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DOF: Profitable hotels should pay income tax

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(DOF logo)

(DOF logo)

MANILA, May 22 (Mabuhay) — There is no need to grant an Income Tax Holiday (ITH) incentive to hotels and resorts in the country’s hottest tourist destinations, Finance Secretary Cesar Purisima said in response to the open letter to the president of the Philippine Hotel Federation, Inc. (PHFI).

“Income tax holidays for already very profitable hotels serves only to further enrich a select few rather than improve the overall environment for tourism investments,” Purisima explained.

“We’d rather collect income taxes and invest in better infrastructure that will further attract more entities to invest in the Philippines.”

In the said letter, PHFI appealed to the President for the revocation of Board of Investments (BOI) Regulation No. 2013-001 pertaining to the grant of incentives for tourism accommodation establishments in Metro Manila, Cebu City, Mactan Island, and Boracay Island.

BOI Regulation No. 2013-001 states that projects on accommodation establishments located in these four areas that intend to register with the BOI under the 2012 Investment Priorities Plan (IPP) shall be entitled to Capital Equipment Incentives only, effectively removing the ITH incentive for tourism accommodation establishments provided under Executive Order No. 226 or The Omnibus Investments Code.

Purisima supported BOI’s move, stating that the strength of the tourism industry in these four areas did not warrant an additional ITH benefit and the industry will continue to be competitive.

“BOI-registered enterprises engaged in tourism-related activities, particularly in tourist accommodation facilities, are profitable and will be profitable even without income tax holidays,” Purisima said.

Based on the 2009-2010 BOI application data mentioned earlier, the total average return on investment (ROI) of the Travel and Tourism industry is estimated at 15 percent sans tax holidays.

The same BOI data would show that more than half of the tourism-related projects for those years are located in at least one of the four areas covered by the regulation in question.

PH tourism incentives competitive in ASEAN even without tax holidays

Even without ITH, the Philippines offer incentives to the tourism industry that are comparable with its Southeast Asian neighbours. According to Thailand’s Board of Investment, the country only gives exemption from import duties on machinery and only non-tax privileges to hotels to support tourism.

Meanwhile, information from the Inland Revenue Authority of Singapore reveal that there are no tax incentives currently granted to hotels and restaurants in Singapore.

While in the past, tax allowances were given on construction costs of hotels on Sentosa Island and tax deductions were given to hotel refurbishment expenditure, these tax incentives have since been phased out.

According to the World Economic Forum (WEF) Travel and Tourism Competitiveness Report 2013, the Philippines’ main comparative strengths are its natural resources, price competitiveness, and a very strong prioritization of the travel and tourism (T&T) industry as indicated by the government’s spending on the sector as a percentage of GDP and the increasing effectiveness of tourism marketing and branding campaigns.

“Indeed, the other factors cited in the WEF Report, referred to by PHFI itself as holding back our country’s tourism competitiveness potential — such as safety and security concerns, inadequate health and hygiene, and underdeveloped ground transport and ICT infrastructure — may be addressed using tax revenues,” Purisima added.

P1-billion foregone to help tourism and equally important sectors

Based on project applications for registration with BOI for 2009 and 2010, the estimated amount of revenue foregone from ITH to projects located in the four areas is P1.06 billion.

Purisima said that the revenue derived from the savings on the ITH can be used for investment in tourism as well as purposes that can have a positive spill-over to tourism.

“This large amount can instead be collected and used to fund programs and projects that will benefit not only the tourism sector, but other equally important sectors as well,” the finance chief said.

The Department of Finance is currently working on a program to rationalize all fiscal incentives across industries, to enhance transparency and improve targeting in their grant and in the tax expenditures of the government. (MNS)

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