11 August 2011

New industries, requirements in IPP guidelines:

Manila, Philippines: The Board of Investments (BoI) has tightened rules on the granting of incentives by adding economic criteria for judging qualified projects, specifying which income the tax breaks can be applied against and limiting the types of housing and energy projects that are eligible.

Guidelines released yesterday for this year’s Investment Priorities Plan (IPP) contained the restrictions. The state agency, however, relented to add ship recycling and electric vehicle support into the 2011 list of preferred businesses.

The implementing rules cover incentives like income tax holidays and duty-free importation of equipment for ten "preferred activities" -- agribusiness, creative industries, shipbuilding, mass housing, energy, infrastructure, research and development, green projects, motor vehicles, and tourism -- and other ventures that are mandated by law to receive perks.

Policy changes include detailed economic criteria for deciding on the approval of incentives applications and the extent of perks granted.

The guidelines now explicitly state that approval of business activities should consider "existing and prospective demand for the proposed product or service as well as the potential of the project for creating new markets for domestic suppliers or raw materials and/or intermediately goods in the domestic market."

Investments will also be assessed based on the "project’s net value-added, job generation, multiplier effect, and measured, capacity."

Manufactured and processed exports must now involve "substantial transformation with at least 25% value-added to the raw materials or intermediate inputs" to qualify for tax perks. Previously, the requirement for product transformation did not have an explicit quantitative threshold.

Another change in the policy is a clearer provision on which income the tax breaks will be applied against. The guidelines, for instance, state that first, the income qualified for the holiday must be limited to revenue directly attributable and generated by the registered project. Second, the income must not exceed 10% of the projected value represented by the firm during the application for incentives. Third, only the net income of the registered activities, as identified under oath, will get incentives.
The new IPP guidelines go on to limit the granting of incentives by decreasing the scope of energy and housing projects that are eligible.

For preferred activities in energy, the guidelines scrapped incentives for projects under the Power Sector Assets and Liabilities Management Corp. privatization plan, rehabilitation, and grid-connected power generation projects to focus instead on "indigenous energy sources and other energy sources adopting environmentally friendly or green technologies."

Furthermore, the rules raised the project cost requirement for pioneer energy projects to $1.5 million per megawatt this year from $1 million last year.

Finally, mass housing activities are now subject to a lower pricing cap of P2.5 million, as previously reported.

Despite this tightening, the state agency added new eligible projects under the broader heading of "preferred activities."

Under shipbuilding, the board included "shipbreaking / ship recycling" as long as these comply with international environmental standards for the industry.

The BoI will also now grant tax perks to firms that set up charging stations for electric vehicles on the condition that these are "designed to simultaneously fast charge multiple vehicles similar to gasoline/diesel stations or a network of at least five charging stands."

Firms that manufacture battery components for electric vehicles, will be eligible for incentives as well.

The guidelines, signed by BoI executive director Efren V. Leano, take effect immediately.

Source: Business World Online. By E. J. Diaz. 10 August 2011 

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