echoed this call saying that at least $1 million in investments have so far been held up by the change of policy.
Department Order 3-08 issued in February 2008 to implement the Bases Conversion and Development Act (Republic Act 9400) prescribes "no double enjoyment of the same or similar incentives."
Prior to this, firms at freeports could first register their expansions with the Board of Investments to avail of an income tax holiday. When the period lapses, firms then register with the free-port authority to avail of the lower 5% tax on gross income, Bernardo F. Angeles, Jr., CDC assistant vice-president, explained in a telephone interview on Friday. But the department order has confined firms to just the 5% gross income tax, the foreign chambers said.
"Since foreign investors believe investments should be for the long term, they plan steps to expand their operations. But if the referred department order impedes granting an income tax holiday, potential investors may regard [the freeports] as unacceptable for future investments," the chambers said.
Already, L and K -- a firm that supplies to electronics assembler Texas Instruments -- has stalled its $1-million expansion plan for Clark, Mr. Angeles said. A liquid crystal display manufacturer has similarly held off from expanding, he said.
A firm based in the Subic Freeport, meanwhile, has also shelved plans to add another production line, Japanese Chamber of Commerce & Industry of the Philippines, Inc. vice-president Nobuo Fujii said in a telephone interview on Friday, declining to elaborate. The Subic Bay Metropolitan Authority could not be immediately reached to comment but Mr. Angeles said this agency has also complained to the Finance department about the change of policy.
"[Investors] may just switch to other destinations like Vietnam or Thailand," Mr. Fujii said.
The foreign chambers’ letter went on to point out that the department order makes the free-ports less attractive to investment areas managed by the Philippine Economic Zone Authority (PEZA). Expansions of PEZA-registered firms are granted a three-year income tax holiday, and upon expiry of this privilege, firms enjoy the 5% special tax on gross income.
Finance department officials could not be reached to comment. -- Jessica Anne D. Hermosa
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