MANILA, Philippines — The recent news that Department of Trade and Industry (DTI) Secretary and Board of Investments (BOI) Chairman Gregory L. Domingo has agreed with the longstanding position of the Department of Finance (DFA) to review and rationalize the incentives scheme of the Board of Investments is welcome.  DFA has always contended that the BOI incentives account for a huge portion of the revenue shortfall of the National Government and yet the projects would have been pursued anyway without the incentives.  DFA’s view is that if the amount was paid to the government, it could have funded infrastructure facilities that would have encouraged investors to set up enterprises, especially in the countryside.

However, DTI Secretary Domingo is not for the total elimination of the incentives, pointing out that other Asian countries with better business environment than the Philippines have a whole set of incentives.  If the Philippines is to remain competitive, it should still offer fiscal inducements to entice the domestic and foreign businessmen to put their money in businesses in the country.  Of course, all the other promotional efforts – coordinating with other government agencies to be less bureaucratic, getting local governments to be investor-friendly like having local investment codes, improving the infrastructure – should continue.  The issue is really what fiscal incentives to retain.

In my last years as BoI Vice Chairman and Managing Head, I was negotiating with both the National Economic and Development Authority (NEDA) and DFA on the investments incentives shortlist.  Taking out the income tax holiday was a no-brainer.

If an enterprise is able to make money on the first year, there may be no need to give it any incentive like an income tax holiday.  A start-up may require more of a net loss carry over a five to seven year period as in its initial years, a desirable project operating in a difficult business environment will surely be unable to be in the black. Given the high unemployment rate in the country, an incentive to companies that are labor-intensive would be helpful.

This could be a double deduction from income tax for labor expense. The setting up of ready factory facilities that Singapore did in its early years of development is still worth pursuing as some companies want to go on stream without having to go to the trouble of looking for a site and undertaking the construction of plant facilities.

Working with national government agencies and local governments to remove the long and tedious process of registering or complying with regulations would be a Godsend for the businessmen. However, it was regrettable that my successor decided to still stick to the old incentives list and the battle among the NEDA, DTI, and DFA continued.

Now that the economic cluster is united in bringing in investors into the country and provide the appropriate and relevant fiscal and non-fiscal incentives, we will finally see greater employment and higher incomes for the Filipino people.

Business Bits.  A businessman friend told me last week that rather than set up a construction materials manufacturing company, he is sourcing from China where the price, quality, and technology is better. He would have wanted to produce here if labor costs, shipping charges, and government facilitation costs were lower.