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Japan

Proposed Philippine tax reforms prompt Japanese firms to issue warning

Japanese Chamber of Commerce and Industry senior official says companies that lose tax break may go bankrupt if new law is passed

PUBLISHED : Tuesday, 11 September, 2018, 10:02am
UPDATED : Tuesday, 11 September, 2018, 10:02am

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 has warned.

“They do not want to expand operations here. It’s the first step for them,” Nobuo Fujii, vice-president of the organisation with 650 companies as members, told Kyodo News on Monday.

“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.

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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 per cent tax.

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.

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

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

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.