INCENTIVES TO SHIPBUILDERS

7 days ago

Perhaps many shipbuilders may not be aware that there are existing tax incentives available for us to enjoy.

Just a bit of a background: The recent pandemic has prompted the government to review thoroughly its investment priorities in a bid to fast-track the recovery of the economy.

The Executive and Legislative branches, especially the Senate, rarely see eye to eye. During the pandemic, however, the two branches of government spoke in one voice, particularly in trying to rally the country’s economy back on its feet.

This can be seen with the enactment in July 2020 of the so-called CREATE, the Corporate Recovery and Tax Incentives for Enterprises Act, or Republic Act 11534, which mandates the Board of Investments to formulate the country’s Strategic Investment Priority Plan.

Through Memorandum Order 61, President Rodrigo Duterte approved the 2022 SIPP last May as the government sought to spur the economy and develop strategically important industries. On 14 June 2022, the new SIPP, expanding tax incentives to several new areas, became effective. One of these areas is the promotion of a “Green Ecosystem.”

The incentives in the SIPP take the form of income tax holidays, enhanced deductions, and a preferential five percent corporate income tax rate. The length of the incentive depends on whether the activity is for the domestic or for the export market, and whether the investment is in the National Capital Region, or areas contiguous and adjacent to the NCR, or other regions.

Among those industries that fall into the “Green Ecosystem” is the “manufacture of energy efficient maritime vessels and equipment.”

This means that shipyards that “manufacture energy efficient maritime vessels and equipment” for export to other countries may enjoy the incentives of five years of ITH + 10 years ED/CIT, if located in the NCR.

If they are located in “metropolitan areas or areas contiguous and adjacent to the NCR,” they may get incentives of six years of ITH + 10 years of ED/CIT; and if they are in other regions, they may be entitled to seven years of ITH + 10 years of ED/CIT.

The effectivity period is shortened if the shipyards are producing for domestic market. If they are in NCR, five years of ITH + five years of ED; if outside NCR, they may only enjoy six years of ITH + five years of ED; and if they are in other regions, seven years of ITH + five years of ED.

We shipbuilders certainly welcome these tax incentives, although they are good for only 10 years. We also fully agree on the qualification for availing the incentives: The construction of “energy efficient” ships.

That is the reason the Philippine Association of Coastal and Inland Waterways Ferries Inc. is strongly in favor of the use of energy efficient ferries. In fact, the group has started, through Metro Ferry of Cebu, exploring the use of electric powered ferries.

But our question is why the bias against shipyards producing for the domestic market?

Moreover, we are looking forward to the return of incentives provided in Republic Act 9295, or the Domestic Shipping Development Act, which expired in 2014, 10 years after the passage of the law.

These included, among others, the exemption from value added tax on the local purchase of passenger and/or cargo vessels of 150 tons and above, including engine and spare parts of the vessels, as well as VAT exemption on imported lifesaving equipment, safety and rescue equipment and communication and navigational safety equipment, steel plates and other metal plates including marin-grade aluminum plates, used for transport operations.

We understand that the Maritime Industry Authority is now working on amending RA 9295 in a bid to revive these incentives. Marina needs all the support it can get in lobbying for the amendment of the law.
Let’s all rally behind Marina.


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