The list of ventures qualified for tax perks this year, which for the first time includes projects that retain workers or generate more jobs, officially came into effect yesterday alongside the publication of the program’s implementing guidelines.

These guidelines will temper the granting of the new tax breaks, which have been feared to hurt state revenues, the Board of Investments (BoI) said late last Wednesday.

Provisions in the 32-page attachment to this year’s Investment Priorites Plan (IPP) will ensure that the income tax holiday enjoyed by job-saving projects will be reasonably short and limited to troubled firms in select sectors, a board official said.

Business leaders, however, gave mixed reactions to the plan with one hailing it as being in tune with the crisis, while another remained wary of its effect on state coffers.

"This is not an open door for everybody. This protects [state] revenues," BoI Managing Head Elmer C. Hernandez told reporters.

For firms that retain or increase the number of workers in an existing investment, the guidelines provide for up to three years income tax holiday (ITH), upon the discretion of the Board.

Limits

The tax holiday will start once the project starts earning. The catch is that "earning" is defined as Earnings Before Income Tax and Depreciation Allowance (EBITDA).

This means that even if a firm records a net loss because of depreciation reductions to net income, the tax holiday kicks in as long as EBITDA is positive.

The tax break, therefore, starts early and thus ends early, which will partly shield state revenues.

A firm must also prove through its audited financial statements that operations were indeed hurt by the economic downturn, and retain subcontracted workers as well to qualify for this incentive.

Meanwhile, for firms that expand existing projects, the income tax holiday kicks in "on the date specified in the project study submitted to the Board."

"That’s how we are trying to address the issue of revenue. The requirements are quite stringent before you can avail of the ITH," Mr. Hernandez said in Filipino.

Finance department officials could not be immediately reached to comment.

The guidelines also limit the sectors qualified for this job-saving and job-generating listing.

Financial institutions, retailing activities, small-scale mining, activities that endanger security or morality, production of consumer goods, and projects whose funding are guaranteed by the state are not qualified.

On top of these, firms that already enjoy incentives will have to waive these if they opt to register under the new listing.

The section which grants tax perks to firms that retain or hire more workers can also be repealed even before the 2010 IPP comes out "upon official pronouncement by the National Economic and Development Authority that the crisis no longer exists."

Times for the crisis

Asked to comment, the leader of both an exporters’ group and an employers’ federation welcomed the policy.

"That will be good for companies. I think it will add to our efforts to help workers," Sergio R. Ortiz-Luis, Jr., president of both the Philippine Exporters Confederation and Employers Confederation of the Philippines, said in a phone interview yesterday.

"But it may not work for everybody. Small to medium enterprises do not have incomes to retain anyway," Mr. Ortiz-Luis explained.

Makati Business Club Executive Director Alberto A. Lim was more wary of the policy, saying in another phone interview: "It’s well intended, but it is hard to implement. If it is not tightly controlled, it will hurt state revenues."

An income tax holiday, he added, may not be enough of an incentive to persuade troubled firms to keep their workers.

Mr. Lim conceded, however, that tax perks for firms that hire more workers is a welcome move.

Other features

Aside from the new provision directed towards job-saving and job-creating ventures, new entries in the 2009 IPP include:

• projects with revenues derived from the sale of carbon credits, in line with the Kyoto Protocol;
• biotechnology ventures such as those for genetically modified crops;
• ship salvaging and towing operations;
• chains of homestay accommodations for tourists;
• film, television and theater productions and non-offshoring creative services that use information technology such as game development; and
• manufacture of energy-efficient lighting.

The 2009 IPP retains other preferred activities in last year’s plan. It also provides separate entries to certain ventures that were qualified for tax perks last year, in order to emphasize that they are indeed listed. These include biofuel crop planting, as well as manufacture of aircrafts and their parts.