GERMAN investment is expected to decline this year in line with those of other foreign businesses as they await clarity on the fiscal incentives reforms currently pending in Congress.
In its Annual Review 2018-2019 report, the German-Philippine Chamber of Commerce and Industry (GPCCI), said its parent organization AHK’s World Business Outlook is signaling a decrease in expected investment from the German business community in the Philippines.
“The ongoing discussion about TRAIN (Tax Reform for Acceleration and Inclusion) II, also known as the TRABAHO (Tax Reform for Attracting Better and High-Quality Opportunities) Bill, is likely to be one of the factors contributing to the investment slow-down,” according to the report, which was provided to reporters last week.
“With the midterm election… the tax reform packages’s finalization and its implementation was postponed until after (May 13), leaving the issue unclear for investors in the upcoming months,” it added.
The House measure, which was approved on third and final reading, intends to cut the corporate income tax (CIT) to 20% from 30% by 2029, on a staggered basis.
The Senate version proposes slashing the CIT to 25% on the first year of implementation.
Both intend to remove certain fiscal incentives that the Department of Finance blames for lowering its tax collections, particularly the 5% gross income earned incentive.
The adjustments to the tax perks under the TRABAHO Bill are expected to mostly impact export-oriented companies.
The report added that the proposed reduction of incentives has been “met with skepticism as the current incentive package is considered globally competitive.”
The report said investors are eagerly awaiting reforms meant to streamline permit and regulatory dealings with government.
“In this regard, GPCCI anticipated the implementation of the newly signed law on ease of doing business. The intention of this law is to cut red tape and simplify business processes.”
Risk factors cited in the report were securing skilled labor and infrastructure challenges.
The group added that the government’s “Build, Build, Build” program offers German firms a huge potential market for construction-related products and services.
“GPCCI is looking forward to a positive 2019, expecting a strong growth rate of over 6% again, despite challenging global trends, volatility due to trade disputes, growing protectionism and in Europe in particular, Brexit,” it added. — Janina C. Lim