Trade and Industry Secretary Gregory L. Domingo said the income tax holiday incentive may be abolished but should be replaced with other investment perks to be able to compete with other countries for strategic industries.
Domingo said during a press conference the need to continue granting incentives to strategic industries that would not locate into the country without the incentives but not to businesses that are sure to come in even without incentives.
He said that government will have to abolish the income tax holiday, which the Department of Finance has been espousing, this could be replaced with another set of incentives to enable the country to remain competitive versus other countries.
“Our stand is not actually different from the DoF because we want to push for the country’s economic development, but we just have to be conscious because perhaps in the past there were instances that we’ve been too lax in giving away incentives,” he said.
Domingo, however, said the need to address the entire incentives structure of the government and not just the contentious ITH. He, however, did not identify these other incentives.
"There are sectors that we should push very hard on and these need incentives," he said.
The finance department already mulled the abolition of income tax incentives to investors except for export-oriented enterprises that would locate in the country’s 30 poorest provinces, a very drastic move that is already making the Board of Investments, the government’s premier investment promotion agency, fidgety.
The draft DoF proposal, which was submitted to the BoI two weeks ago, has called for the complete removal of the ITH six years after the implementation of the Fiscal Incentives Harmonization law.
For instance, if the Incentives Rationalization bill is approved in 2011, the government has 6 years only to give out incentives. By 2017, the ITH will be completely abolished.
The DoF also moves to cut the ITH coverage to a maximum of six years only from the current maximum of 8 years. Projects registered with the BoI under the pioneer status are granted 6-year ITH but with additional two-year bonus based on export performance for a maximum ITH period of 8 years. Non-pioneer projects enjoy four year in ITH.
But under the DoF proposal, which was relayed to the BoI two weeks ago, for those entitled of 6-year ITH, they would be required to pay 15 percent income tax on the 7th to 9th year and pay the regular tax rate from there on.
In coming up with this proposal, the DoF was of the belief that investments would come in even without incentives.
Already, the BoI finds the proposal as contained in a memo by Finance undersecretary Gil Beltran uncomfortable.
BoI managing head Cristino L. Panlilio said they need to sit down with the DoF.
“They are advocating stricter, less liberal incentives. We think otherwise. We are rationalizing an agreement in favor of attractive incentives. (MB)
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