MANILA, Philippines - The Department of Trade and Industry (DTI) is encouraging local and foreign investors to be more pro Filipino and create more jobs for locals by potentially limiting income tax holidays (ITH) and other fiscal incentives to firms that generate a big local value added.
“It is a very good policy that will motivate companies to act the way we want them to act which is pro Filipino,” Trade Secretary Gregory L. Domingo told reporters in a briefing. “This will force companies to buy locally.”
The government is in the process of rationalizing the fiscal incentives. The House has already passed their version while it is still pending before the senate.
Domingo said the idea is to give incentives to firms that have a local multiplier effect. Currently, the ITH is based on the Investment Priorities Plan (IPP). The IPP, which is revised annually, lists industries that will receive ITH regardless of the employment generated.
“This is an entirely new way of looking at incentives,” Domingo said of his proposed changes. Under his proposal, the secretary said that instead of a shotgun approach of across the board incentives to all companies listed in the IPP, the tax benefits will be measured against the benefits that the country will receive.
He said the DTI, through its attached agency the Board of Investments (BOI), will base the incentives on the employment generated and the local value added. Domingo said the local value added will be based on a specific formula that includes very measurable results. He said they will use a formula that will count the number of employees fired or employed per year multiplied with the tax holiday received.
Domingo said there will also be non payroll value added like the use of locally produced equipment and raw materials. Because of the very Pro Filipino undertones of the proposal, Domingo said they will be very careful to craft this piece of legislation so that it will not go against the World Trade Organization (WTO).
“The objective is not to reduce the ITH but to make it more rational,” Domingo noted. “We are making more sense of the way we give incentives.”