DOF insists: Investors will come sans tax perks

Ma. Stella F. Arnaldo | BusinessMirror | June 5, 2019

FAIT accompli. That seems to be the attitude being taken by officials at the Department of Finance (DOF)—a grudging acceptance of Republic Act 11262, the law extending fiscal incentives to tourism enterprise zone (TEZ) locators for another 10 years.

At the same time, Finance Secretary Carlos G. Dominguez III stressed that fiscal incentives actually rank low on many foreign businesses’ decision on which countries to invest in.

In an interview with the BusinessMirror, Dominguez said of the new Tieza law, “in the scheme of things, it’s relatively minor. But it’s another spigot, another faucet where money is going to flow out of. And I’ll have to raise money elsewhere, I don’t know how much, to cover whatever we lose there. I don’t think it’s going to be that big. But you perpetuate [the thinking] that incentives are the thing to attract investors, and it’s not.”

He stressed, even without tax incentives, “Believe me, the guys who would have put up a hotel, would have put it up even without them.” Data from the Philippine Statistics Authority appear to bolster his claim. Some P555 million in foreign investments into hotels and restaurants were approved in 2018. This was 66.63 percent less though than the P1.62 billion in approved foreign investments for the sector in 2017.

New hotels coming in 2019

According to Tripzilla, there are 20 new hotels opening or have opened in the country this year: Belmont Hotel Boracay, The Residences at The Westin, Manila Sonata Place, Seda Hotels in Makati, the Bay Area in Parañaque, Cebu and Arca South in Taguig; Dusit Hotels in Cebu City, Mactan, and Davao; Hotel Okura in Manila; Ritz Carlton Manila; Acacia Hotel in Davao; Sheraton Hotels in Manila and Mactan; Quest Hotels in Dumaguete and Puerto Princesa; Citadines in Cebu City; Banwa Private Island in Palawan; Park Inn by Radisson in Iloilo; and Parklane East Coast Resort and Spa in Anda, Bohol.

According to real-estate consultant JLL Philippines, the growth in the tourism industry is prompting more investments in the hotel sector. The company projects about 9,000 additional hotel rooms to be completed by 2021. In 2018 foreign visitor arrivals grew by some 7.7 percent to 7.1 million. “The overwhelming support for tourism that the Philippine government has demonstrated is expected to bring forth a tremendous positive effect on the growth of the real-estate industry’s hospitality sector,” said JLL Philippines in its report last March.

Peace and order first

Dominguez emphasized that surveys show foreign companies don’t invest in a particular country based on the fiscal incentives it extends. “No. 1 [consideration of investors] is peace and order; No. 2 is stability of policy; No. 3 availability of a good work force; No. 4 is good communications, good roads, good airports; and No. 5 is tax incentives. So why are we prioritizing No. 5?”

Related to this, the Finance chief pointed out that tourism investors are not going to choose the Philippines versus other countries for the incentives. “He’s going to choose here because the labor is good, the telecoms is good, and the beach is good. No matter how much incentives you put—say, you give incentives, you give a subsidy of P100,000 for every job you create, you think anybody is going to put up  a tourist hotel in Marawi?! Or in Olutunga Island [in Zamboanga Sibugay]?!”

He underscored that government already has 14 agencies that extend fiscal incentives, aside from Tieza, and “more than 500 incentives zones. So actually, we have no idea what it cost us to get that kind of quote-unquote investments. All I know is, in 2016 we paid out P300 billion in revenues we didn’t receive. That’s 10 percent of our total [national] budget!”

Prior to becoming Finance chief, Dominguez was also in the tourism business, as co-owner of Marco Polo Hotel in Davao City, and Linden Suites in the Ortigas Business District.

Updating tax incentives program

The DOF has been pushing for the simplification of the corporate tax income structure, and modernizing the fiscal incentives program to benefit only select investors. This falls under TRAIN 2, which DOF dubs the Trabaho bill, eyeing the creation of more jobs with an improved corporate tax structure.

Last April, President Duterte signed into law RA 11262, giving the Tourism Infrastructure and Enterprise Zone Authority (Tieza), the infrastructure arm of the Department of Tourism, the continued mandate to extend fiscal incentives to TEZ locators for another 10 years, or until 2029.(See, “10-year extension of Tieza tax perks to yield P222-billion investments,” in the BusinessMirror, May 28, 2019.)

Tieza also estimated that government stands to lose only some P46 billion in revenue for the 10-year period, but the economy will be able to receive benefits amounting to P791 billion, including taxes on employees’ compensation, and on sales. (See, “Gains from tax perks outweigh foregone revenue, Tieza insists,” in the BusinessMirror, June 3, 2019.)

Aside from Tieza, the Board of Investments also offers fiscal incentives for tourism enterprises outside of TEZs, as listed in its Investment Priorities Plan.

Source: https://businessmirror.com.ph/2019/06/05/dof-insists-investors-will-come-sans-tax-perks/