Cranes operate at the Hanjin shipyard in Subic weeks before it was forced to retrench workers after defaulting on its debts. —CONTRIBUTED PHOTO
MANILA, Philippines—South Korean shipbuilding giant Hanjin’s Subic facility enjoyed billions of pesos in tax breaks before it folded up — a reason the interagency Fiscal Incentives Review Board (FIRB) tightened its watch on perks being given away to investors, the Department of Finance (DOF) said.
In a statement on Tuesday (June 7), the DOF said the FIRB recently reported that Hanjin Heavy Industries and Construction Philippines Inc. (HHIC-Phil), which closed down in 2019 due to bankruptcy, had an income tax holiday (ITH) amounting to P370 million in 2015 alone, based on audited financial statements.
HHIC-Phil had registered for tax and other perks with the investment promotion agency (IPA) Subic Bay Metropolitan Authority (SBMA) in 2006, and then the Board of Investments (BOI) in 2009.
“During the company’s existence, it was granted seven years of ITH and a special corporate income tax rate of 5 percent on gross income earned upon the expiration of its ITH. Apart from these perks, the company was granted tax and duty-free importations on raw materials and capital equipment,” the DOF said, citing the FIRB report.
“On top of the tax incentives, HHIC-Phil also received power subsidies for its operations at the Subic Bay Freeport Zone amounting to P5.17 billion from 2009 to 2018, even though it failed to maintain an estimated employment of 20,000 workers, and invest another $2 billion in the planned Mindanao shipyard that was supposed to create 30,000 jobs. The Mindanao shipyard did not push through,” the DOF added.
“This is the reason why we must impose stringent evaluation and impact analysis before the grant of tax incentives,” the DOF said, quoting Assistant Finance Secretary Juvy Danofrata, who is also FIRB secretariat head.
“Given the failure of this shipyard in Subic, jobs were lost and productivity in the area declined. The project cost the government so much money in foregone revenues that could have been granted to performing and more deserving business enterprises,” Danofrata said, according to the DOF.
“The mandate of the FIRB is to ensure that companies receiving tax privileges are able to deliver on their performance commitments such as job creation and economic contribution of their incentivized enterprises,” Danofrata noted.
Last May, the FIRB approved the P17-billion Project Agila taking over the massive Subic facility left behind by Hanjin. US-based private equity firm Cerberus Capital Management will redevelop and operate the former shipyard.
Finance Secretary Carlos Dominguez III last April said that Cerberus’s takeover of the Subic facility would create 300 additional jobs at the freeport yearly.