Most important investment incentive

Now that President Aquino has thumbed down proposals to change the economic provisions of our Constitution, our officials should turn to other ways of attracting long-term foreign direct investments (FDIs). These are the kind of investments that spur inclusive growth, alleviate poverty and create jobs. Unfortunately, FDIs have, in the past, come in trickles although they have been poured massively on our neighboring countries like Malaysia, Thailand, Singapore and Indonesia.

Trustworthiness. Why? Because, I believe, the most important incentive to bring them in—the trustworthiness of our government—has been neglected. Past regimes are not famous for honoring their word. In contrast, can the present administration be trusted? Is it sensitive and responsive to investors’ cry for fairness, honesty and transparency?

Testing the P-Noy administration’s trustworthiness is a recent letter of the Joint Foreign Chambers (JFC) lamenting the failure of the government to fulfill its commitments. This lament cannot be ignored because the JFC represents the largest existing FDIs in the Philippines.

For the uninitiated, let me explain that large foreign investors have wide options on where to invest their billions. Their choices naturally depend on how safe their money would be, how easy or how difficult it is to do business in the country, and how much they would earn for the risks they take.

To lure large FDIs, countries compete by showing their advantages as desirable business venues with reasonable rates of return. They offer various incentives, which always include tax- and duty-free importation of capital equipment that investors need to bring into the country.

To understand this competition, let us look at a parallel in the consumer trade. People choose and buy cars of a specific brand because they trust its engineering, beauty, after-sale service and used-car prices. In the same manner, investors choose countries that offer real and believable value for their money.

Pained letter. To attract FDIs to solve the power outages in the 1990s, our government promised many fiscal incentives and benefits, including VAT-free importation of capital equipment. Naturally, in making business plans, investors included these fiscal incentives in computing their risks and possible earnings, and compared them with those offered by other countries.

In its pained letter to Finance Secretary Cesar Purisima, the JFC wrote that after its members sank in hundreds of millions of dollars in building huge power plants, the government reneged on its promise to exempt them from the VAT (value-added taxes).

Procedurally, investors were first required to pay the VAT, and then to apply for refund from the Bureau of Internal Revenue. According to the JFC, “here is where the system fails: getting the VAT refunded is complicated and overly bureaucratic, with the BIR forcing applicants to go to court, then causing delays in procedures in the Court of Tax Appeals and up to the Supreme Court… How can investors be encouraged to risk their money if they cannot rely on the solemn word of government?”

As an example of how our government has over the past many years reneged on its commitments, the JFC cited the case of San Roque Power Corp., which—after over a decade of grueling litigation—was denied its promised VAT refund of about P500 million because of alleged midstream change of rules that were retroactively applied. I will write on the details of this case at another time.

My point now is this: The government must honor its commitments promptly. For too long, past regimes have resorted to legalistic contortions to avoid honoring commitments. Now is the time to right this wrong. To attract long-term FDIs that spur inclusive growth, alleviate poverty, and create jobs, the present administration must show investors that it will honor commitments made by our country, and will refrain from using technicalities to avoid them. Let us stop the insidious practice of being centavo-wise and peso-foolish.

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Proclamations by projection. In response to my column last Sunday, Commission on Elections Chair Sixto Brillantes Jr. said that the poll body used projections from so-called “grouped canvass reports” in proclaiming the top senatorial winners.

I do not wish to embarrass Brillantes further by stressing that our election law requires the use only of official certificates of canvass (COC), not any other documents or inventions, to proclaim winners, and that the Comelec has absolutely no power to amend, much less to supersede, this law by passing a self-serving resolution authorizing itself to use mere projections from “guesstimates” extrapolated from these grouped canvass reports.

However, these baseless proclamations by projection must be corrected and banished from our election lingo, preferably by the Comelec itself, by withdrawing them and reproclaiming the senatorial winners with the use of the completed COCs. The poll body should not wait for the Supreme Court or Congress to reverse and censure it.

Yes, these wayward proclamations should not stay a minute longer in our legal firmament, lest they be used as mischievous precedents to proclaim the alleged winners in the 2016 presidential election. The Comelec would be well advised to correct this mischief now.

Otherwise, instead of being hailed for what it trumpets as a generally successful automated election, the present Comelec will be damned in history for inventing these bizarre proclamations by projection.

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