Key strengths, sound policy, and political will

The administration of President Marcos is deliberate and resolute in anchoring the country’s economic growth on our inherent strengths as a nation. Our young and dynamic population, abundant natural resources, and strategic location at the heart of the Indo-Pacific region are our core advantages that provide us with a distinct edge.

These key strengths, on their own, however, are not enough to guarantee a robust economy powered by foreign investments. Fortunately, our current set of leaders are also aware that in order to attract investors, the Philippines must have a favorable policy environment that would demonstrate the government’s support for the private sector. The environment should not only attract, but nurture and maintain private partners for the good of the national economy.

There have been notable initiatives toward this end.

For example, the Foreign Investments Act liberalizes certain key industries where there were previously caps on foreign ownership. The creation of special economic zones, on the other hand, provides incentives such as tax holidays and duty-free imports, fostering growth in sectors like manufacturing, information technology, and business process outsourcing.

These measures have positioned the country as an appealing destination for investors seeking new opportunities in Southeast Asia. While challenges such as bureaucracy and corruption exist, the ongoing reforms and expanding infrastructure continue to create positive prospects for business growth.

In 2021, in the middle of the pandemic, the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act was passed. The law attempted to boost investments by lowering corporate income tax from 30 to 25 percent, with further annual reductions to 20 percent by 2027. It also offers incentives for projects under the Strategic Investment Priority Plan, based on location and industry.

Three years later, or just this Nov. 11, Mr. Marcos signed into law Republic Act No. 12066 or the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE) Act. This law is one of the 28 bills that the Legislative-Executive Development Advisory Council has been pushing for passage before the end of the year.

The CREATE MORE Act aims to promote the Philippines as a prime investment destination, building on the game-changing economic reforms introduced under the CREATE Act by making the country’s tax incentives regime more globally competitive, investment-friendly, predictable, and accountable.

Under CREATE MORE, the Fiscal Incentives Review Board can grant incentives for investments over P15 billion, with approval for smaller investments delegated to investment promotion agencies. Moreover, the scope of value-added tax (VAT) zero-rating on export sales has been expanded to include the sale of raw materials and packaging materials to nonresident buyers for use by local export-oriented enterprises in manufacturing or processing in the Philippines. Similarly, VAT-exempt transactions now include the importation of fuel, goods, and supplies for international shipping or air transport, and goods imported by export-oriented enterprises with exports exceeding 70 percent of their total production, provided the goods are directly tied to export activities.

The attention given to incentives is apt: To attract high-value investments in emerging sectors, the Philippines needs to keep its incentives competitive. Without proactive and continuous improvements, it risks falling behind regional competitors who regularly update their policies to attract global investors.

Other laws toward the same end are the Capital Markets Efficiency Promotion Act, amendments to the Foreign Investors Long-Term Lease Act, and the Blue Economy Act. The green lanes for strategic investments were created by Executive Order No. 18 in February 2023.

Most importantly, such initiatives need to be complemented as well by efforts toward good governance. No matter the laws in place, investors will ultimately look for how these laws are implemented on the ground, and how the national and local governments conduct themselves. Are the objectives of the law achieved, are regulations reasonable and consistent, is the environment predictable? Do the rules of the game stay the same all throughout? Are the leaders proclaiming adherence to the rule of law, transparency, and accountability actually practicing what they preach? Will there be no changes on a whim, and will there be no vindictive, impulsive acts that run counter to established business and governance principles?

Only through a combination of these can the Philippines attract the investment needed to propel its economy forward and maintain its competitive edge in the global market.

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Dindo Manhit is founder and CEO of the Stratbase Group.