MANILA, Philippines – The Department of Trade and Industry (DTI) and the Department of Finance (DOF) are in discussions to add new fiscal incentives in a bid to attract more foreign investors into the country.
“We want to modernize these incentives and make them more relevant to what’s needed by investors, basically to update the kinds of incentives and maybe the durations to be given to investors,” Trade Secretary Ramon Lopez told reporters on Tuesday, September 20.
This is similar, he added, to the fiscal rationalization plan brought up by the Aquino administration although the focus at the moment is on adding incentives that are relevant to the current environment.
Among the possible new incentives being considered are schemes granting tax deductibility for accelerated depreciation and net operating loss carry over. Both schemes are designed to lower a firm’s taxable income rate.
“We presented these to the DOF and they are open to it,” Lopez said adding that incentives for supporting inclusive business are also being considered.
“A firm gets a tax deductibility if it engages in research for example, so in a similar way maybe a firm can get some tax deductibles if it sources supplies from Micro and Small enterprises (MSMEs),” he explained.
“While income tax holidays are still the main draw for investors,” he continued, “these new schemes will also help out and could be the icing on the cake for potential investors as they can help after the income tax holiday expires.”
Currently, Philippine Economic Zone Authority (PEZA)-registered firms enjoy an income tax holiday of 4 years for pioneer projects and 6 years for a non-pioneer project with a possibility to extend that to a maximum of 8 years while Board of Investment-registered firms get income tax holidays of between 3-8 years.
Lopez said extending income tax holidays (ITH) may also be eventually considered as other countries are offering income tax holidays with long tenures between 8-15 years
“If we don’t offer it, other countries are offering it and it might become a decision factor in whether they come or not,” he said.
Lopez also said that so far the government is not considering cutting any current incentives, although there is some debate towards adding time bounds or caps of 20 to 25 years to incentives that run in perpetuity, such as PEZA registered firms’ 5% tax on gross income earned.
“These would only apply to prospective or new investment applications, he stressed, and current investors will not be affected by any time-bounds.”
He also said the DOF and DTI would like to ready a joint-proposal to modernize these incentives before year-end.
The Trade Secretary was speaking from the sidelines of the opening of the 284th Negosyo Center in Las Piñas, a joint project between the government, the Villar-Sipag foundation led by the Villar family and Go Negosyo.
Lopez pointed out that this is also the first Negosyo Center to be set up within an NGO and is only the 6th in NCR as most of the focus has been on spreading the network around the less-developed provinces.
Established through Republic Act 10644 or the Go Negosyo Law in July 2014, these DTI-managed centers seek to promote job creation through the development of the MSME sector.
To that end, these centers facilitate business registration and renewals for MSME owners, provide mentorship from the private sector.
They also look provide MSMEs with market access and help out in hitching them onto the supply chains of large firms.
“What we are trying to do here [with the negosyo centers] is really just to help the country become a nation of entrepreneurs,” Lopez said. – Rappler.com