Japanese business chamber official warns against TRABAHO tax bill

Kyodo News

Posted at Sep 10 2018 10:43 PM | Updated as of Sep 11 2018 09:45 AM

MANILA -- (UPDATE) Should the Philippine government withdraw tax concessions enjoyed by Japanese companies, many may go bankrupt or close their operations there, a top official of the Japanese Chamber of Commerce and Industry in the Philippines warned Monday.

"They do not want to expand operations here. It's the first step for them," Nobuo Fujii, vice president of the organization with 650 companies as members, told Kyodo News.

"Then the second step is to gradually withdraw," said Fujii, summing up the attitude of the majority of members if tax reforms being considered by the Philippine Congress become reality.

Fujii said the potential change with the biggest impact would be if the Philippines began to impose the value added tax on Japanese companies operating inside special economic zones.

Those companies are now exempt from paying that 12 percent tax.

Addressing the Japanese Chamber's concerns, Trade Secretary Ramon Lopez said discussions were ongoing to ensure that "high performing" companies get a 15-percent tax rate on net income, which he said will equal the current 5-percent tax on gross.

Firms that export 90 to 100 percent of their output, generate "a lot" of jobs and manufacture "new products," can avail of a 15-percent tax on their net income under the DTI's proposal, which is "being worked on," Lopez told ANC's Headstart.

"What we're saying to these Japanese companies, if they're high performing (exporting) 90 percent and above, they have nothing to worry about," Lopez said.

Fujii said half the chamber's members are located inside these designated zones, particularly in the Subic Freeport Zone and in industrial parks in the provinces of Pangasinan and Batangas.

Citing information from the Philippine Economic Zone Authority, Fujii said company operations inside these economic zones employee about 1.3 million workers, about half of whom are employed by Japanese companies.

He also said about five times that number of jobs are indirectly dependent on that employment, including positions in such areas as food service and security.

The proposed legislation, entitled Tax Reform for Attracting Better and High Quality Opportunities (TRABAHO), would lower the top corporate income tax rates from 30 to 20 percent.

But to offset the impact on tax revenue, it would raise the 5 percent gross income tax rate now paid by Japanese and certain other companies, to as much as 15 percent.

The exclusion of companies operating inside economic zones from paying the value added tax may also become provisional, and tied to factors like export performance and their level of domestic purchases.

On Monday the legislation passed the third and final reading in the House of Representatives, and now goes onto the Senate, where the leadership has expressed its willingness to push for its passage.