Investments in smart technologies in the country whether domestic or export-oriented will enjoy the highest level and longest period of tax incentives being offered under Tier III of the Strategic Investment Priority Plan (SIPP).
Trade and Industry Undersecretary for Competitiveness and Innovation Rafaelita S. Aldaba said in a recent virtual presentation of the draft SIPP, which lists economic activities that would be entitled to tax incentives under the CREATE Law.
The economic activities, however, are classified into three tiers. Those that belong under Tier III will be afforded the highest level.
Based on the general considerations for SIPP industry tier classification, activities qualified under the 2020 IPP are considered as Tier 1, unless specifically included in Tier 2 or Tier 3; while under Tier 2 are activities that fill-in Gaps in the Value Chain or import-substituting; and for the Tier 3 are activities that will utilize Industry 4.0 technologies such as the use of the automated system, smart machines/systems, industrial internet of things (IIOT), cloud computing, cognitive computing, advanced robotics, artificial intelligence, 3D printing, among others.
According to Aldaba, Tier III consists primarily of activities that are adopting advanced digital production technologies of the fourth industrial revolution; producing equipment, parts and services that embed these new technologies; and engaging in R &D activities and commercialization of R &D leading to accelerate innovation and increase value added in manufacturing, agriculture, fishing, construction, mining, and services.
Tier III activities also include smart agriculture and biotechnology; smart manufacturing; robotics and automation, logistics; automated machinery, robotic arms, 3D printers, industrial robots, cobots, sensors, processors, actuators; and, aerospace, medical devices, IP and R & D commercialization.
Also eligible for Tier III incentives are technology and digital intensive industries such as computers, electronics, electrical machinery and transport; knowledge intensive services; IT business processes; and health technologies (health and medical services).
Investments under Tier III that are geared for exports and located in the National Capital Region will enjoy a total of 16 years of incentive package, including 6 years of income tax holiday and 10 years of enhanced deduction (ED) or special corporate income tax (SCIT).
For those locating in metropolitan areas outside of and contiguous or adjacent to NCR will enjoy longer 17-year incentive package (7 years ITH and 10 years ED/SCIT). In investments in all other areas in the country will also enjoy the same incentive package.
Export-oriented enterprises are those that export 70 percent of its total production. The SCIT for export enterprises is 5 percent of gross income earned. These enterprises usually locate inside the economic zones administered by the Philippine Economic Zone Authority.
For Tier 3 activities that are geared for the domestic market, they will be entitled to shorter incentive package of 11 years, including 6 years ITH and 5 years of ED for those that will locate in the NCR.
Those that will locate outside of NCR will be granted 12 years incentives, inclusive of 7 years of ITH and 10 years of ED.
The domestic-oriented enterprises are those that registered with an investment promotion agency other than export enterprise.
Aldaba explained that the drafting of the SIPP was based on rigorous analysis. The SIPP is anchored on the new industrial strategy – the Inclusive Innovative Industrialization (i3S) – that is imperative for the Philippine economy to strengthen its competitiveness by the adoption of advanced technologies in agriculture, manufacturing, and services.
Aldaba also pointed out that incentives under SIPP are performance-based, targeted, transparent, and time-bound. In her presentation, she also laid down the vertical and horizontal measures of the SIPP: provide necessities, global innovation, address supply/value chain gaps, modern infrastructure, high-value job creation, sustainability, knowledge-intensive activities, education, and training, and infrastructure.
Once finalized, the SIPP will be submitted to the Office of the President for approval.