The Philippines Senate has passed the third and final reading of Senate Bill (SB) 2094, which amends the Public Service Act by enabling the 100 percent foreign ownership of public services, such as telecommunications, airlines, shipping, and railways.
SB 2094 makes a clear distinction between the definition of public services and public utilities since under the 1987 Constitution, only firms that are at least 60 percent owned by Filipinos are given the authorization, certificate, and franchise to operate as a public utility.
SB 2094 narrows public utilities to just the following:
This means that there will be no restriction on foreign ownership for industrial undertakings not classified as public utilities. However, to protect national security, SB 2094 contains safeguards that prohibit foreign state-owned enterprises from owning capital in a public service classified as critical infrastructure. The government’s National Security Council will be undertaking a review of such foreign investments.
Liberalizing the economy will enable the Philippines to attain similar traction in foreign investment as received by other ASEAN states. Out of the US$137 billion in foreign direct investment received by ASEAN in 2020, only US$6.5 billion went to the Philippines.
Further, the Philippines may face a long road to recovery than its ASEAN neighbors. It imposed harsher and longer-lasting lockdowns and stimulus packages issued by the government have been more conservative compared to other ASEAN members.
To ensure a resilient recovery from the pandemic, the Philippines has enacted several measures to ease doing business in the country.
One of the most important reforms was through the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE Act), which was passed into law in March 2021. Under the CREATE Act, foreign companies are eligible for a reduction in the corporate income tax rate (CIT) to 25 percent from 30 percent (the highest in ASEAN) until 2022. From 2023 onwards, the CIT rate will be reduced by one percent until it reaches 20 percent by 2027.
Domestic corporations with taxable income of PHP 5 million (US$97,000) or below can benefit from a CIT rate of 20 percent, and those earning more than PHP 5 million (US$97,000) are eligible for a 25 percent CIT rate.
This article was first published by AseanBriefing which is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in in China, Hong Kong, Vietnam, Singapore, India, and Russia. Readers may write to [email protected]