The 2022 Strategic Investment Priority Plan (SIPP), which seeks to strengthen Philippine competitiveness through incentivizing smart manufacturing, is now in effect, according to a trade official.
Board of Investments director Sandra Marie Recolizado said the SIPP—the country’s investment plan listing priority industries and activities eligible for fiscal and non-fiscal incentives as provided under the CREATE (Corporate Recovery and Tax Incentives for Enterprises) Act—took effect on June 11, 2022 following its presidential signing in May.
“Not all activities are included in the SIPP so we have to conduct an evaluation process in order for us to determine which of these activities should be considered as a priority,” Recolizado, who spoke at the recent hybrid Manufacturing Summit 2022 conference, said.
Under the CREATE Act, among the incentives to improve manufacturing competitiveness of registered business enterprises are income tax holiday, duty-free importation of capital equipment, and 5% special corporate income tax, she added.
Moreover, the SIPP has relatively new incentives in the form of enhanced deductions. Manufacturing-related enhanced deductions include the following:
• 100% additional deduction on R&D
• 100% additional deduction on training expense for Filipino employees
• 50% additional deduction on domestic input expense
• 50% additional deduction on power expense
• Deduction for reinvestment allowance to the manufacturing industry
Under the 2022 SIPP, industries will be categorized into three tiers. Tier I includes activities under the 2020 Investment Priorities Plan, unless specifically included in Tier II or Tier III.
Tier I is comprised of “building block” activities, which are essentially basic industries that have a high potential for job creation; are in sectors with market failures due to the under provision of basic goods and services; produce value creation through innovation, upgrading or moving up the value chain; provide support to sectors critical to industrial development; and are emerging activities with potential comparative advantage.
Under Tier I are 12 preferred activities including all qualified manufacturing activities such as agro-processing, strategic services including industrial waste treatment, and environment or climate change-related projects.
Also in this category are export activities including the production and manufacture of export products and services exports. Likewise included are activities in support of exporters, such as the manufacture of inputs needed to produce export products, product testing and inspection services, logistics services, and operation and development of economic zones.
On the other hand, both Tier II and Tier III activities take the “clustering approach” and are expected to lead to value addition, higher productivity, breakthroughs in science and health, and high-paying jobs.
Tier II activities are those that will fill in the gaps in the value chain and encourage import substitution. The target is for such activities to create strong backward and forward linkages, capture more value added, and avoid supply chain disruption.
Among the projects that may be covered under the Tier II clusters are:
• Green ecosystems such as production of green metals, assembly of electric vehicles, and manufacture of EV parts and components
• Health-related activities such as manufacture of vaccines, drugs, medicines, and active pharmaceutical ingredients
• Defense-related activities such as production of hot and cold rolled coil
• Food security-related activities such as integrated dairy production processing
Meanwhile, Tier III activities will focus on innovation, be critical to structural transformation, generate new knowledge and intellectual property, and be highly technical.
Tier III clustering seeks to accelerate modernization of industries, increase sophistication of products, ensure productivity and efficiency, and stimulate capacity building and skills development of Filipinos, said Recolizado.
Some examples of Tier III projects are R&D and activities adopting Industry 4.0 technologies such as AI and robotics in manufacturing; highly technical manufacturing; production of innovative products such as R&D products, as well as commercializing intellectual properties and full-scale wafer production; and establishment of innovation-supportive facilities including science and technology parks, R&D hubs, and centers of excellence.
Recolizado noted that one of the unique features of the CREATE Act is that the higher the industry tier, the longer the availment period for incentives.
“Projects under Tier III will have the longest period of incentives among the industry tiers as the government puts a premium on innovative and technology-driven industries that will hasten the transformation of our economy,” she said.
Further, aside from industry categorization, the location and market orientation of the project will also impact on the period of incentives availment. “If you are export-oriented, you have a longer period to enjoy incentives. And the farther you are from the NCR, the longer the period of incentives you have,” Recolizado said.