The American investors are more inclined to set up shop in Vietnam than in the Philippines, as they find Hanoi the best investment destination in Southeast Asia due in large part to its fiscal incentives menu and regulatory policy on businesses, a former United States ambassador has said.
Michael W. Michalak, senior vice president and regional managing director of the US-Asean Business Council, said Vietnam is the most preferred investment site among Southeast Asian economies for American investors. The preference may be attributed to the country’s competitive incentives package, as well as to its management of investments, explained Michalak, who was former US ambassador to Vietnam. The Business Mirror reports.
Michalak said it also works to Vietnam’s advantage that it is enhancing its menu of incentives to net some of the investments flying out of China in the face of its trade conflict with the US.
“Vietnam has probably the most attractive [incentives package]. They do have fiscal incentives, but again it is really more on how they interact with the private sector, the way in which you can form a symbiotic relationship between the government and the private sector so that,” Michalak said in an interview with the BusinessMirror.
Last year investments in Vietnam’s industrial parks and economic zones reached over $8.3 billion, roughly P433.72 billion, according to the Ministry of Planning and Investment.
Of this figure, $5.3 billion was injected for 560 fresh projects, while the remaining $3 billion was used for expansions in close to 500 existing operations. As of last year, Vietnam’s industrial parks and economic zones are home to $145 billion of investments for approximately 8,000 projects.
The over P400 billion investments applied to Vietnam’s economic zones are massive compared to the capital applied last year to the Philippine Economic Zone Authority (Peza), which suffered a decline in registration on uncertainties brought about by the government’s move to rationalize tax perks.
Data from the Philippine Statistics Authority (PSA) showed investments to the Peza dropped 12.72 percent to P68.32 billion last year, from P78.27 billion in 2017. Peza officials pointed the decline to investors holding on to their capital in anticipation of an overhaul in incentives.
“I think the thing most of our companies want is…some clarity on the transition period between what the current situation is and what the ultimate endpoint is,” Michalak said, describing how US investors view the tax situation here.
“They [US investors] are still looking at ways which we can gauge with the government on specific industrial incentives to see if there might be a way to continue these incentives. I heard some of our guys don’t like this, but there are some positive effects from it,” he added.
US investors, Michalak pointed out, are just concerned about the impact of the tax reform, as they “think that there will be a negative impact due to job losses.”
If there is any advantage the Philippines has, it is its enforcement of its data privacy law, according to Michalak. Data privacy is becoming the strongest investment consideration of US firms, he added, on lessons learned from China, which is reportedly involved in counts of violations on technology transfer and digital security.
“Things like cross border data flow, sensible privacy legislation, those kinds of issues are No. 1 in the minds of firms as they look for expansion. The Philippines in that score is doing well. The Philippines is a pioneer in privacy legislation, one of the first countries in [Southeast Asia] to have a privacy law,” Michalak said.
Senators are deliberating the Corporate Income Tax and Incentives Rationalization Act (Citira) bill, which will reduce corporate income tax to 20 percent by 2029, from 30 percent at present. However, the measure will rationalize tax perks granted to firms operating in economic zones, including the 5-percent tax on gross income earned paid in lieu of all local and national taxes.
Investors in economic zones, mostly multinationals, warned they will relocate operations out of the country if the incentives regime is revamped, raising the threat of capital flight and, consequently, job losses.