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Urbanization: A challenging future

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Maricel P. Katigbak

Let’s Talk Tax

Having the opportunity to work and live in Manila has been a dream of many Filipinos. Many say there are better opportunities in the capital. For a probinsyana like me who has found luck in the urbane, the big city opened my eyes to different things, people, behaviors, experiences, and learnings. Working in Manila has its ups and downs and its ins and outs. In the past 15 years of living in the capital, I believe I have learned and gone through so much — and I think many can relate.

Investors are attracted to Manila despite the risks, because there are opportunities to earn money. Investors and developers are drawn to cities that offer the best combination of scale, risk, and return. Over the years, urban centers continue to grow in numbers. In effect, we encounter problems and challenges in urban development.

CONGESTION
Traffic congestion plagues the streets of Metro Manila. On an average, commuters spend an hour or more on the road. In fact, the National Capital Region was once considered the metropolitan region with the heaviest traffic in Southeast Asia.

In effect, city dwellers struggle with longer commutes, wreaking havoc on productivity, wasting time, adding fuel expenses and, most of all, causing economic and competitive losses.

ECONOMIC CENTER OUTSIDE THE CITY
In an attempt to decongest the capital, developers are becoming more aggressive in expanding and integrating commercial, office, and residential developments outside major cities. While there are several developments underway, many locations are being built in emerging cities and regions.

There is also directive from the President that new Philippine Economic Zone Authority (PEZA) economic zones be approved within Mega Manila. Under the current administration’s “Build, Build, Build” (BBB) Program, several infrastructure and industrial projects are in place. Key infrastructure projects under the BBB Program include the development of the New Clark City. This planned development in Clark is envisioned to be the next growth driver in Luzon. New Clark City (NCC) is part of the Clark Special Economic Zone. The Clark Development Corp. (CDC) is the operating and implementing arm of the Bases Conversion and Development Authority (BCDA) to manage the Clark Special Economic Zone and the Clark Freeport Zone (CFZ).




BUSINESS INCENTIVES FOR FOREIGN INVESTORS
Enterprises inside these ecozones are entitled to incentives. The applicable incentives for registered special economic zone enterprises are granted under Republic Act No. 7227, otherwise known as The Bases Conversion and Development Act of 1992.

The fiscal and non-fiscal incentives granted by either BCDA, SBMA, or CDC are essentially the same, as follows:

FISCAL INCENTIVES

a. Exemption from national and local taxes. A final tax of 5% on gross income earned is to be paid in lieu of all these taxes. (Gross income refers to gross sales or gross revenues derived from the business activity within the zone, net of sales discounts and sales returns and allowances and less cost of sales, cost of production, or direct cost of services).

b. Tax and duty-free importation of raw materials and capital equipment.

NON-FISCAL INCENTIVES

a. Permanent residency status for investors, their spouses, and dependent children under 21 years of age, provided that they have continuing investments of not less than $250,000.

b. Employment of foreign nationals.

Clark Freeport Zone, which is located in the portion of the Clark Special Economic Zone, enjoys the same tax privileges. The enterprises within these zones are entitled to the same favored rate, as well as duty- and tax-free imports of capital equipment and raw materials.

Aside from the Clark ecozones and providing incentives pursuant to RA No. 7227, several other special economic zones were established under separate laws. Special economic zones in various parts of the country are also entitled to benefits and privileges provided by the law.

With the delayed passage of Tax Reform for Attracting Better and High-quality Opportunities Bill or the so-called TRABAHO Bill that seeks the rationalization of tax incentives and lifting of some of the existing privileges, economic zone developers see expansion opportunities.

In the expectation of the non-passage of the TRABAHO bill, the government may wish to consider enhancing the existing incentives program. It also needs to improve the tax system to attract economic activity to develop new cities and regions into new logistics hubs and centers of trade, finance, or technology.

The challenge is clear: to meet the needs of the people, we need to extend opportunities throughout the region for a better Philippines.

Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.

 

Maricel P. Katigbak is a manager of Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd

pagrantthornton@ph.gt.com

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