BOI mulls tax perks for IPPs, other sectors

The Board of Investments (BOI) is planning to amend its income tax holiday policy to make it more attractive to independent power producers, infrastructure builders, and service providers.

A BOI official said the investment promotion agency is looking into the possibility of extending the period within which BOI registered-firms may enjoy income tax exemptions. Under the law, BOI registered enterprises are exempt from the payment of income taxes for four years to six years.

The move was in response to requests of power producers, infrastructure builders and service providers for extension of their tax break.

The same official said the BOI is considering whether it could give these firms at least one year to enjoy their tax break.

Under BOI rules, registered firms can add one more year in their income tax holiday for each requirement they comply with which include the following: eligible companies should be labor intensive (with a ratio of $10,000 capital invested for every employee); eligible companies should utilize indigenous raw materials (up to 50 percent of their output should come from local sources); and with exports of at least $500,000 over the last three years.

This special provision allows non-pioneer firms to add up to three years to their four-year income tax holiday while pioneer firms or those that locate in least developed areas could extend their six-year income tax holiday to eigth years.

The IPPs, service providers and infrastructure builders asked whether they are entitled to at least one-year extension in their income tax holiday if the companies that use their products were primarily export-oriented companies or those that are located in economic zones.

Signed into law last February 1992 by former President Corazon Aquino, the Omnibus Investment Act allows only for a tax holiday period of a maximum eight years.

The Department of Trade and Industry earlier sought changes in the Omnibus Investments Act as part of efforts to attract more investments into the country.

Among these include an income tax of five percent of adjusted gross income for all investors, including those operating outside the special economic zones. At present, only companies registered with the Philippine Economic Zone Authority (PEZA) enjoy a five-percent gross income tax. The regular rate is 32-percent tax.

The DTI was also proposing to lengthen the maximum income tax holiday to 12 years from eight and to reinstate the duty-free importation of capital equipment in the incentive package.

The BOI stopped giving duty-free importation incentives in 1999. Only PEZA-registered companies are eligible for these incentives.

The government was concerned about a decrease in investments this year which was attributed to several factors: negative sentiment arising from the Sept. 11 terror attacks in the United States; emergence of China as a leading investment destination; and the government’s strategy to attract labor-intensive rather than capital-intensive projects.

China has absorbed roughly 80 percent of all investments in Asia, leaving the Philippines and other countries in the region to fight for the remaining 20 percent.