FIRB sets policy on non-income related tax incentives

MANILA, Philippines — The Cabinet-level Fiscal Incentives Review Board (FIRB) has set a new policy on the duration of non-income tax- based incentives to guide investment agencies in giving perks to various businesses.

In its latest resolution, the FIRB said there is a need to issue a policy on the duration of non-income tax-based incentives to guide various investment promotion agencies (IPAs) in granting tax perks to projects under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act.

This is given the lack of an express provision in the law and its implementing rules and regulations.

As such, if the payback period of the project is within the income tax-based incentives period, there will be a limited duration for non-income tax-based incentives to complement the former.

But if the payback period of the project is beyond the income tax-based incentives period, there will be a maximum duration of 12 years for domestic-oriented enterprises and 17 years for export-oriented ones.

The payback period refers to the number of years it takes for the project to recover its investment capital.

This is provided that the non-income tax-based incentives should not be longer than the estimated life of the project.

Non-income tax-based incentives will include Customs duty exemption on importation of capital equipment, raw materials, spare parts and accessories for both registered export and domestic market enterprises.

It will also cover value-added tax (VAT) exemption on importation for registered export enterprises and VAT zero-rating on local purchases for export enterprises.

CREATE provides for income tax-based incentives specifically the income tax holiday, five percent special corporate income tax rate and enhanced deductions that may be granted to registered projects or activities.

Registered export and domestic market enterprises shall enjoy exemption from Customs duties on their importation of capital equipment, raw materials, spare parts and accessories for a maximum period of 17 years and 12 years, respectively.

This is provided that the importation shall be directly and exclusively used in the registered project or activity of a registered business enterprise.

According to the FIRB, the policy will be mandatory for all tax incentive applications regardless of the amount of the investment capital and irrespective of the approving authority, whether at the IPA or FIRB level.

The FIRB Secretariat or the IPA concerned are required to compute the payback period during the conduct of the ex-ante cost benefit analysis of the project without prejudice to a separate computation submitted by the project proponent.

Further, the new policy will not affect the duration of income and non-income tax-based incentives already granted to all approved projects under CREATE.

FIRB has the oversight functions on the administration and grant of tax incentives.