Review board adopts incentives framework for qualified firms

The Fiscal Incentives Review Board adopted the framework for the grant of incentives to qualified industries under the Strategic Investment Priorities Plan that aims to attract high-value, labor-intensive investments to make the Philippines more competitive in the global market.

The Finance Department said over the weekend that as provided in the newly-signed Corporate Recovery and Tax Incentives for Enterprises law that rationalized the corporate tax incentives for investors, “this framework puts flesh into the SIPP.”

It said the menu and length of incentives that would be offered to corporations or investors would depend on the tier classification of the enterprise applying for the investment perks.

Tier 3, which covers sectors considered “critical to the structural transformation and industrial revolution of the economy”, will receive the longest period of incentives.

This SIPP framework was drafted by the Department of Trade and Industry-Board of Investments.

The three-tier structure of the incentives offered to priority investors is already contained in the CREATE law.

After the adoption of the framework, Finance Secretary and FIRB chairman Carlos Dominguez III asked the DTI to identify at least two leading companies in each of the industry tier and determine what incentives should be offered to potential investors to encourage them to set up shop in the Philippines.

“Let’s already identify these firms. Let’s take a couple in tier one, a couple in tier two, and a couple in tier three, and let’s do the research on them. Then, offer them and ask them: ‘what will it take for you to come here?’’ Dominguez said during the FIRB’s second meeting last week.

Dominguez said the investment promotion agencies could undertake these tasks.

DTI Secretary Ramon Lopez agreed with the proposal, which would now transform the IPAs into “marketing arms” rather than for them to merely function as processing agencies for investment applications.

The FIRB also approved Dominguez’s recommendation to let the board approve tax incentives for all investments amounting to over P1 billion per venture until the end of 2022.

After this period, the approval of incentives for investments of more than P1 billion but not more than P3 billion per venture would be delegated to the FIRB technical committee, which is chaired by Finance Undersecretary Antonette Tionko of the Revenue Operations Group.

The FIRB also approved during the meeting a proposal by Budget Secretary Wendel Avisado to put in place an appeals process for investment projects disapproved by the technical committee. Such actions may be appealed with the FIRB board proper.

A recommendation by Tionko to provide the board with a list of approved and disapproved investment projects was also approved.

DTI Undersecretary Rafaelita Aldaba discussed during the meeting the SIPP’s features under the CREATE law.

Under the SIPP, Tier 1 covers investments with high potential for creating jobs, value creation and providing essential support to sectors critical to industrial development, as well as emerging industries with potential comparative advantage, Aldaba said.

Falling under this category are, among others, modern agriculture and food processing; agricultural production using modern technologies; design-focused industries such as furniture, games and toys, jewelry and garments; energy efficiency and environment-friendly activities; health and medical products; industrial parks; and ports, airports and seaports.

Aldaba said Tier 2 includes the manufacture of supplies, parts, and components not produced in the country, to encourage import substitution and address gaps in the domestic supply/value chain.

These activities, among others, are the production of iron, steel and non-ferrous metals, copper rods, plastics and synthetics in primary form, basic chemicals, and pharmaceuticals.

The production of fiber optic cables, refined petroleum, semiconductor devices and other electrical components and machinery and equipment are also classified under Tier 2.

Tier 3 involves research and development activities that yield significant high-value added results and higher productivity; breakthroughs in health and science; generation of new knowledge; commercialization of patents, industrial designs, copyrights and utility models; and highly technical manufacturing.

Samples of activities under this tier include vaccine development and production; manufacture of 3D printers, drones, robots, electrical vehicles, plug-in hybrid electrical vehicles, and optical image devices; establishment of smart factories and smart cities, and predictive agriculture, Aldaba said.

Also covered by Tier 3, she said, are the introduction of new products that embed new technologies; adoption of innovative processes using industry 4.0 technologies such as artificial intelligence, machine learning and internet of things.