September 11th, 2021
Salceda: CREATE, tax predictability moving foreign investments up; House tax chair calls for ‘certainty’ in lockdown regime
House Ways and Means Chair Joey Sarte Salceda (Albay, 2nd district) says that the enactment of the Corporate Recovery and Tax Incentives for Enterprises or CREATE Act, and its effect on investor certainty, is causing foreign direct investments (FDIs) to ‘surge dramatically,’ in response to the June 2021 report on the country’s FDI performance.
FDI net inflows surged by 60.4% to $833 million from a year earlier, based on preliminary data from the Bangko Sentral ng Pilipinas (BSP). The net inflows nearly doubled from $433 million a month earlier.
“The certainty of investors that the Philippines is serious about business was demonstrated by our enactment of CREATE. We did a study that showed that tax uncertainty raises the investor hurdle rate by 2.3%. In other words, an investor projects the profit margin to have to be 2.3 percentage points higher before they invest in a country with tax uncertainty. That really dealt us in many key industries,” Salceda said.
“With CREATE, you know what you’re getting. With a tax incentives system that is summarized in the tax code, it becomes easier to see what you are eligible for. I was an investment analyst for much of my adult life, and what I can tell you is that the straightforwardness of tax policy is key for analyst recommendations to invest. CREATE made things simpler, fairer, and more efficient, and thus more attractive,” Salceda added.
Salceda adds that CREATE pushed first-half FDI net inflows higher by 40.7% year on year to $4.298 billion.
“Foreigners are also lending to the Philippines, emphasizing that credit risk in the country remains low,” Salceda said.
In the six months to June, foreign net investments in debt instruments grew by 86.5% to $2.805 billion.
More certainty on quarantines to boost investments
The House tax panel chair added that investments will continue to expand as quarantines become more certain.
“The moment our quarantine regime becomes more predictable, you’ll see more interest in the Philippines. The future is still very bright for the country, but there’s plenty of business uncertainty, because our quarantine regime is still very fluid,” Salceda said.
Salceda adds that he recommends a simplification of quarantine regimes and a codification of ‘triggers’ to help businessmen predict whether a lockdown is upcoming.
“I am convinced that we will be able to generate more FDI if the businessmen have some sense of what guides our quarantine declaration,” Salceda said.