Philippines

2 Chapter Economic Environment

    • Economy

       a.   Economic Status Quo and Growth Forecasts

       

       

      The Philippine economy has been growing steadily at an average annual rate above 6% for the past five years and its government has pursued legislative reforms to enhance the entrepreneurial environment and develop a more vibrant private sector to generate broader-based job growth
      . In the April 2016 Economic Update of the World Bank Group, it was shown that the Philippines remained a strong performer in the region, despite slow global growth.
       
       
      Growth in developing East Asia is expected to ease from 6.5% in 2015 to 6.3% in 2016 and 6.2% in 2017-18
      . Along with Vietnam, the country’s economy is expected to grow by more than 6%. Buoyed by strong private consumption and election spending, the Philippines is projected to grow 6.4% in 2016 before tempering slightly to 6.2% in 2017.
       
       
      In a report by the National Economic Development Authority (NEDA), Gross Domestic Product (GDP) growth accelerated to 6.9% on the 1st Quarter of 2016 from 6.5% on the 4th Quarter of 2015. Among 11 selected Asian economies that already released their growth data for the quarter, the Philippines was the fastest growing economy. In terms of industrial origin, the highest growth rate is Industry with 8.7% while in terms of expenditure shares, Capital Formation is highest at 23.7%.
       
       
      According to Mara Warwick, World  Bank Country Director for the Philippines, the country has continued the deepening of macroeconomic stability, promotion of transparency and putting a lot of resources in infrastructure and services that help the poor and vulnerable families. This can make further strides in poverty reduction if it can enhance competition in sectors that can create more and better jobs like rice, shipping, and telecommunications; simplify business regulations to encourage more entrepreneurs to set up shop; and improve people’s access to land through better adjudication of land rights
      .
       
       
                   
       
      b.    Challenges
       
       
      i.              Unemployment Rate
       
       
       
       
      Despite of the steady economic growth in the country, unemployment has remained one of its top challenges. As of January 2016, Employment Rate is 94.2 percentage points, Unemployment Rate is 5.80 percentage points, Underemployment Rate is 19.70 percentage points, and Labor Force Participation Rate is 63.30 percentage points
      . Noticeably, there are not enough jobs to keep up with the exponential population growth and there are more people entering the job market than the number of jobs available.
       
       
      Participation in the labor force remains relatively low. This may be due to the fact that young Filipinos usually spend time pursuing higher education before entering the work force. Another reason could be the low quality of available jobs.
       
       
      The Philippine government, in its effort to improve the quality of jobs, has ramped up employment in manufacturing. It still has to solve problems regarding the need for higher wages, the issue on limited infrastructure and red tape.
       
       
       
       
      ii.            Poverty Rate
       
       
       
       
      In an overview of the Philippines in the World Bank Group website, it is shown that recent estimates suggest that extreme poverty in the country decreased gradually between 2012 and 2014. Extreme poverty is estimated to have decreased from 10.6% in 2012 to 9% in 2014. After a decrease of only 0.3 percentage points between 2009 and 2012, poverty fell more rapidly between 2012 and 2014, according to revised purchasing power parity (PPP) estimates. However, high rates of structural poverty remain, especially among households depending on agriculture.
       
       
      In order to address the problem on poverty, the national government through the Department of Social Welfare and Development (DSWD), provides conditional cash grants to the poorest of the poor in its the Pantawid Pamilyang Pilipino Program (4Ps).
       The flagship poverty alleviation program of the Aquino administration provides for social assistance, in the form of monetary support to extremely poor families to respond to their immediate needs. It also provides social development by investing in the health and education of poor children through programs such as: health check-ups for pregnant women and children aged 0 to 5, deworming of schoolchildren aged 6 to 14, enrollment of children in day care, elementary, and secondary schools, and family development sessions. It operates in all the 17 regions in the Philippines comprised of 79 provinces, 143 cities, and 1,484 municipalities. Selection of beneficiaries is done through the National Household Targeting System for Poverty Reduction(NHTS-PR).

