What’s in store In the 2009 Investment Priorities Plan

Written by Dennis Anthony P. Caronan, 16 April 2009

JRGuce Enterprise (not the real name), an exporter of quality lifestyle products from skillfully crafted indigenous materials, is surprisingly growing slowly despite the landscape of tough financial crunch.

Aneth, the company’s CEO, however, is vacillating in her plans to expand because of a question that continuously hounds — what’s in store for the company should expansion proceed? Will the firm be entitled to any government benefit?

Such is probably among the contentious issues under consideration by the Inter-Agency Working Group, led by the Board of Investments (BoI), as it discusses and prepares for the issuance of the 2009 Investment Priorities Plan (IPP).

The IPP is a policy tool of government to channel the flow of investments to desirable areas of activities for growth and development.

An activity or a project identified under the IPP is allocated incentives in order to lure investments to it.

It is also a policy instrument that encourages development of a critical mass of investments in a particular sector/industry.

The fiscal incentives granted usually come in the form of income tax holidays, duty-relief on importations, exemption from local government taxes, etc.

The effectiveness of the IPP as a tool to influence investments can be evidenced by the development of the robust IT-enabled business services sector (call center, business process outsourcing, knowledge process outsourcing, etc.); which is now touted as a "stabilizer" in our economy, notwithstanding sharp downturns in the manufacturing sector and diminishing foreign employment opportunities.

The IPP generally enumerates the preferred areas of investments under four major categories, namely: preferred investments, mandatory inclusions, export activities and the Autonomous Region in Muslim Mindanao (ARMM).

The Preferred Activities category covers investment areas recommended by other government agencies and the private sector.

Under the 2008 IPP, areas of investment falling under this category included agriculture/agribusiness and fishery, infrastructure, tourism, research and development, engineered products and strategic activities (e.g. activities with minimum project cost of the peso equivalent of $300 million).

The above activities are still expected to be included in the 2009 IPP in view of the great potential for growth in these areas.

Expanding coverage to other related auxiliary and support activities may perhaps also be looked into.

For instance, the tourism industry, which remains a very promising area for investment, may well include not only the establishment of tourist accommodation facilities, resorts, retirement villages and medical tourism (including the production of health care and wellness products), but also auxiliary services like tourist transportation services, tourist booking call centers, independent power producers exclusively supplying the requirements of stand-alone tourism facility, etc.

The Mandatory Inclusion category on the other hand, covers priority areas/activities where inclusion in the IPP is mandated by law. Interestingly included under this category are areas of investment contemplated under:

It may likewise be encouraging to include RA 6675 (known as the Generics Act of 1988) under this mandatory list category.

Manufacturers or distributors of generic medicines will surely welcome any form of government assistance (i.e. fiscal incentives) which may influence the lowering of the cost of medicines in the country. Thinking out aloud, it may be a positive government decision to spur investments over this sector of the pharmaceutical industry.

Third in the category are Export Activities, which include the manufacture and export of traditional and nontraditional products and activities in support to exporters. The category also covers expansion and modernization of existing export enterprises, subject, however, to different minimum investment cost thresholds for certain industries.

Normally, expansion or modernization of existing projects is entitled to three years income tax holiday incentive and other benefits like tax and duty free importation of capital machinery and equipment.

The global economic downturn has been marked by a big slowdown in the demand for exports. With tough economic conditions threatening our export business, stronger government support for industries under this category is needed. Such support would be a great boost to existing exporters such as JRGuce Enterprises, to pursue their expansion even in times of uncertainty.

Hence, providing liberal terms and conditions for availment of incentives of expansion and modernization projects, such as lowering of investment cost thresholds, may be considered to encourage growth in the export industry.

Moreover, existing export enterprises adversely affected by the economic downturn (e.g. exporters suffering more than 50% reduction in export orders) may also be extended interim relief in the form of fiscal benefits (e.g. tax and duty free importation for capital equipment, VAT exemption from local acquisition) to keep them afloat during the economic crisis.

The last category — the ARMM — covers broad priority areas of activities which have been independently determined as potentials for growth by the Regional BoI of the ARMM.

Such priority activities include, among others, export activities, agriculture, food and forestry-based industry, consumer manufacturing, infrastructure and industries and engineering products.

It may perhaps be a positive move on the part of the government to expand the coverage of the areas of investments under this category as a means of providing a long-term solution to the poverty and peace-and-order problems in this region.

With the 2009 IPP close to its issuance, it will be exciting to know the coverage of the list.

For JRGuce Enterprise, and other enterprises currently on a "wait-and-see" mode, a "buoy support" in these tough times is needed to sail through rough waters.