DOF allays tourism industry's fears amid less tax perks

MANILA, Philippines - The Philippines remains competitive in tourism versus its peers in the region despite the removal of a tax perk for new hotels in various tourist attractions, the Finance department said on Wednesday.

“Income tax holidays (ITH) for already very profitable hotels serves only to further enrich a select few rather than improve the over-all environment for tourism investments,” Finance Secretary Cesar Purisima said in a statement.

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

Under Regulation No. 2013-001, the Board of Investments (BOI) said it would no longer grant ITH for hotels that will be established in Metro Manila, Cebu City, Mactan Island and Boracay Island, thus effectively requiring them to pay income taxes.

The regulation, which applies only to hotels that will be put up and not to existing ones, stated that hotels that will be built shall only be entitled capital equipment incentives only, or those that strip off payments of import duties.

In his statement, Purisima said the Philippines, even without the ITH, still offers better tax perks for hotels compared with other Asian nations such as Singapore, Malaysia and Thailand.

He responded to claims by the Philippine Hotel Federation Inc. (PHFI), which in an open letter to the President published on The STAR two weeks ago, appealed that the grant be reinstituted, raising fears it may become a setback to the industry.

The Finance chief debunked this, citing Thailand, which only grants the similar exemption on import duties for machinery equipment on top of “non-tax privileges,” which he did not specify.

In Malaysia, income tax exemption of 70 percent and investment tax allowance of 60 percent may be given to “pioneer” investments, while in Singapore, allowances for hotel construction originally available are no longer being offered.

According to Purisima, the government will easily generate P1 billion in income taxes annually with the removal of the ITH on the four areas, based on project application figures from the BOI.

“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,” he said.

In addition, funds to be generated could be used to address challenges laid out by World Economic Forum (WEF) on its Travel and Tourism Competitiveness Report, where the Philippines advanced 12 spots to 82nd place out of 140 nations.

“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.

The country has been boosting its image before the world to attract more tourists in order to support long-term economic growth. For this year, the government has targeted 5.5 million tourist arrivals.

As of the first quarter, a total of 1.27 million tourists have already visited the country, up 10.76 percent year-on-year, Department of Tourism data showed.