       

       

    • Investment Environment

       In a report by the Asian Development Bank, it was highlighted that the Philippine economy is going through structural change that provides immense opportunities for lifting the potential growth rate above the estimated 5.0% growth rate per annum. In terms of the production side of the national income accounts, the service sector has driven economic growth.  In the area of services, communications, information technology, and the related business process outsourcing industry have become leading business areas. Finance and tourism have also exhibited robust growth since 2010. These services are labor intensive, some are highly skill intensive, and all exhibit important positive externalities with the rest of the economy.

       

      It was also noted that there is low investment rate in the country
      . Although, the ratio of private and public investment to gross domestic product was slow to recover from the Asian financial crisis of 1997. The investment rate reached 24.0% of gross domestic product in the mid-1990s but declined thereafter and bottomed out at 13.0% in 2005.  It recovered to 16.8% by 2008 and reached 19.4% in 2012. Still, that rate is much lower than in most other Southeast Asian economies, such as Indonesia (33.2%), Malaysia (25.7%), and Thailand (28.5%). A consequence of this lower investment rate has been a lower long-term economic growth potential of around 5.0% per annum.  Much higher investment is necessary to sustain the current average growth rate of 6.5% per annum.
      a.   Doing Business in the Philippines



      Figure 1. How Philippines and comparator economies rank on the ease of doing business. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. 
       
       
      Based on the World Bank Group's 2016 Report, in terms of ease of doing business, the Philippines is ranked at 103 from rank 97 in the previous year. The following indicators are used in determining the Distance to Frontier points:
      1.    Starting a Business
      2.    Dealing with Construction Permits
      3.    Getting Electricity
      4.    Registering Property
      5.    Getting Credit
      6.    Protecting Minority Investors
      7.    Paying Taxes
      8.    Trading across Borders
      9.    Enforcing Contracts
      10. Resolving Insolvency
      The indicators, on their own or in comparison with the indicators of a good practice economy or those of comparator economies in the region, may reveal bottlenecks reflected in large numbers of procedures, long delays or high costs.
       
       In terms of Starting a Business, the Philippines is at rank 165 in the East Asia and Pacific region with a Distance to Frontier score of 68.56

       
      The following indicators measure the DTF score:
       
      1. Procedures to legally start and operate a company (number)
                    - Preregistration (for example, name verification or reservation, notarization)    - Registration in the economy’s largest business city
                    - Post-registration (for example, social security registration, company seal)
       
      2. Time required to complete each procedure (calendar days)
                    - Does not include time spent gathering information
                    - Each procedure starts on a separate day (2 procedures cannot start on the   
                  same day).
                    - Procedures that can be fully completed online are recorded as ½ day.
                    - Procedure completed once final document is received
                    - No prior contact with officials
       
      3. Cost required to complete each procedure (% of income per capita)
                    - Official costs only, no bribes
                    - No professional fees unless services required by law or commonly used in   
                  practice
       
      4. Paid-in minimum capital (% of income per capita)
                    - Deposited in a bank or with a notary before registration (or within 3 months) 
       
      a.     Financial (Stock) Market
      The Philippine Stock Exchange (PSE) is the only stock exchange in the Philippines. It is one of the oldest stock exchanges in Asia, having been in continuous operation since the establishment of the Manila Stock Exchange in 1927. It currently maintains two trading floors, one at the PSE Centre (Tektite), Ortigas Center in Pasig City, and one at its principal office at the Ayala Tower One in Makati City''s Central Business District. The PSE is composed of a 15-man Board of Directors with Jose T. Pardo as Chairman.
       
      The main index for PSE is the PSEi, which is composed of a fixed basket of thirty (30) listed companies.
      The PSEi measures the relative changes in the free float-adjusted market capitalization of the 30 largest and most active common stocks listed at the PSE. The selection of companies in the PSEi is based on a specific set of public float, liquidity and market capitalization criteria. There are also six sector-based indices as well as a broader all shares index.
       
      Trading in the PSE is a continuous session from 9:30AM to 3:30PM daily with a recess from 12:00PM to 1:30PM
      .
       
