Eight large industry associations and members of the Joint Foreign Chambers in the Philippines urged Congress to retain the zero VAT provisions on companies operating in the industrial estates administered by the Philippine Economic Zone Authority
The groups are wary that investors with long-term commitments could be placed under a value added tax refund scheme, saying it will be a step backward for locators and create unnecessary red tape, adding to their cost of doing business and making the Philippines a less competitive investment destination.
The groups opposed the imposition of VAT on locators under the proposed tax reform package, or Senate Bill 1592.
They include the American Chamber of Commerce, the Australia New Zealand Chamber of Commerce, the Canadian Chamber of Commerce, the European Chamber of Commerce, the Information Technology and Business Process Association of the Philippines, the Japanese Chamber of Commerce, the Korean Chamber of Commerce and the Semiconductor and Electronics Industries of the Philippines Foundation Inc.
Some 350 economic zones in the Philippines established under Peza host over 3,500 investors who provide most of the exports of goods and services of the country.
A long-time challenge for some foreign investors is the requirement to front-load VAT for reimbursement later. But the Philippine government has a poor record of making the refunds.
Senator Sonny Angara said during the Senate plenary discussion of the Tax Reform Acceleration and Inclusion bill said that P30 billion worth refunds were currently pending payment.
Foreign investors do not prefer any refund arrangement for zero-rated companies. They cited this would be consistent with President Duterte’s policy of making doing business in the Philippines easier and support an improvement in country’s rating in the Global Competitive Index of the World Economic Forum.
The WEF in its most recent GCI survey released September 26, 2017 rated the most problematic factors for doing business in the Philippines.
The number one factor was “inefficient government bureaucracy,” which was cited by 19.7 percent of survey respondents, while “tax regulations” was number four as cited by 10.9 percent of respondents.
Over 30 percent of respondents found red tape and tax regulations as a serious problem in doing business in the Philippines.