The planned performance-based incentives program to encourage more investments in the Philippine automotive manufacturing industry must be time-bound, a study said.

The automotive study, “Shared Growth Study Milestone: May 2009 Note of the Shared Growth Roadmap” by Dr. Max Maquito of the University of Tokyo in coordination with the University of Asia and the Pacific, noted the importance of granting incentives to attract new investments in the industry.

“But these incentives must be time-bound,” Maquito told reporters.

The study has listed three measures, which serve as inputs in the ongoing review of the Motor Vehicle Development Program, by which the government could use as basis in the granting of incentives to investors. These are: Stabilizing employment (jobs generation), local procurement (high local sourcing) and investment on new product (assembly of new model).

According to Maquito, the Philippine automotive industry players should be the one to decide the parameters that would determine the granting of incentives because they are the ones that would know when and at what level of investments they would be able to recoup their costs.

The idea is that the investments poured in as against the incentives given out, which is foregone revenue of the government, should not only be revenue neutral but has a positive net effect in favor of the government.

Maquito said that the private sector must also commit to invest under such a performance-based incentive program.

The Maquito study has specified for a tax relief program that would grant participants import duty credit based on the value of production of motor vehicles, engines and engine components and the value of new investments in plant and equipment and research and development.

The excise form of the tax relief has yet to be worked out but Maquito said it should be based on performance and targets. He said the industry’s incentive scheme in the current Motor Vehicle Development Program is not based on targets and performance.

The Maquito study also emphasized against the grant of import duty credits on completely built-up vehicles either high-end or low-end CBUs.

The study stressed that granting import duty credits to high-end CBU imports effectively subsidize high-end buyers, which goes against the principle of shared growth while granting import credits to low-end CBU imports effectively subsidize products that directly compete with the domestic auto manufacturing industry before it is ready to take on foreign competition.