DOF bucks tax perks for already profitable hotels

by Donnabelle L. Gatdula, The Philippine Star

Posted at May 24 2013 09:05 AM | Updated as of May 24 2013 05:07 PM

MANILA, Philippines - The Department of Finance (DOF) is proposing to scrap the income tax holiday (ITH) incentive enjoyed by hotels and resorts in the country’s hottest tourist destinations, a top DOF official said.

In a statement, Finance Secretary Cesar Purisima said the proposed lifting of the tax perks of some hotels and resorts in Metro Manila, Cebu and Boracay is in response to an open letter to the President sent by 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 said.

Purisima added that “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 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 226 or The Omnibus Investments Code.

Purisima expressed support for the 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,” he 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.

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 stood at P1.06 billion.

Purisima said 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.

Tourism Promotions Board (TPB) chief operating officer Domingo Ramon Enerio III, for his part, pointed that funding for infrastructure should not be sourced from savings but on budget.

“I think, we should not be relying on savings generated from taking out some tax incentives. We should be allotting money from the government’s budget for these infrastructure projects,” the DOT official said.

This move, he said is also part of the current DOF initiative to rationalize all fiscal incentives across industries, to enhance transparency and improve targeting in their grant and in the tax expenditures of the government.