By Andreo Colonzo

Philippine President Ferdinand Marcos Jr.’s veto of a planned economic zone covering San Miguel Corp.’s airport supports a drive to be more deliberate in granting tax incentives and shouldn’t alarm investors, his chief economic planner said.

Citing “substantial fiscal risks,” newly elected President Marcos vetoed a proposal to create a special economic zone and a freeport and grant tax incentives in the area covering San Miguel’s airport north of Manila. The measure, which Marcos said infringed on other agencies’ mandates, will be returned to Congress.

“We need so much resources,” Economic Planning Secretary Arsenio Balisacan said at a briefing Monday, when asked for comment on Marcos’s decision. “Where do you get that if we are giving away those potential revenues?”

The new president’s decision was consistent with the previous administration’s push for sustainable and cost-efficient tax perks, Balisacan said. “That’s continuity; that’s not uncertainty. You will create more uncertainty if you pass that law, and you’re doing something else to undermine it,” he said.

Foreign investors are more concerned with logistics, power costs and the ease of doing business, over tax incentives, Balisacan said. The government will “go back to basics” and address those concerns, he said.

Marcos and his team face a record amount of debt and a deficit that’s been swollen by the pandemic. The Philippines’ debt-to-GDP ratio has moved past the 60% level that analysts consider as acceptable.

‘Polarized market reaction’

Shares of San Miguel, the Philippines’ largest company by sales, fell as much 2.8% in Manila trading on Monday, before ending the session unchanged.

San Miguel will work with the government in “perfecting” the economic zone bill, its president Ramon Ang said in a statement Monday, adding that the proposal’s long-term benefits would far outweigh revenue losses from tax incentives. The government stands to gain $200 billion in export revenues annually if the economic zone will push through, Ang added.

The veto is getting “a mixed, polarized market reaction,” said Carlos Temporal, analyst at AP Securities, adding that it could have a positive impact on investors with the view that the decision was “prudent” considering government debt that ballooned due to pandemic support measures.

“There are also those that who’d think this could be a politically motivated decision that sacrifices a project that could have improved travel and benefit areas nearby the airport,” Temporal said.

It should be “a win-win solution,” said George Barcelon, head of the Philippine Chamber of Commerce and Industry, saying the veto effectively gives all parties the time to look into the provisions.

“It’s a very big project. We know the benefit that it would bring,” he said. “Both sides need to have an open mind.”

Source: Bloomberg