The Philippines is becoming less attractive to foreign investors because its incentive scheme, which was designed to attract capital, has since become uncompetitive compared to those of other countries, according to an influential United States (US)-based trade association.
In a position paper seen by Manila Bulletin, Washington-based National Foreign Trade Council (NFTC) flagged inconsistencies in the Philippines’ incentive policies, which are making the country a less appealing investment destination.
NFTC said different laws in the country impose conflicting and burdensome regulatory requirements on companies operating in special economic zones (SEZs) that provide government incentives.
While it did not identify specific laws, the trade group said inconsistencies in the country’s investment scheme are primarily affecting companies involved in the business process outsourcing (BPO) sector.
“The BPO and related services industries are often subjected to the same obligations as export manufacturing firms, ignoring the fundamental operational differences between them,” NFTC said.
The group said this regulatory mismatch is leaving the Philippines behind other outsourcing locations that have more consistent regulatory frameworks for incentives.
The country’s incentive policies within SEZs are implemented by investment promotion agencies (IPAs) and cover fiscal and non-fiscal incentives, streamlined business processes, and other benefits.
Apart from this, NFTC noted that the country’s investment scheme has become outdated compared to those of countries that offer incentive packages designed to keep companies competitive even as business conditions evolve.
“[These issues] create regulatory risk and uncertainty for foreign investors, making the Philippines a less attractive investment destination compared to other outsourcing locations,” it said.
The industry group also said that taxation of cross-border services is another major concern for foreign investors in the Philippines, particularly Revenue Memorandum Circular (RMC) No. 5-2024 issued by the Bureau of Internal Revenue (BIR) two years ago.
Under RMC 5-2024, certain cross-border service transactions, including non-resident digital services, are subject to both 25-percent final withholding tax (FWT) and 12-percent value-added tax (VAT).
While the RMC was later updated to clarify that cross-border services are not automatically subject to taxation, the measure remains a major concern for investors.
“Concerns remain that future interpretations of tax rules could broaden the scope of taxation for cross-border transactions and present duplicative tax burdens,” NFTC said.
Furthermore, the group also raised objections to companies’ obligations under the Internet Transactions Act (ITA), which include requiring merchants to clearly indicate their information in product listings.
Other requirements include mandating online merchants to submit necessary information, maintaining updated lists of merchants, prohibiting the sale of regulated goods without permits, and providing effective consumer redress mechanisms.
The group noted that measures supporting the ITA’s implementation, which are enforced by the Department of Trade and Industry (DTI), constitute technical barriers to trade (TBT) and could discourage investors looking to establish operations in countries with less restrictive requirements.
As part of its efforts to uphold the ITA, the DTI previously imposed a mandatory e-commerce trustmark for online retailers before backtracking and making the certification voluntary instead.