      On July 26, 2010, PSE`s New Trading System (NTS) now known as PSEtrade was launched to replace the Maktrade System
      . One of the activities done prior to its launch was ensuring that all PSEtrade users including Trading Participants (TP) traders, back-office staff, nominees, directors and executives were ready. To ensure their readiness, PSE conducted a series of trainings on related systems namely:
      (1) PAM (Poste D'Access Aux Marche);
      (2) Broker Utility;
      (3) Client Code Generation;
      (4) Trade Amendments;
      (5) Trade Unbundling

       


       
       

       

    • Investment Regulation

       
      a. Philippine laws that deal with Investments


      i.             Executive Order No. 226 or the Omnibus Investment Code of 1987

       

      The Omnibus Investments Code of 1987, also known as Executive Order No. 226, contains the current investment policies of the Philippines. The government encourages foreign and domestic investments.

       

       
       

      Under the Book 1 of the EO 226, enterprises might register under the Board of Investments (BOI) to avail of fiscal investment incentives such as exemption from income taxes, exemption from custom duties and national internal revenue taxes on importation of supplies and spare parts

      . Moreover, there are non-fiscal incentives such as the permission to employ foreign nationals in supervisory and advisory positions as well as simplification of custom procedures for importation of equipment and exportation of processed products. Of course, investment incentives have restrictions and qualifications. These are the requirements to be qualified for investment incentives:

                   

      a.    Investing in pioneer areas and areas of investments listed in the Investment Priorities Plan (IPP);

      b.    At least 50% of production is for exports, if Filipino-owned;

      c.    At least 70% of production is for exports, if majority foreign-owned enterprise (more than 40% foreign equity).

       

       
       

      In the Guide to Investment Laws report of the Board of Investments

      , the following diagram was presented to provide a practical summary of E.O. 226:


      i.             Foreign Investments Act (R.A. 7042, 1991, amended by R.A. 8179, 1996)

       

       
       

      Foreign Investments Act (FIA) of 1991 stipulates that foreign ownership in industries can go up to 100%, except those specified in the Foreign Investment Negative List (FINL). Industries in the FINL require at least 60% of Filipino ownership, which means that 60% of capital stock outstanding and entitled votes is owned and held by citizens of the Philippines.




       

      i.             Special Economic Zone Act of 1995

       

       
       

      The Special Economic Zone Act of 1995 reinforce the government's efforts on investment promotion, employment creation, and export generation. The major thrust of the policy is for the Philippine Economic Zone Authority to cease developing economic zones and to encourage the private sector to develop economic zones.

      Ecozones are viewed as special enclaves, wherein firms, usually foreign ones, are supervised outside the normal customs barriers and thus enjoy favored treatment with respect to imports of intermediate goods, taxation, and infrastructure. Generally, these firms are also free from industrial regulations applying elsewhere in the country, subject to the conditions that almost all output is exported and that all imported intermediate goods are used within the zones or else re‐exported.

      As of May 31, 2015, there are 326 operating economic zones; of which 21 are Agro-Industrial Economic Zones, 216 are IT Parks and Centers, 68 are Manufacturing Economic Zones, 2 are Medical Tourism Zones and 19 are Tourism Economic Zones.




      i.             Retail Trade Law

      Republic Act 8762, otherwise known as the Retail Trade Liberalization Act, is a law that intends to promote both Filipino and foreign investors to forge efficient and competitive retail trade in the interest of empowering the Filipino consumer through lower prices, higher quality goods, better services and wider choices. Retail Trade is the act, occupation or calling of habitually selling direct to the general public merchandise, commodities or goods for consumption.

       

       
       

      Under Section 5 of RA 8762 provides that foreign-owned partnerships, associations, and corporation formed and organized under the laws of the Philippines may, upon registration with the Securities and Exchange Commission (SEC) and the Department of Trade and Industry (DTI), or in case of foreign-owned single proprietorships, with the DTI, engage or invest in the retail trade business, subject to the following categories:

       

       
       

      Category A - Enterprises with paid-up capital of the equivalent in Philippine Peso of less than Two million five hundred thousand US dollars (US$2,500,000.00) shall be reserved exclusively for Filipino citizens and corporations wholly-owned by Filipino citizens.

