05 AUGUST 2012
Mining, RE To Lose ITH
Mining and renewable energy projects are going to lose income tax holiday (ITH) while other industries that enjoy generous incentive packages granted under their respective laws would be rationalized as the government is bent on putting a stop to the practice of double-dipping of incentives and to level the playing field among investors.
A source has confirmed that the powerful Board of Investments (BOI), the premier government agency in charge of registering and granting investors with tax and fiscal incentives, and the Department of Finance have agreed to put this move into a policy via the passage of the Fiscal Incentives Rationalization bill.
DTI Secretary Gregory L. Domingo, who is also BOI chairman, and Finance Secretary Cesar V. Purisima have met recently to agree to finally push for the passage of the bill.
The plan is to amend all the incentive provisions of the special laws that grant such incentive packages via a repealing clause in the new Fiscal Incentives Rationalization bill. The bill, once enacted into law will supersede all other existing laws that provide incentives to investors.
At present, all the special laws that mandate incentives to investors are in the Mandatory List of the Investment Priorities Plan (IPP), which is administered by the BOI. The PPP is the basis in the granting of incentives. Thus, even if a particular economic activity is not listed in the priority list of investments in the IPP but is in the IPP’s Mandatory List, the BOI is compelled to register it and grant it with incentives.
In the case of RE and mining projects, these are not listed in the priority list of investments identified under the IPP but they are in the Mandatory List because the RE Law and the Mining Act provide for the grant of income tax to projects under these laws.
The Mining Act grants 7-year income tax holiday incentive to mining projects while the RE Law likewise granted 7-year ITH to renewable energy projects.
In the case of RE projects, it has been the position of the DTI that they should not be entitled to ITH because these projects have guaranteed returns for a certain number of years when they apply for rates with the Energy Regulatory Commission. RE projects also enjoy protection with their feed-in-tariff.
Domingo is planning to call for a meeting to thresh out some issues. The DTI chief believes that the BOI Board has the power to say no to a project that is seeking incentives even if a certain law mandates the granting of incentives to it.
Executive Order 226 or the Omnibus Investments Code, which creates the BOI, states the BOI “may” reject incentives to projects that register with the agency.
“The question is which should prevail, the BOI or the law,” the source said. But, the BOI even crafts the implementing rules and guidelines on laws that grant incentives to be administered by them.
There are also other laws which both DTI and DOF believe to be overly generous to investors, like the tourism sector.
A source said that the Board of Investments was not even consulted when the TIEZA Law was crafted. TIEZA (Tourism Infrastructure Enterprises Zone Authority) grants a generous package of incentives to tourism economic zones.
In most cases also, companies that have already fully completed availments of incentives from either the Philippine Economic Zone Authority or the BOI would just transfer their registration in the other agency to continue enjoying government perks. An official even said that some investors are enjoying perpetual incentives already.
This double-dipping of incentives happened because there are various agencies of the government that are allowed to grant incentives to investors. Their incentive schemes also vary making the incentives regime to investors in this country largely uneven.
Thus, the BOI has been pushing for value for incentives on investments and not just to generate more revenues to the government.
Read article source in Manila Bulletin