David Cagahastian

December 15, 2016

The Department of Tourism expects billions of pesos in investments in the tourism

industry in the next five years, after the long awaited implementing rules and
regulations (IRR) of the Republic Act 9353 or the Tourism Act of 2009.

Recently, Finance Secretary Carlos G. Dominguez issued Revenue Regulations No. 7-

2016 to provide the rules for the use of tax incentives for new and existing
investors in the tourism industry. The regulations were issued by Dominguez upon
the recommendation of Internal Revenue Commissioner Caesar R. Dulay.

Tourism Assistant Secretary Frederick M. Alegre said the new Revenue Regulations
was long awaited by prospective investors in the tourism industry who have withheld
their investments since the passage of the Tourism Act in 2009 because there was
uncertainty on whether they could enjoy the tax incentives granted by the law.

“We’re expecting billions of pesos in new investments in the tourism industry in

the next five years,” Alegre said.

The DOT does not have an exact estimate of how much investments are expected to
flow into the existing and upcoming tourism economic zones (TEZs) in the next five
years, but based recent estimates, the Philippines has missed around P58 billion in
investments in tourism annually for the past four years.

According to the Tourism Infrastructure and Enterprise Zone Authority (TIEZA), the
tourism industry lost some P232.33 billion in investments from 2013 to 2016 because
of the delay in the crafting of the IRR for the Tourism Act of 2009, which came out
only in late 2016 during the Duterte administration after being left in the
backburner for almost seven years.

The delay was due to the previous administration’s policy of frowning upon new tax
incentives until all the tax incentives given out by the government has been
rationalized to ensure that only those deserving companies in priority sectors are
provided the incentives.

Under the IRR issued by Dominguez, a prospective or existing locator in a TEZ may
avail of either an income tax holiday of six years starting from its date of
operation, or a preferential rate of five percent of its gross income instead of
the usual 30 percent income tax rate imposed on corporations.

Other incentives which the law will give to prospective or existing locators in a
TEZ are the longer use of net operating loss carry over (NOLCO) from the usual
three years to a maximum of six consecutive taxable years, the exemption from taxes
on importation of capital investment and equipment and exemption from taxes on the
importation of transportation equipment and spare parts.

The locators shall be given exemption from the value added tax (VAT) and excise
taxes on the importation of goods necessary to carry out its TIEZA-registered
activities, and may be given a tax credit equivalent to the national internal
revenue taxes paid on all locally-sourced goods and services. They shall also be
entitled to up to 50 percent deduction on the cost of their activities for
environmental protection, cultural heritage preservation, sustainable livelihood
programs and other similar activities.

Existing accommodation establishments outside of TEZs may also avail of a non-

extendible income tax holiday of up to six years if they undergo substantial
expansion on their businesses. These existing accommodation establishments shall
also be exempt from the taxes due on importation of capital investment and
equipment, and a longer period of six years within which they can deduct from their
gross income their net operating loss carry over.

There are also non-fiscal incentives given to tourism enterprises under the law,
including the relaxation of rules on the employment of foreign nationals, the
granting of special investor’s resident visas, and an easier process of leasing
lands to foreign nationals.

The DOT, however, has appealed to Congress to continue supporting the tourism
industry with relevant legislation such as the removal of the so-called “sunset
provision” on the effectivity of tax incentives granted under the Tourism Act of
2009.

Under the original law, the income tax holiday and other tax and fiscal incentives
given to tourism enterprises shall be extended to them only for ten years, which
means that those incentives can only be granted up to 2019.

TIEZA currently has identified five flagship TEZs which will be the main
destinations of the billions of pesos in investments in the tourism sector in the
next five years. These TEZs are located in: San Vicente in Palawan; Rizal Park
Complex in Manila; Mount Samat Shrine of Valor in Bataan; Bucas Grande in Surigao
del Norte; and Panglao Bay Premiere Properties in Bohol. These flagship TEZs will
be operated and managed by TIEZA.

There are also some private TEZs which have been approved such as the Ciudad de
Victoria in Bulacan, Bravo Golf Resort in Dumaguete, Hijo Plantation in Davao,
Queen’s Castle in Cebu and Resorts World in Parañaque. (David Cagahastian)