       

       
       

       Category B – Enterprises with a minimum paid-up capital of the equivalent in Philippines Pesos of Two million five hundred thousand US dollars (US$2,500,000.00) but less than Seven million five hundred thousand US dollars (US$7,500,000.00) may be wholly owned by foreigners except for the first two (2) years after the effectivity of this Act wherein foreign participation shall be limited to not more than sixty percent (60%) of total equity.

       

       
       

      Category C – Enterprises with a paid-up capital of the equivalent in Philippine Pesos of Seven million five hundred thousand US dollars (US$7,500,000.00) or more may be wholly owned by foreigners.

       

       
       

      Category D – Enterprises specializing in high-end or luxury products with a paid-up capital of the equivalent I Philippine Pesos of Two hundred fifty thousand US dollars (US$250,000.00) per store may be wholly owned by foreigners.

       



      a.       Foreign Investments Restriction

       

      i.         Foreign Investments Act of 1991 as amende

       
       

       

       
       

       

       

       

      Republic Act No. 7042 also known as the "Foreign Investments Act of 1991" as amended by R.A. No. 8179, provides for the formulation of a Regular Foreign Investment Negative List, covering investment areas/activities which are open to foreign investors and/or reserved to Filipino nationals. Through Executive Order No. 184, the Tenth Regular FINL replaced the Ninth Regular Investment List on May 29, 2015. Unlike before, the list of professions reserved only for Filipino nationals is trimmed down to retain only pharmacy, radiologic and x-ray technology, criminology, forestry and law.

       

       
       

      List A: Foreign Ownership is Limited by Mandate of the Constitution and Specific Laws

      No Foreign Equity

      1. Mass media except recording

      2. Practice of professions

      a. Pharmacy

      b. Radiologic and x-ray technology

      c. Criminology

      d. Forestry

      e. Law

      3. Retail trade enterprises with paid-up capital of less than US $2,500,000

      4. Cooperatives

      5. Private security agencies

      6. Small-scale mining

      7. Utilization of marine resources in archipelagic waters, territorial sea, and exclusive zone as well as small-scale utilization of natural resources in rivers, lakes, bays, and lagoons.

      8. Ownership, operation and management of cockpits

      9. Manufacture, repair, stockpiling and/or distribution of nuclear power

      10. Manufacture, repair, stockpiling and/or distribution of biological, chemical and radiological weapons and anti-personnel mines

      11.Manufacture of firecrackers and other pyrotechnic devices

      Up to 20% Foreign Equity

      Private radio communications network

      Up to 25% Foreign Equity

      1.Private recruitment whether for local or overseas employment

      2. Contracts for the construction and repair of locally-funded public works except:

       

      a. Infrastructure/development projects covered in RA 7718; and

      b. Projects which are foreign funded or assisted and required to undergo international competitive bidding

       

      3. Contracts for the construction of defense-related structures

      Up to 30% Foreign Equity

      Advertising

      Up to 40% Foreign Equity

      1. Exploration, development and utilization of natural resources

      2. Ownership of private lands

      3. Operation of public utilities

      4. Educational institutions other than those established by religious groups and mission boards

      5. Culture, production, milling, processing, trading except retailing, of rice and corn and acquiring, by barter, purchase or otherwise, rice and corn and the by-products thereof

      6. Contracts for the supply of materials, goods and commodities to government-owned or controlled corporation, company, agency or municipal corporation

      7. Facility operator of an infrastructure or a development facility requiring a public utility franchise

      8. Operation of deep sea commercial fishing vessels

      9. Adjustment companies

      10. Ownership of condominium units
       
       
      List B: Foreign Ownership limited for reasons of security, defense, risk to health and morals and protection of small-and medium-scale enterprises

      Up to 40% Foreign Equity

      1. Manufacture, repair, storage, and/or distribution of products and/or ingredients requiring Philippine National Police (PNP) clearance:

       

      a. Firearms (handguns to shotguns), parts of firearms and ammunition thereore, instruments or implements used or intended to be used in the manufacture of firearms.

