The Philippines is getting crumbs in terms of foreign investments compared to its neighbors in the region and foreign trade groups said untractable policies mixed in with the persistent corrupt practices in the government were the main reasons investors pouring in capital into Asia are bypassing the country.

The 2012 foreign investments data in the region showed that even with the 15 percent growth in foreign investments in the country last year, it is dead last in the preference of businesses locating in the region.

Official foreign direct investments (FDI) in the Asian community showed the Philippines’ $1.5 billion in foreign capital it attracted last year paled in comparison to even its least developed neighbors.

FDI figures last year showed Cambodia lured $1.8 billion; Myanmar, $1.9 billion; Vietnam, $8.4 billion; Singapore, $54.4 billion; Malaysia, $10 billion; Indonesia, $19.2 billion and Thailand $8.1 billion.

European Chamber of Commerce in the Philippines (ECCP) executive vice president Henry Schumacher said while the government had addressed several issues such as the amendments to the sin tax law, revamping the law on foreign airlines payment of the common carrier tax, and exerting efforts in leveling the playing field through change in economic provisions, the ever-changing policies, particularly on the tax system and the lack of value given to government contracts make investors think twice when considering the country as an investments destination.

He said that instead of creating a more pleasant environment for investors, the administration of President Aquino is too pre-occupied with getting an investments grade from rating agencies.

There is too much emphasis on investments grade, which has side effects that are not good for country.

Schumacher said that achieving an investments grade boosts the peso strength that reduces the value of remittances and affects business process outsourcing (BPO) businesses through higher overhead costs in the country.

The recent experiences of foreign companies which were provided fiscal incentives in setting up a local business such as tax-free importation of capital equipment and income tax breaks and are now having a hard time collecting the perks given them previously is a major reason for the anemic flow of investments into the country.

Schumacher said a classic instance which illustrates the unpredictability of doing business in the country is a recent Supreme Court ruling that rejected an almost P500 million value-added tax (VAT) refund entitlement of San Roque Power Corp. based on a technicality.

He said the decision has repercussions on the tax refund claims of more than 100 foreign firms in the country.

He stressed that for three companies alone including San Roque Power, the VAT refund claims can run up to near P1 billion.

The SC ruling issued in February overturned a Court of Tax Appeals (CTA) ruling and later own its own decision over the claims.

Schumacher said the decision undermines the efforts of the government and the Joint Foreign Chambers to bring more investments into the country.

Despite the supposed efforts of the Aquino administration to improve the country’s investments image, the local business environment remains too entrenched in bureaucracy, unfriendly for new entrants and incentives are not often delivered, Schumacher said.

The San Roque Power project which is backed up by Japanese investments poured in $1.2 billion to build one of Asia’s biggest hydroelectric power plants in Pangasinan with a capacity of 411 megawatts of electricity.

The SC reversed its decision on the incentives being claimed by San Roque Power after Internal Revenue Commissioner Kim Henares filed an appeal.

In reversing its decision, the SC cited San Roque Power for bringing its tax refund demand to the CTA even when the BIR itself has yet to decide on the issue’s merits within a prescribed 120-day period.

It has been a practice, however, within the business community to bring tax refund claims before the CTA even before a final decision by the BIR has been made, which was never an issue until it was raised by Henares.

“Where is the trust factor here? The message being sent is that the government can always fool investors after they have already infused their money,” Schumacher said.

For San Roque Power, packing up and leaving the country is an option but which would be a painful one to make because of the huge investments made in the project.

Schumacher said the SC decision would even be acceptable for investors had it not been made retroactive.

Schumacher added that in the next state of the nation address (Sona), business groups expect Aquino to touch on ways to generate jobs but no investments are expected to come in unless predictability of policies is assured.

“The government cannot go around with blinders. Investors that are already in the country would be the ambassadors for the next wave of investors,” he said.

You can’t change policies midstream and expect everybody to be happy, Schumacher said.

Source: The Daily Tribune; News; 9 June 2013