Tax perks not enough to attract foreign investors

MANILA, Philippines – Tax incentives are not the deciding factor that foreign investors consider when deciding to do business in a country, an official of the International Monetary Fund (IMF) said.

“Tax incentives are not primary factors for multinational corporations to decide FDI (foreign direct investments) location,” IMF Fiscal Department Advisor Kiyoshi Nakayama said in a presentation during a recent IMF-Department of Finance joint workshop on fiscal incentives in Manila.

Nakayama is echoing the position of the Department of Finance, which has been pushing a long-pending legislative measure to rationalize fiscal perks granted to investors.

The official said that instead of simply offering tax perks, the Philippine government can increase the value of FDIs in the country by creating a more competitive environment and by addressing barriers to investment, such as corruption, infrastructure, integrity of public institutions, education and training, among other issues.

Nakayama said the lost revenues from the grant of incentives are best channeled to funding of key infrastructure, strengthening public institutions, and other factors affecting the country’s competitiveness

“The government needs to mobilize revenue by streamlining tax incentives that have negative and unintended consequences,” Nakayama said.

Citing a study by the Philippine Institute for Development Studies (PIDS) in March 2012, he also said the government must implement substantial reforms in all stages of education and training system to raise the learning capabilities of firms and upgrade labor skills.

As for barriers to investment, Nakayama said corruption, customs procedures as well as legal infrastructure are among the issues that have been cited by investors in the Philippines.

Nonetheless, he cited the strengths of the Philippines as an investment site, such as the availability of trained labor and competitive housing and lease rates. – Rappler.com