The Department of Tourism (DOT) expects hundreds of billions in investments in the tourism industry in the next five years, after the long-awaited implementing rules and regulations (IRR) of Republic Act 9353, or the Tourism Act of 2009, was finally issued.
Recently, Finance Secretary Carlos G. Dominguez III issued Revenue Regulation 7-2016 to provide the rules for the use of tax incentives for new and existing investors in the tourism industry. The regulation was issued by Dominguez upon the recommendation of Revenue Commissioner Caesar R. Dulay.
End of uncertainty
Tourism Assistant Secretary Frederick M. Alegre said the new revenue regulation was long awaited by prospective investors in the tourism industry, who have withheld their investments since the passage of the Tourism Act in 2009 because there was uncertainty on whether they could enjoy the tax incentives granted by the law.
“We’re expecting billions of pesos in new investments in the tourism industry in the next five years,” Alegre told the BusinessMirror.
The DOT does not have an exact estimate of how much investments are expected to flow into the existing and upcoming tourism economic zones (TEZs) in the next five years; but based on recent estimates, the Philippines has missed around P58 billion in investments in tourism annually for the past four years.
According to the Tourism Infrastructure and Enterprise Zone Authority (Tieza), the tourism industry lost some P232.33 billion in investments from 2013 to 2016 because of the delay in the crafting of the IRR for the Tourism Act of 2009, which came out only in late-2016 during the Duterte administration after being left on the back burner for almost seven years.
The delay was due to the previous administration’s policy of frowning upon new tax incentives until all the fiscal perks given out by the government has been rationalized to ensure that only those deserving companies in priority sectors are provided the incentives.
Perks
Under the IRR issued by Dominguez, a prospective or existing locator in a TEZ may avail itself of either an income-tax holiday (ITH) of six years starting from its date of operation, or a preferential rate of 5 percent of its gross income instead of the usual 30 percent income-tax rate imposed on corporations.
Other incentives that the law will give to prospective or existing locators in a TEZ are the longer use of net operating loss carry over (Nolco) from the usual three years to a maximum of six consecutive taxable years, the exemption from taxes on importation of capital investment and equipment and exemption from taxes on the importation of transportation equipment and spare parts.
The locators shall be given exemption from the value-added tax (VAT) and excise taxes on the importation of goods necessary to carry out its Tieza-registered activities, and may be given a tax credit equivalent to the national internal revenue taxes paid on all locally sourced goods and services. They shall also be entitled to up to 50-percent deduction on the cost of their activities for environmental protection, cultural heritage preservation, sustainable livelihood programs and other similar activities.
Existing accommodation establishments outside of TEZs may also avail themselves of a nonextendible income-tax holiday of up to six years if they undergo substantial expansion on their businesses. These existing accommodation establishments shall also be exempt from the taxes due on importation of capital investment and equipment, and a longer period of six years within which they can deduct from their gross income their net operating loss carry over.
There are also nonfiscal incentives given to tourism enterprises under the law, including the relaxation of rules on the employment of foreign nationals, the granting of special investor’s resident visas, and an easier process of leasing lands to foreign nationals.
‘Sunset provision’
The DOT, however, has appealed to Congress to continue supporting the tourism industry with relevant legislation, such as the removal of the so-called sunset provision in the effectivity of tax incentives granted under the Tourism Act of 2009.
Under the original law, the ITH and other tax and fiscal incentives given to tourism enterprises shall be extended to them only for 10 years, which means that those incentives can only be granted up to 2019.
Tieza currently has identified five flagship TEZs, which will be the main destinations of the billions of pesos in investments in the tourism sector in the next five years. These TEZs are in San Vicente in Palawan; Rizal Park Complex in Manila; Mount Samat Shrine of Valor in Bataan; Bucas Grande in Surigao del Norte; and Panglao Bay Premiere Properties in Bohol. These flagship TEZs will be operated and managed by Tieza.
There are also some private TEZs that have been approved, such as the Ciudad de Victoria in Bulacan, Bravo Golf Resort in Dumaguete, Hijo Plantation in Davao, Queen’s Castle in Cebu and Resorts World in Parañaque.
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1 comment
Make the whole of Palawan a TEZ, not only San Vicente which is controlled by the family of the sitting governor, who by the way is facing corruption charges. The whole of Palawan, from north to south deserves this incentive from the government.