By Mayvelin U. Caraballo Reporter
The Department of Finance (DOF) is against the granting of tax holiday incentives to hotels and resorts in some of the country’s tourist destinations.
In an open letter to President Benigno Aquino 3rd, the Philippine Hotel Federation Inc.
(PHFI) appealed for the revocation of Board of Investments (BOI) Regulation 2013-001 pertaining to the grant of incentives for tourism accommodation establishments in Metro Manila, Cebu City, Mactan Island and Boracay Island.
The said BOI regulation states that projects on accommodation establishments located in the four areas that intend to register with the BOI under the 2012 Investment Priorities Plan shall be entitled to Capital Equipment Incentives only, effectively removing the income tax holiday (ITH) incentive for tourism accommodation establishments provided under Executive Order 226, or The Omnibus Investments Code.
In response to the open letter, Finance Secretary Cesar Purisima on Wednesday said that there is no need to grant an ITH incentive to hotels and resorts in the country’s hottest tourist destinations.
“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.
Instead, he said that the government rather collect income taxes and invest in better infrastructure that will further attract more entities to invest in the Philippines.
He also supported BOI’s move, noting that the strength of the tourism industry in these four areas did not warrant an additional ITH benefit, and that 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,” he added.
Furthermore, the DOF cited the 2009-2010 BOI application data, which showed that the total average return on investment (ROI) of the travel and tourism industry is estimated at 15 percent without tax holidays.
The same BOI data also showed 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.
Meanwhile, the Finance department also mentioned that based on project applications for registration with BOI for 2009 and 2010, an estimated P1.06-billion revenue was forgone from ITH to projects located in the four areas.
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 added.
To enhance transparency and improve targeting in their grant and in the tax expenditures of the government, the DOF announced that it is currently working on a program to rationalize all fiscal incentives across industries.