Investments in science, technology to get longest period of incentives

The Philippines is hoping to attract investments in science and technology sector. Photo shows vials of a coronavirus vaccine inside a lab at the Serum Institute of India, in Pune, India, Nov. 30, 2020. — REUTERS/FRANCIS MASCARENHAS

Beatrice M. Laforga, Reporter

COMPANIES investing in science, technology and other sectors considered “critical” to the economy’s industrial revolution will be granted the longest period of incentives, according to the Fiscal Incentives Review Board (FIRB).

The FIRB last week adopted the Strategic Investment Priorities Plan (SIPP) framework, which sets the menu and length of perks for key industries eligible under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act.

In a statement, the Department of Finance (DoF) said industries will be classified into three tiers based on their ability to make high-value and labor-intensive investments that will create more jobs and boost the country’s competitiveness.

Companies under Tier 3 will receive the longest period of incentives, with a total of 16-17 years of income tax holiday and special taxes or enhanced deductions for export companies and 11 years for domestic-focused businesses, based on a document sent by Trade Secretary Ramon M. Lopez on Sunday.

Export enterprise refers to a company who exports at least 70% of its total output, while domestic market enterprise should be registered with an Investment promotion agencies (IPAs).

The validity of tax incentives will also vary depending on the location of investments: shorter for those in the capital region and its nearby areas, while those in other areas will be longer by a year.

Tier 3 will include sectors that will play key roles in “structural transformation and industrial revolution” of the country, such as research and development activities; breakthroughs in health and science; generation of new knowledge; commercialization of patents, industrial designs, copyrights and utility models; and highly technical manufacturing activities.

Trade Undersecretary Rafaelita M. Aldaba said activities under Tier 3 would involve vaccine development and production; manufacture of 3D printers, drones, robots and electrical vehicles; predictive agriculture; new technologies; and innovative processes using artificial intelligence and machine learning.

For Tier 2, tax perks will be available for 15-17 years for export market activities and 10-12 years for local enterprises, while Tier 1 incentives will be available for 14-16 years for exporting companies and 9-11 years for those focused on domestic market.

Sectors under Tier 2 would include companies manufacturing supplies and parts not being produced in the Philippines, Ms. Aldaba said, adding this will promote local production and address gaps in the domestic supply chain.

For instance, production of iron, steel and non-ferrous metals, copper rods, plastics and synthetics in primary form, basic chemicals, pharmaceuticals, fiber optic cables, refined petroleum, semiconductor devices, and other electrical components, would be under Tier 2.

Ms. Aldaba said investments in Tier 1 sectors would generate a significant number of jobs, add value to products, and provide support to sectors critical to industrial development.

Tier 1 activities would include modern agriculture and food processing; design-focused industries like furniture, games and toys, jewelry and garments; energy efficiency and environment-friendly activities; health and medical products; industrial parks; and ports, airports and seaports.

Republic Act No. 11534 or the CREATE Act lowered the corporate income tax and reformed the country’s fiscal incentive system. Under the law, sectors that the government identified would enjoy income tax holidays for 4-7 years, then a special corporate income tax for 10 years.

Finance Secretary Carlos G. Dominguez III asked the Department of Trade Industry to select at least two potential foreign companies that are highly qualified in each tier level.

IPAs will then offer incentives to these companies to encourage them to set up operations in the country, Mr. Dominguez said.

Mr. Lopez said IPAs will serve as the “marketing arms,” on top of their existing function processing investment applications.

During the same meeting, the FIRB agreed that it will approve tax incentives for all investments worth at least P1 billion until the end of next year, while its technical committee will handle the approval for investments worth P1-3 billion starting 2023.

Sought for comment, John Forbes, senior advisor of the American Chamber of Commerce of the Philippines, said the list of priority sectors is “very appropriate” for American investors.

“The Philippines has many attractions but so does its regional competitors. The SIPP approach has been thoroughly studied by the government and the Congress and is very sensible,” Mr. Forbes said in a mobile phone message.

“Because the world is still in an extended period of depressed FDI (foreign direct investments), it will take time to identify new investments and market new reforms the government is still making, especially PSA (Public Service Act) and Retail Trade Liberalization (RTL) Act,” he added.

President Rodrigo R. Duterte earlier certified as urgent three bills that will ease foreign investment restrictions in the country, namely the amendments to the PSA, RTL and Foreign Investments Act.

“While we believe there are merits to such a classification, the more important aspect when attracting foreign investments to the country lies in the passage of economic reforms such as the amendments to the PSA, FIA and RTL,” Nabil Francis, president of the European Chamber of Commerce of the Philippines, said via Viber on Sunday.

Passing these reform measures will not only drive economic growth and create jobs but also level the playing field for businesses and promote competition, Mr. Francis said.

However, Mr. Forbes said new investments should still come from businesses already present in the country such as those in electronics and business process outsourcing sectors.