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Firms retaining workers may receive tax holidays


MANILA, Philippines - Tax perks to save and generate jobs on top of luring companies to spend will be considered by the government for the annual Investment Promotion Plan (IPP). Under a portion of the proposed list of incentives-eligible ventures, troubled firms regardless of industry may enjoy tax perks if they retain workers or provide retraining, Board of Investments (BoI) Managing Head Elmer C. Hernandez told reporters late last week. The proposal drew mixed reactions from business groups and an economist. Some lauded the effort to address rising layoffs while others worried about the monitoring needed and the impact of tax perks on government revenues. “The worst scenario is a plant will close down. We want to avoid that. We’re looking at preventing that and what type of incentives will be provided ... for those that will retain their workers or minimize retrenchment," Mr. Hernandez said. “We may also allow [perks for] mergers and acquisitions on the condition that existing workers will be retained ... It could be possible to proportionate the incentives on the basis of [those kept]." The “additional deduction for labor expense" (ADLE), in particular, is the key fiscal incentive that may be granted, Mr. Hernandez said. Previously, only firms operating new ventures specified by the IPP enjoyed the privilege of deducting half of the cost of wages of additional workers from taxable income. “Now, you open up [the ADLE] to those firms that will qualify under job-saving," Mr. Hernandez said. Philippine Chamber of Commerce and Industry President Edgardo G. Lacson welcomed the BoI proposal, saying in a telephone interview yesterday: “Any idea that will help to save jobs is worth trying. We support the enlightened policies of government of using incentives rather than [punishing] firms that are closing." But Makati Business Club Executive Director Alberto A. Lim and University of the Philippines economist Benjamin E. Diokno reckon that incentives will not deter firms from laying off workers. “It will only result in government losing revenues to companies that are not going to lay off workers anyway. It’s going to be another redundant incentive," Mr. Lim said in a separate telephone interview. Mr. Diokno, for his part, said in an e-mail: “For some firms, laying off workers is consistent with cutting costs in the light of weaker demand for its products. The fiscal incentives (which are unclear at the moment) must be sufficiently large to offset the costs of employing redundant workers." “The costs to the taxpayers are taxes foregone ... [while] the benefits of foregone layoffs are hard to figure out since policymakers do not know how firms’ owners [will respond] to the new set of incentives." Mr. Diokno also pointed out that “it may be a good idea for the private sector to make the decision whether to expand, remain the same, or exit certain industries." The BoI is also mulling tax perks for enterprises that retrain or assist retrenched workers in putting up their own businesses, Mr. Hernandez said. Private training centers or entrepreneurship “help desks" may qualify, he added. “There are OFWs (overseas Filipino workers) with funds or those laid off with separation pay. The enterprise will be the consultant that will take care of everything. In other words, they will package everything from getting permits from government agencies to making the business plan," Mr. Hernandez said. Mr. Lim suggested that incentives be granted only when these help desks successfully create the business or when training results in job placement. “[We will also] encourage MSME (micro, small and medium enterprise) projects. All of these can be domestic-oriented," Mr. Hernandez added, noting that a list will be crafted to narrow down eligible ventures. He also clarified that these proposals were still subject to public consultation and approval of an inter-agency committee which includes the Finance department and the National Economic and Development Authority, among others. “[But] I’m sure the inter-agency [panel] will agree to that because it’s livelihood [creation]," Mr. Hernandez claimed. Finance department officials were not immediately available for comment. The second portion of the draft IPP, meanwhile, will feature the traditional list of priority sectors eligible for tax perks. “[We are proposing a] specific listing for voice and non-voice BPOs (business process outsourcing firms). We also have a listing for creative industries ... such as animation, software development and engineering design," Mr. Hernandez said. Such ventures qualified for tax perks last year under the heading of exported services. Incentives for agriculture and food production, infrastructure, tourism, and manufacturing activities like automotives will be retained, Mr. Hernandez said. Investments in mining, environmental protection, production of goods and services for the disabled, and export-oriented firms will be granted perks as well since their inclusion in the IPP is mandated by various laws. For Mr. Diokno the state would do well to instead “improve the investment environment by reducing corruption, investing in public infrastructure, and improve the regulatory framework and quality of administration". - Jessica Anne D. Hermosa, BusinessWorld
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