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Does It Even Matter If the Investor is a Filipino or a Foreigner?

Shenzhen Noted

As elections draw near, I still think about why it's important to support political candidates who are in favor of removing excessive restrictions. It's a good thing that President Rodrigo R. Duterte signed the Public Services Act of 2022 regarding telecommunications and transportation. We've also got some economic neanderthals who continue to spread the wrong information about foreign investors. Some people would still argue, "Why are you letting foreign investors invest here? It's only they who will get rich if you let them do that!" That's one argument that should be dismissed as absurd. I would like to fire back and say, "Does it matter if an investor is a Filipino or a foreigner?" Deng Xiaoping, the founder of Modern China, said, "It doesn't matter if the cat is black or white. What matters more is it that catches mice." Deng didn't care if the cat was black or white as long as it did its job. 

In business and economics, it wouldn't matter if the business was owned by a Filipino or a foreigner--what's important is that it provides the badly needed product or service. If the foreign investor can provide good public services then we're good. If the foreign investor can provide badly needed taxes for recovery that the BIR dutifully collects then we're good. The foreign investor could also care less if the supplier is Filipino or from their own as long as they're given a good supply. A foreign investor may, in turn, buy local products (such as raw materials for production) and avail of local services (such as manpower services) then we're fine. There's a give and take relationship there, right? 

Dealing with foreign shares ownership

The whole 60-40 shares arrangement is too restrictive. Who would want to rent a space if one has to give up 60% of their net profits to the landowner? Such an arrangement should be considered stupid and absurd. Net profits are profits after all expenses from rentals, utilities, accounts payable to suppliers and service providers, and taxes, are paid. In short, until the tenant or investor pays all their bills--they can't keep their profits. A landowner has every duty to kick out a tenant who refuses to pay rentals even if the tenant has millions of pesos. The Bureau of Internal Revenue (BIR_ has every duty to crack down on anybody who refuses to pay taxes even if they could pay. The profits are only declared only after gross revenue is deducted from expenses like utility bills, rentals, accounts payable, and taxes payable. That's why we have the term net income after taxes. The landowners can't demand any more money from the tenant except for the rental. The BIR collects money based on taxable income which has all the gross income minus expenses before taxes. Operational expenses and withholding taxes (in the case of real estate) are considered deductibles. The BIR gets the taxable income in the form of Value Added Tax (VAT), excise taxes for selected items, quarterly taxes, and the annual Income Tax Return (ITR) which adds to government income.

Allowing multinational corporations (MNCs) to own 100% of their net income after taxes is more beneficial. It's pretty much like a rental agreement. Charge too low and you can't recover from your losses. Charge too high and nobody will like to rent. A milk tea shop or a coffee shop charges too low and they can't recover from the high cost of their expenses. A canteen tries to sell non-premium coffee at the same price as the premium coffee and they'll shun away people. It's because there's always the price is right. The MNCs are allowed to keep 100% of their net income after taxes if they've paid all their bills including taxes. An MNC is allowed to continue doing business in the Philippines provided that they pay their rentals, utilities, and their taxes. Non-payment of rentals results in eviction. Non-payment of utilities results in disconnection. Non-payment of taxes results in the closure, possible imprisonment, and deportation of MNCs. In short, the 60-40 arrangement is too restrictive in contrast to imposing restrictions based on payment of necessary bills. Local investors are still bound by the law to pay rent, pay utilities, and pay taxes. The MNC is no different in that regard. 

An exchange of quality goods and services (both local and foreign) will ultimately be what matters 

MNCs will be beneficial in that they provide opportunities for the local business environment. Local businesses will have the opportunity to get new services and new customers. MNCs are being taxed for how much income they make. Now, I would like to elaborate on how the exchange of goods and services (local and foreign) is what matters even more. 

The scenario is that local businesses can't operate without imported equipment. I buy stuff from local computer shops but their wares are imported. I buy stuff from local businesses but their transportation is all imported. Did it really matter if the services and goods that the local businesses have were local or imported? It would be absurd if a local computer shop tried to sell only products made in the Philippines if there's no equipment made in the Philippines. It would be absurd if a Filipino manufacturing company would refuse to use imported vehicles to transport their wares. I can't imagine how Filipino cottage industries like Bongbong's Piaya and Tablea would be if they chose to use everything local. I can't imagine the delicious desserts the two companies produce will ever make it if they used carabaos to bring their wares to the city or ship them using their own rafts. Instead, they both decided to do what they do--get the product or service that does the job. It didn't matter if the equipment was imported. What mattered is that the imported equipment helped produce quality local goods! 

The MNCs themselves will end up benefiting from the local businesses too. Would it matter to them if the businesses were local or imported? Sure, they may ship ingredients from abroad but they would end up buying local supplies as well. Did you know that Negros Occidental is the sugar capital of the Philippines? What if the MNC that produces milk tea or desserts finds that Negros sugar can provide the quality they want? What if the Japanese investor finds out that sugar in Negros Occidental can be a suitable substitute for Okinawa sugarcane to make their famed sugar syrup? What if the MNCs find a quality transportation service in the Philippines? What if an Indian food owner discovers he can get fresh turmeric from Bicol to produce his seasoning mix? Obviously, they would want what's readily available and in good condition. It's convenience and common sense that tells you to avail of local services as much as possible. The MNCs would avail of the local services, buy local products, and in turn, they will end up helping the local businesses grow. If a local business buys imported stuff to keep them going then I don't see any reason why an MNC won't buy our local products to keep them growing. 

Both foreign investors and local investors will end up helping each other grow. Both of them are subjected to Filipino labor and taxation laws. Both of them will end up paying VAT every month, quarterly taxes every quarter, and the ITR every April 15. Both of them will still end up renting spaces from Filipino landowners (which I'm actually against foreigners buying land since lessors rarely sell their spaces) and they are required to pay rental fees or be kicked out. It wouldn't matter anyway if the Filipino investors sold imported goods and used imported equipment. It wouldn't matter too if the MNCs in the Philippines use Filipino products and services because of their direct availability. It would be all about delivering results instead of being Filipino or a foreigner.

References

"Duterte signs law amending Public Service Act" by Azer Parrocha (March 21, 2022)

"Glocalization" by Adam Hayes, reviewed by Gordon Scott (Updated: March 26, 2020)


"The Philippines Readies Public Services for 100 Percent Foreign Ownership" by James Guild (December 29, 2021)
https://thediplomat.com/2021/12/the-philippines-readies-public-services-for-100-percent-foreign-ownership/
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