Some P222 billion in capital investments in the tourism sector are projected for the next 10 years with the recent enactment of a law extending fiscal incentives to locators in tourism enterprise zones (TEZs).

Tieza Chief Operating Officer Pocholo Paragas

This was disclosed by Tourism Infrastructure and Enterprise Zone Authority (Tieza) Chief Operating Officer Pocholo Paragas after the agency received news that President Duterte had finally signed into law Republic Act 11262 on April 10, 2019.

The law amends Sections 85 and 103 of Republic Act  9593, or the Tourism Act of 2009, and gives Tieza “sole and exclusive jurisdiction to grant incentives…” to TEZ locators for another 10 years, or until December 31, 2029. RA 11262 was published in the Official Gazette on May 27, and thus becomes effective 15 days after.

Aside from the P222 billion of investments estimated to be pumped into the local tourism sector, Paragas said the “extension of the availment of the fiscal incentives until 2029 is projected to generate…160,000 direct and indirect employment opportunities in the next 10 years.”

The law’s signing was welcomed by the Department of Tourism (DOT), which has been pushing for its enactment to boost the contribution of the tourism sector in the economy. In a Viber message to the BusinessMirror, Tourism Secretary Bernadette Romulo Puyat said: “The passage of the law is a welcome development as it will make tourism investments in the country more commercially viable and attractive.”

She added, “These investments will be instrumental in making tourism a key driver of socioeconomic growth.”

Among the fiscal incentives promised to TEZs under the original law were:

■ Six-year income-tax holiday (ITH) that may be extended for another six years;

■ As an ITH alternative, a 5-percent preferential tax on gross income in lieu of national taxes except for real-property tax and fees of the Tieza;

■ In lieu of ITH or the 5-percent preferential gross income tax, a net operating loss carry over (Nolco) scheme;

■ Tax-free imports on capital goods and equipment needed for Tieza-registered activities;

■ Import tax exemptions for transport equipment and spare parts needed for Tieza-registered activities;

■ Exemption from value-added tax (VAT) and excise-tax goods imported for Tieza-registered activities;

■ Tax credit equivalent to national taxes paid on local goods and services procured by registered tourism enterprises (RTEs) for activity in TEZs, provided that input VAT will be allowed as credit against only output VAT; and

■ Tax deduction of up to 50 percent of cost of environmental protection and cultural heritage preservation activities, as well as of sustainable livelihood programs of RTEs.

P232-B investments forgone

However, a revenue regulation was never issued by the Aquino administration on concerns that these incentives would further reduce government revenue. Because these fiscal incentives were not granted to TEZs, Tieza estimated about P232.33 billion in investments into the tourism sector were forgone from 2013 to 2016. (See, “BIR revenue regulation sought to stem tourism investment losses” in the BusinessMirror, September 23, 2016.)

The extension of Tieza’s ability to give fiscal incentives to TEZ locators was necessitated by the fact that since the passage of the Tourism Act of 2009 (TA 2009), it was only under the Duterte administration that the Bureau of Internal Revenue released a revenue regulation assuring stakeholders of the incentives. However, the revenue regulation only covered the years 2017-2019 due to TA 2009‘s so-called sunset clause.

In a speech last February, Sen. Richard J. Gordon, one of the primary authors of the new law extending Tieza incentives for another 10 years, said: “The primary purpose of the original law [TA 2009], which we authored was to make sure that tourism becomes a primary engine of growth for our country because tourism means jobs.“

The new law also allows the Joint Congressional Oversight Committee on Tourism to operate indefinitely from 10 years previously. The committee consists of the chairmen of both chambers’ committees of tourism, ways and means, appropriations and of finance, among others.

As of December 31, 2018, Tieza has already designated five flagship TEZs, which are projected to generate 1 million jobs in a span of 10 years, while 10 private TEZs with tourism enterprises will create 52,000 jobs during the construction and operation stage.  The projected investments for the flagship TEZs and private TEZs are estimated to reach P106 billion.

“This [new law] will open more opportunities for growth in the tourism industry which contributes significantly to the country’s domestic product,“ Paragas underscored.

In 2017, the tourism direct gross value added (TDGVA) stood at 12.2 percent, the highest since 2000. The TDGVA amounted to P1.9 trillion, up by 24.2 percent from P1.554 trillion the previous year.

The Tieza earlier proposed the amendments to head off the expiry of tax incentives in 2019.

“The incentives scheme set forth in Sections 86, 87 and 88 of Republic Act 9593 shall be in effect until December 31, 2029, subject to review by the Congressional Oversight Committee,” read the Republic Act 11262 signed last April 10.

Malacañang released the copy of the measure on Monday, May 27.

“In the formulation of rules and regulations defining and implementing these incentives and without derogating therefrom, the Tieza may coordinate with the Board of Investments and other government agencies or entities responsible for the grant and administration of incentives to assist in the development of a rationalized incentive policy,” it read.

The law also mandated Tieza to give equal preference to large investments, those with great potential for employment generation and those of local  small and medium enterprises. Registered enterprises owned and operated by overseas Filipino investors shall enjoy the same incentives granted to TEZ operators and registered enterprises in general.

The amount of required investments shall be defined in the implementing rules and regulations of the Tourism Act of 2009.

To prevent the abuse of incentives, the Tieza shall also coordinate with the Bureau of Customs and the Bureau of Internal Revenue in preparation and enforcement of rules and regulations.

Local government units are also encouraged to provide incentives for tourism enterprises through reductions in applicable real-estate taxes and waivers of fees and charges, among others.

In October 2018, Finance Secretary Carlos G. Dominguez said incentives enjoyed by companies within Tieza were set to expire, just years after the implementing rules of Republic Act 9593 or the Tourism Act of 2009 took effect.

With a report by Bernadette D. Nicolas

Image Credits: Tourism Promotions Board