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2014 IPP to limit grant of pioneer ITH

The 2014 Investment Priorities Plan (IPP) will drastically limit the grant of pioneer incentives to investments by tightening the hurdles for projects that would be eligible for a juicy government incentive package that include the much sought-after 8-year income tax holiday (ITH).

Trade and Industry Secretary and Board of Investments (BOI) Chairman Gregory L. Domingo said this as the BOI is now crafting new IPP, which is an annual list of priority economic activities that are entitled to a package of government tax and fiscal incentives.

“We will further limit the areas that should be entitled to pioneer incentives,” Domingo told reporters on the sidelines at the recent 40th Anniversary of ASEAN-Australia Dialogue Relations in Makati City.

This means that qualifications for pioneer status would be further tightened under the specific guidelines for each economic activity listed in the IPP. There were, however, instances of projects classified under pioneer status but were granted non-pioneer incentives.

Domingo did not specify what are the criteria, but stressed it should not revolve around the magnitude of investments alone.

At present, the IPP automatically grants pioneer status on the merit of its huge project cost.

“It does not have to be a project cost alone,” Domingo stressed.

“Technology definitely is a qualifier and magnitude of investments,” he said.

He also said that even if a project falls under the Mandatory List of the IPP, it could still be eligible for pioneer incentives if it meets the stringent criteria.

The BOI aims to come up with a three-year IPP starting this year, but it shall be renewed annually to comply with the Omnibus Investments Act.

Under this law, a project classified under a pioneer status is eligible for a corresponding pioneer incentives package. This pioneer incentive package includes a minimum of six-year ITH plus two-year bonus based on certain conditions or a maximum of eight years of ITH.

The ITH is the single biggest difference between a pioneer and non-pioneer status project, which could be eligible for a four-year ITH and 6-year maximum. All other perks like the one percent duty on imported capital equipment, additional tax deduction on training expenses, use of common bonded warehouse, employment of foreign nationals, among others, are common among BOI-registered projects.

For this year’s IPP, Domingo’s general instruction to the BOI was to “craft a major revision to truly reflect investment areas that deserve the grant of government tax and fiscal incentives.”

“Only those that propel growth for manufacturing and services sectors will be given top priority,” Domingo said.

He said the BOI is going to tighten the specific implementing rules and regulations of the IPP to take into account such criteria like measured capacity and economic contribution of the project.

“The expectation of the new IPP is we will have a very different IPP,” Domingo said.

But Domingo qualified though that, “The objective of the new IPP is not to limit the incentives per se as these are granted under the law, but to limit the sectors that are entitled to.”

This is also meant to level the playing field for all investors. For instance, he said, a new investor in an already saturated industry should no longer be entitled to government incentives as it would be unfair to those before him. It can be recalled that the local hog and poultry raisers raised strong opposition against the grant of pioneer incentives to the integrated hogs, poultry and feed milling project of Charoen Pokphand Foods Philippines Corp. of Thailand by BOI.