AER disputes PEZA locators, foreign chambers opposing CREATE’s new incentive regime

Action for Economic Reforms (AER) disputes the recent statements of some PEZA (Philippine Economic Zone Authority) locators and foreign chambers of commerce who oppose the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Bill’s provisions on rationalizing fiscal incentives. We find these locators and chambers to be alarmist; they frame the CREATE Bill as something that will remove incentives totally, when in truth, firms can still enjoy incentives, provided that they meet sound economic criteria. CREATE simply aims to make incentives time-bound and performance-based.

John Forbes, the senior advisor of the American Chamber of Commerce, lamented the country’s missed opportunities for capital investments, as firms have been hesitant to locate in the Philippines for the past three years that the bill has been debated on. But the very reason behind the delay of this bill’s passage is the hardline resistance of these PEZA locators and chambers. Along with Senator Ralph Recto, they have pushed for amendments that weaken CREATE’s reform, including a grandfather rule allowing currently registered firms to continue enjoying incentives in perpetuity.

Under the old system, incentives are granted in perpetuity. We are the only country in the world with a system that gives incentives to companies in perpetuity — an indicator of how pressing this reform is. Incentives are meant to encourage start-ups to invest in a particular area, but in the Philippines, many incentives we are currently giving are redundant, as companies stay even without incentives. A study by the Department of Finance found that companies receiving incentives are performing at par with those without incentives. Aside from making incentives time-bound, CREATE seeks to make firms receiving incentives more alert and competitive by setting mandatory performance targets.

The Semiconductor and Electronic Industries in the Philippines Foundation Inc. (SEIPI) warned about job losses if we adopt a new fiscal incentive regime. However, CREATE is about job creation, and allays their fears of job losses. To receive incentives, companies need to maintain high levels of employment. Firms will be held accountable to meet these performance targets.

SEIPI also warned that two semiconductor firms have already shut down their Philippine plants due to the pandemic, and said the passage of the CREATE Bill might make matters worse. Despite the status quo of granting over-generous incentives, the firms still shut down. This shows that incentives did not have a hand in their shutdown, and maintaining our current incentive system would not improve their situation.

Lastly, Rey Untal of the IT and Business Processing Association of the Philippines mentioned that there is forthcoming pent-up demand both for jobs and orders in the Philippines in 2021, noting that “the country is in a better position to secure these capital investments if its fiscal regime is stable.”

We would indeed be missing a golden opportunity if we did not capitalize on the foreign firms now ready to invest in the Philippines. The results of the recent US election have led to renewed business confidence, and American firms are now more willing to locate in the Philippines, according to Michael Michalak, senior vice president and regional managing director of the US-ASEAN Business Council. He said that passing CREATE would raise the chances of these investments. Thus, CREATE is meant to attract new investors by changing the status quo. Now is the opportune time to reform our antiquated incentive system and stop giving out over-generous, untargeted, perpetual incentives.

We call on the Senate to pass CREATE and strike down Recto’s proposed amendments which seek to maintain our current redundant incentive system. The purpose of CREATE is not to deprive firms of incentives, but to ensure that they are being given in a rational, justified manner. PEZA locators and foreign chambers of commerce are proving to be Chicken Little, issuing alarmist statements and misconstruing CREATE as a bill that seeks to remove incentives entirely, thereby impeding the reform.