Pandemic job losses reach PEZA firms enjoying tax perks

Ian Nicolas Cigaral (Philstar.com) – August 11, 2020 – 2:43pm

MANILA, Philippines — Job losses have reached the walls of economic zones where tax perks are offered to investors to relocate, putting into question a Duterte administration strategy to rely on existing incentives and lower tax rates for economic recovery.

At the Philippine Economic Zone Authority (PEZA), the largest ecozone operator, employment dipped 3.2% year-on-year to 1.48 million for the first six months, data released Tuesday showed.

If the trend will persist until yearend, it will mark the first time since record started in 1994 that employment in ecozones would drop, a direct result of declining investments in these areas where the government lures investors through tax perks and other incentives.

But the ongoing 2020 drop already matters because it also demonstrates the scale of economic damage from the lingering pandemic. Unlike this year, PEZA investments have also dropped in previous years, even during financial crises, but jobs have continuously been generated in these ecozones.

From January to July, approved investments in PEZA dropped 27% from year-ago levels to P52.01 billion, on track for its third straight year of decrease. Broken down, local inflows plummeted 63% from last year, while foreign investments rose 26%.

“It is true that the COVID-19 pandemic affected our economy badly… Nevertheless, we at PEZA remain hopeful to bounce back from this. We have to treat this crisis as both a lesson and an opportunity,” PEZA Director-General Charito Plaza said in a statement.

Beyond PEZA, the latest data also creates a sense of uncertainty on the Duterte government’s preferred mode of economic stimulus, one that relies on the lure of tax incentives, coupled by a corporate tax cut of 5% under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill pending in Senate.

CREATE’s intention is to help businesses ignite hiring under an economy intended to live with the coronavirus for a while in the absence of a viable vaccine.

“The curbing of economic activity took a heavy toll on businesses and workers of a magnitude that we have yet to gauge,” Robert Dan Roces, chief economist at Security Bank Corp., said in an online exchange.

“Thus, CREATE may have to be complemented by corporate recovery incentives and overall targeted fiscal stimulus,” he added.

At the moment though, the finance department has rejected calls for a bolder fiscal spending to counter the pandemic’s impact, apart from CREATE and Bayanihan to Recover as One bill which only adds P140 billion on top of the present budget already stretched by costly pandemic financing.

PEZA itself has rejected changes under CREATE, which include a gradual reduction in tax perks enjoyed by many firms for decades after an additional two years in sunset provision. The move, the finance department has repeatedly said, is meant to level the investment playing field.

“The rationalization of incentives should be pushed but it must be careful not to lose already existing businesses. People shouldn’t lose their jobs in this pandemic if we can help it,” said Ruben Carlo Asuncion, chief economist at UnionBank of the Philippines.

Manufacturing losses

In terms of jobs at PEZA, manufacturing, which accounted for 44.7% of employment, shed 8.6% year-on-year to 659,587. Jobs from other sectors such as exports shrank 13.4%, while those generated by ecozone construction inched down 0.1% year-on-year.

On the flip side, information technology, which is the biggest employment generator, still posted the lone 2.4% annual uptick in jobs to 786,177.

In terms of inflows, manufacturing increased investments 24% year-on-year as of July, while business process outsourcing placements improved 27%.

PEZA exports, meanwhile, declined 6.8% year-on-year to $24.81 billion from January to June.

 

Source: https://www.philstar.com/business/2020/08/11/2034465/pandemic-job-losses-reach-peza-firms-enjoying-tax-perks