Tourism has experienced sustainable growth and expanding diversification to grow into one of the fastest emerging economic sectors in the world. Modern tourism is closely linked to development and embraces a growing number of new destinations. These dynamics turned tourism into a key driver for socio-economic progress and represents, at the same time, one of the main income sources for many developing countries.
The Philippines recognizes this fact and considers tourism as an important contributor to the growth of the economy. According to the Philippine Statistics Authority, the contribution of the tourism industry to the domestic economy has risen steadily in the past five years. This phenomenon was made apparent in 2015 when the Philippine travel and tourism industry contributed a total of P1.43 trillion to the local economy. This is equivalent to about 10.6 percent of the country’s gross domestic product, according to the latest report by the World Travel and Tourism Council.
The anticipated growth in international visitor arrivals and domestic travel movement is expected to bring about a corresponding increase in capacity requirements and demand for new products, facilities and services, thus paving the way for local and foreign investment opportunities.
As a response to this opportunity, Revenue Regulations No. 7-2016 was issued on Nov. 15, 2016 by the Bureau of Internal Revenue pursuant to Republic Act No. 9593 passed on May 12, 2009 (otherwise known as the Tourism Act of 1999) aiming to attract tourism related investments such as in tourism estates and ecozones, historical-cultural heritage projects as well as ecotourism, agritourism, and health and wellness projects in the country.
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The RR seeks to implement the fiscal incentives available to tourism enterprises duly registered with the tourism infrastructure and Enterprise Zone Authority (TIEZA) under the Tourism Act of 2009. The TIEZA Board, as provided under Section 3 of the same RR, may grant fiscal incentives to tourism enterprises within the Tourism Enterprise Zone (TEZ) and to those TIEZA-registered tourism enterprises outside of the TEZ. TEZ refers to any geographic area created and qualified under the criteria pursuant Section 59 of the Tourism Act of 2009.
It is worth noting that the fiscal incentives available to tourism enterprises within the TEZ (Section 3) are far more vast than those granted to tourism enterprises outside of TEZ.
Under Section 3, tourism enterprises within the TEZ are granted the following fiscal incentives:
1. Income Tax holiday (ITH) for new and existing registered tourism enterprises (RTE) in TEZs for six years from the start of business operations on income from its TIEZA-registered activities. The new RTEs in the greenfield tourism zone may opt to extend their ITH for an additional six years prior to the expiration of the six years, provided the new RTE shall undertake a substantial expansion.
2. Preferential gross income tax rate of five percent may also be availed of new RTEs as an alternative to the ITH incentive, in lieu of all national internal revenue taxes, except real estate taxes and such fees as may be imposed by TIEZA on its gross income earned from its registered activities.
3. Net Loss Carry Over (NOLCO) for the next six consecutive taxable years immediately following the year of such loss, provided that RTEs enjoying an ITH or the preferential five percemt gross income tax rate shall not be allowed a NOLCO deduction.
4. Exemption from taxes on importation of capital investment and equipment provided that capital investment and equipment are directly and actually needed and shall be used exclusively in the registered activity and within the registered capacity of the RTE.
5. Exemption from taxes on the importation of transportation equipment and spare parts provided that it is not manufactured domestically in sufficient quantity, of comparable quality, and at reasonable prices and that it is reasonably needed to perform the TIEZA-registered activities and shall be used exclusively by the RTE.
6. Goods and services incentives grant RTEs exemption from VAT and excise taxes on the importation of goods necessary to carry out its TIEZA-registered activities and are actually consumed in the course of services related to its registered activity, as well as a tax credit equivalent to national internal revenue taxes paid on all locally-sourced goods and services used by the RTE for services pursuant to its registered activity which are actually rendered within the TEZ.
7. Social responsibility incentive grants RTEs a tax deduction of up to 50 percent of the cost of environmental protection activities, cultural heritage preservation activities, and sustainable livelihood programs for local communities activities in the surrounding areas of the enterprise or the TEZ.
On the other hand, Section 4 provides that tourism enterprises outside of TEZ may avail only of the following: (1) ITH, (2) Exemption from taxes on importation of capital investment and equipment and (3) NOLCO.
Notwithstanding the following incentives, a Certificate of Entitlement (CE) must be obtained from TIEZA on an annual basis as proof of entitlement to such incentives. Moreover, Section 5 of the RR mandates that in availing of incentives, the CE and the TIEZA Certificate of Registration shall be attached to the Income Tax Returns (ITRs) and/or the applicable tax return upon filing of the returns. Failure to attach the certificates, the BIR shall disallow any claim of incentive.
As one of the fastest growing industries in the world, tourism is regarded as a strong contributor and driver of sustainable development and poverty alleviation in the developing countries. As we continue to strive to achieve a sustainable tourism, the strong political will and initiatives of the Philippine government to help make this a reality will eventually foster a positive change on Philippine tourism in the long run.