THE Tourism Infrastructure and Enterprise Zone Authority (Tieza), the infrastructure arm of the Department of Tourism (DOT), has proposed amendments to the Tourism Act of 2009 in Congress to head off the expiry of tax incentives extended to locators in tourism economic zones (TEZs).
This developed as lawyer Joy Bulauitan, Tieza assistant chief operating officer for administration and finance, clarified that the extension of the tax incentives privilege will expire in 2019, and not 2018, as previously announced by the Department of Finance (DOF).
In an interview with the BusinessMirror, Bulauitan said that, based on the clarification by the Bureau of Internal Revenue (BIR) last year, the tax agency is willing to extend “full incentives for six years as long as their registration as TEZ was approved by Tieza before the expiration in August 2019.”
According to the implementing rules and regulations of Republic Act 9593 (Tourism Act of 2009), the incentive schemes “shall be in effect for a period of 10 years from the effectivity of this Act, which period is subject to review by the Joint Congressional Oversight Committee on Tourism.” However, the BIR issued Revenue Regulations 7-2016 on the incentives schemes only in November 2016, which took effect a month later. The Aquino administration failed to issue revenue regulations on concerns the tax perks would further erode government revenue.
“We are not the ones who made that law, it’s the legislature, and as far as I know, there’s no act or any interest of the legislature to continue that law,” said Finance Secretary Carlos G. Dominguez III in a speech last week at the general membership meeting of the Philippine Hotel Owners Association Inc. “The law is the law; it’s not my fault that it was not implemented,” he stressed. (See, “Tieza locators may enjoy tax perks only until end-2018,” in the BusinessMirror, October 24, 2018.)
However, Bulauitan said there are already several pending bills in the House of Representatives and the Senate, which seek to amend the RA9593. These include Senate Bill 1616 of Senator Richard J. Gordon; House Bills 5882 and 6255 of Rep. Lucy T. Gomez, former chairman of the House Committee on Tourism; HB 7333 of Rep. Alfred D. Vargas; HB 7535 of Rep. Luis Raymund F. Villafuerte Jr.; HR 0390 of Rep. Rene Lopez Relampagos; and HB 4921 of Rep. Prospero Pichay.
“At present, Congress is reviewing the extension of the sunset clause in order to give life to the intent of the law that the incentive scheme is for 10 years,” she said. In particular, Gordon’s bill, which was filed last November, wants the incentive scheme to be “in effect for a period of SEVENTEEN [17] years” from the effectivity of the RA 9593, or the year 2026.
She added that Tieza is also supporting the DOF’s Trabaho bill or TRAIN 2 package, but proposes that it “expressly recognize the Tourism Enterprise Zone and explicitly cover it under the term Special Economic Zone; include tourism enterprises in the SIPP [Strategic Investments Priority Plan]; include DOT as member of FIRB [Fiscal Incentives Review Board]; and amend RA 9593 by removing the sunset provision [on TEZ incentives].”
As of October 2018, Tieza has already designated five flagship TEZs, which she said “are projected to generate over 1 million jobs over 10 years, while eight private TEZs with six tourism enterprises will create some 52,000 jobs during the construction and operation stage, and an estimated of P80 billion worth of investments.”
Bulauitan underscored that Tieza granted incentives only to registered tourism enterprises in the private TEZs and flagship TEZs that will definitely create jobs, bring in investments and boost the local economy in the provinces where they are located. “TEZ incentives are performance-based, targeted and transparent,” she stressed.
These incentives include a six-year income tax holiday that may be extended for another six years; a 5-percent preferential tax on gross income as an alternative to the tax holiday; a net operating loss carryover scheme in lieu of the previous tax schemes; tax-free imports on capital goods and equipment; import tax exemptions for transport equipment and spare parts; exemption from value-added tax and excise tax for imported goods; tax credit equivalent to national taxes paid on local goods and services; and tax deduction of up to 50 percent of cost of environmental protection and cultural heritage preservation activities. (See, “Tax perks to yield P70-B tourism investments – Tieza,” in the BusinessMirror online, January 15, 2017.)
Speaking at the recent inauguration of the Tieza office in San Vicente, Palawan, a flagship TEZ, Bulauitan noted: “Here in San Vicente, we envision an ecotown where the tourism development is master-planned, with prescribed carrying capacities to host tourism enterprise facilities and services within the property.
We have recently registered two small- to medium-scale enterprises here who committed to get local employment and advocate sustainable tourism.”
She also said: “We fully support the administration’s policy that tax incentives should not be given to companies that do not anymore stimulate growth or create employment in the community.”
Tieza has estimated about P232.33 billion in foregone investments, as well as employment opportunity losses from 2013 to 2016 because of the delay in BIR’s issuance of revenue regulations on TEZ incentives. Nonetheless, Bulauitan asserted that there is still a chance to do something to stimulate investment growth.
“Rationalization of incentives in low-performing industries may be necessary but not in a booming sector like the tourism industry. It should be noted that the Tourism Act of 2009 sought to provide full government assistance by way of competitive investment incentives, long-term development fund and other financing schemes extended to tourism related investments,” she underscored.