Trade Secretary Gregory L. Domingo wants the existing incentive package given to preferred businesses retained, as his agency moves to further narrow down the list of industries and sectoral activities eligible for fiscal and non-fiscal perks.
However, once this list is finalized to what will become the 2014 Investments Priorities Plan, Domingo said he would be looking for other forms of incentives that would be as effective as income tax holidays in making local businesses more competitive.
“I prefer a two-step approach. First, we should first fix the list of who should receive the incentives before we fix the structure. So, for now, I prefer to keep the existing incentive structure and focus on the list because many sectors have been given permanent incentives by law but many of them are not deserving anymore,” Domingo said.
“I’m willing to change the incentive package, but I think if we combine the discussions on who should receive incentives with those on changing the structure of incentives, the debate will be so complicated that we will end up with the same result like what we’ve had in the past 20 years, which is nothing. We have to change the approach so we can get something done and fix the infirmities of our current incentives law,” he further said.
According to the trade chief, there are about 50 sectors that should no longer be eligible to receive incentives and that should be reflected in the IPP for this year. The idea, he said, was to put certain industries and activities on the IPP list for only about three to five years.
“It shouldn’t be that certain sectors would be prioritized until the end of time, which is what in effect happens when you put (these incentives) into law. So, when you grant an incentive to a sector under a law that doesn’t have a sunset clause, you are in effect giving this industry a permanent incentive, and that’s poor use of fiscal resources,” Domingo said.
An overhaul of the IPP list is expected this year as officials, including Domingo, are eyeing to have a well defined and more specific list of activities per industry. The rationale is that there are certain segments in a particular category, sector and industry that no longer need the support of the government and, thus, should not be included in the list of areas eligible for incentives.
As for the change in the incentive structure, Domingo said there could be other ways to make local companies more competitive.
“The income tax holiday (as an incentive) is not the Holy Grail. If something can be found as a substitute for ITH that is as effective as the ITH and makes us competitive with the rest of our neighbors, then, that should work,” he added.
According to the DTI, the proposed 2014 IPP will be based on the value chain approach and will be composed of core activities.
These include manufacturing, services, agribusiness, and infrastructure; trade/market activities both local and foreign sourced which will cover packaging, labeling and product testing laboratories and inputs/support industries—which include raw material supply, semi-manufactured products, plantation, machinery and equipment, labor/HR development, utilities (power, water, heat), research institutions, machinery repairs and maintenance and other services (standards certification).