President Ferdinand Marcos Jr. on Monday, November 11, enacted a sweeping reform aimed at making the Philippines a more attractive destination for foreign investments. The new law introduces substantial corporate tax cuts and fiscal incentives, intended to position the country as a competitive economic player in the Southeast Asian region.
The legislation, which cuts corporate income tax from 25% to 20%, comes as part of a broader strategy to draw foreign direct investments (FDIs) into the country. In addition to tax cuts, the law includes provisions for “work-from-home” arrangements and enhanced tax deductions for companies, especially in strategic sectors. These changes are designed to stimulate investment in industries that align with the country’s long-term development goals and to address several longstanding challenges that businesses face in the Philippines.
Under the new law, the corporate income tax rate has been lowered by five percentage points—from 25% to 20%. This change aims to make the Philippines’ tax structure more appealing relative to other Southeast Asian nations. It is also a direct response to the competition the Philippines faces from neighboring countries like Singapore, Indonesia, and Vietnam, which have successfully attracted billions of dollars in FDI each year.
According to recent data from the United Nations Conference on Trade and Development (UNCTAD), the Philippines attracted approximately US$6.2 billion in foreign investments in 2022. In comparison, Singapore led the region with US$159.67 billion, while Indonesia and Vietnam drew US$21.6 billion and US$18.5 billion, respectively. President Marcos highlighted the need to close this investment gap, remarking that the new measures “seek to attract … both domestic and global investments, focusing on strategic industries that will shape our future.”
The law further allows businesses to deduct 100% of their power expenses, a move that Finance Secretary Ralph Recto emphasized as crucial for the manufacturing sector, which is particularly sensitive to high energy costs. “This is a transformative change that could significantly lower costs, especially for energy-intensive industries,” Recto said.
One notable feature of the legislation is the allowance for companies to institute “work-from-home” policies for up to 50% of their workforce. This provision aims to support businesses as they adapt to the evolving needs of the post-pandemic labor market. It is also intended to make the Philippines a more attractive location for foreign companies that have adopted hybrid work models.
The Philippines has become a significant player in the global business process outsourcing (BPO) sector, which accounts for a substantial share of its employment and export revenues. With hybrid work increasingly becoming the norm, the flexibility offered by the new law may further strengthen the country’s position in the BPO industry by allowing companies to reduce office-related expenses and attract a larger talent pool from across the archipelago.
In addition to the work-from-home allowance, the law offers businesses tax deductions for various operational expenses. For companies already enjoying incentives under previous legislation, there are provisions that allow for a 10-year extension of these perks. Key among these benefits are import duty exemptions and a reprieve from value-added taxes (VAT) on strategic investments, adding up to 27 years of incentives for eligible businesses.
The legislation seeks to address several major barriers that have historically discouraged investors, including high energy costs, limited infrastructure, and foreign ownership restrictions. Businesses have repeatedly cited these factors as reasons for choosing other countries in the region over the Philippines.
High electricity rates have been particularly problematic, with power costs in the Philippines among the highest in Southeast Asia. By allowing full deductions on power expenses, the government hopes to alleviate some of the cost pressures facing energy-dependent industries. Additionally, the extended tax holidays and VAT exemptions are expected to provide financial relief for businesses that must import heavy equipment and other resources to set up operations.
In a speech marking the signing of the law, President Marcos acknowledged these obstacles but expressed optimism that the reforms will position the Philippines as a competitive and investment-friendly economy. “We have taken a decisive step towards our vision of a globally competitive and investment-led Philippine economy,” he stated, underscoring that the law aligns with his administration’s broader economic strategy.
According to a briefing paper from the presidential palace, the government anticipates a revenue loss of approximately US$100.6 million over the next three years due to the tax cuts and incentives. However, economic analysts believe that this shortfall could be offset by increased investment flows and job creation, which could stimulate growth in other areas of the economy.
“The foregone revenue is not an immediate concern,” said Finance Secretary Recto, adding that the potential economic gains from higher FDI inflows would make up for the initial revenue loss. He argued that in the long term, the law could foster sustainable economic growth, increase employment, and create a broader tax base as new businesses establish operations in the Philippines.
The Philippines’ GDP growth rate has been strong in recent years, driven in part by domestic consumption. However, foreign investment is seen as essential to achieving sustained economic development, particularly in infrastructure, manufacturing, and technology-driven industries that create high-quality jobs. The new tax policy and incentive program represent a concerted effort to diversify the country’s economic base and reduce its reliance on domestic consumption.
The Philippines’ move to reduce corporate taxes mirrors efforts by other countries in the region to attract foreign investors. Singapore, which attracted nearly 26 times the FDI the Philippines did in 2022, has long leveraged its favorable tax policies, robust infrastructure, and strategic location to appeal to multinational corporations. Indonesia and Vietnam have also implemented pro-business reforms, recognizing the importance of foreign capital in driving economic growth.
The Philippines’ labor costs are relatively low compared to Singapore and Malaysia, and its young, English-speaking workforce is highly attractive to companies in sectors such as BPO, manufacturing, and IT. However, the high costs associated with energy, coupled with infrastructure limitations, have undermined the country’s competitiveness.
Economic experts suggest that the Philippines will need to complement its new tax incentives with improvements in infrastructure, particularly transportation, telecommunications, and power generation. “Tax cuts are certainly a welcome measure, but they’re only one part of the equation,” said economist Maria Victoria Cruz from the Philippine Institute for Development Studies. “If the Philippines is serious about becoming a top investment destination, it will need to invest significantly in infrastructure to support this goal.”
While the new law is a positive step, some analysts remain cautious. They point to potential challenges such as regulatory uncertainties and lingering concerns about bureaucratic red tape, which can delay business operations and increase costs for foreign companies. The Philippines has been working to improve its Ease of Doing Business ranking, but issues remain that could deter potential investors.
In addition, the country’s political landscape could influence the effectiveness of the new law. Past administrations have seen ambitious economic reforms stall due to political instability, and some analysts caution that sustained political will is crucial for the success of the new measures. The Marcos administration has pledged its commitment to supporting economic reforms, but long-term stability will be essential to ensure the intended benefits materialize.
The enactment of this legislation reflects a bold vision for the Philippine economy. President Marcos has outlined a roadmap for the future that emphasizes foreign investment as a driver of industrialization and economic diversification. By attracting global companies in industries like manufacturing, renewable energy, and information technology, the administration hopes to transform the Philippines into a regional hub for innovation and sustainable growth.
“This law represents more than just a tax cut; it’s a call to the world that the Philippines is open for business,” President Marcos said, concluding his remarks at the signing ceremony. “We are creating a future-oriented economy where foreign investors can thrive and where Filipinos can access new opportunities and a better quality of life.”