      b. Gunpowder

      c. Dynamite

      d. Blasting supplies

      e. Ingredients used in making explosives

        i. Chlorate of potassium and sodium

        ii. Nitrates of ammonium, potassium, sodium barium, copper (11), lead (11), calcium and cuprite

        iii. Nitric acid

        iv. Nitrocellulose

         v. Perchlorates of ammonium, potassium and sodium

        vi. Dinitrocellulose

        vii. Glycerol

        viii. Amorphous phosphorus

        ix. Hydrogen peroxide

        x. Strontium nitrate powder

        xi. Toluene

       

      f. Telescopic sights, sniper scope and other similar devices

        However, the manufacture or repair of these items may be authorized by the Chief of the PNP to non-Philippine nationals; Provided that a substantial percentage of output, as determined by the said agency is exported. Provided further that the extent of foreign equity ownership allowed shall be specified in said authority/clearance

       

      2. Manufacture, repair, storage and/or distribution of products requiring Department of National Defense (DND) clearance:

       

      a. Guns and ammunition for warfare

      b. Military ordinance and parts thereof (e.g. torpedoes, depth charges, bombs, grenades, missiles)

      c. Gunnery, bombing and fire control systems and components

      d. Guided missiles/missile systems and components

      e. Tactical aircraft (fixed and rotary-winged), parts and components thereof

      f. Space vehicles and component systems

      g. Combat vessels (air, land and naval) and auxiliaries

      h. Weapons repair and maintenance equipment

      i. Military communications equipment

      j. Night vision equipment

      k. Stimulated coherent radiation devices, components

      l. Armament training devices

      m. Others as may be determined by the Secretary of the DND

       

      However, the manufacture or repair of these items may be authorized by the Secretary of National Defense to non-Philippine nationals; Provided that a substantial percentage of output, as determined by the said agency, is exported. Provided further that the extent of foreign equity ownership allowed shall be specified in the said authority/clearance (RA 7042 as amended by RA 8179).

       

      3. Manufacture and distribution of dangerous drugs (RA 7042 as amended by RA 8179).

       

      4. Sauna and steam bathhouses, massage clinics and other like activities regulated by law because of risks posed to public health and morals (RA 7042 as amended by RA 8179).

       

      5. All forms of gambling (RA 7042 as amended by RA 8179) except those covered by investment agreements with PAGCOR (PD 1869 as amended by RA 9487).

       

      6. Domestic market enterprises with paid-in equity capital of less than the equivalent of US $200,000 (RA 7042 as amended by RA 8179).

       

      7. Domestic market enterprises which involve advanced technology or employ at least fifty (50) direct employees with paid-in equity capital of less than the equivalent of US $100,000 (RA 7042 as amended by RA 8179).
       
      ii.  Anti-Dummy Law
       
      Commonwealth Act No. 108, as amended, is an Act to punish evasion of the laws on the nationalization of certain rights, franchises or privileges. Section 2-A of the Anti-Dummy Law is intended to prevent the circumvention of the nationalization laws of the country. The Anti-Dummy Law bans the employment of aliens in all entities engaged in nationalized activities and the ban on alien employment includes even minor or clerical or non-control positions.
       
      As the Anti-Dummy Law now stands, the provision in Section 2-A of the said law against the employment by any person, corporation or association of an alien, who shall intervene in the management, operation, administration or control thereof, whether as officer, employee, or laborer, applies where the exercise or enjoyment of the property or of the franchise, privilege, or business engaged in by such person, corporation or association "is expressly reserved by the Constitution or the law to the citizens of the Philippines" or "corporations or associations at least 60% of the capital of which is owned by such citizens." 
       
       iii.  Capital Regulation
       
      Banks to be established shall comply with the required minimum capital enumerated below or as may be prescribed by the Monetary Board:

       

       
       

      Type of Bank       

      Revised Amounts

      (In Million Pesos)

      a. Universal Banks

      4,950.0

      b. Commercial Banks

      2,400.0

      c. Thrift Banks

            - With head office in Metro Manila

           - With head office in cities of Cebu and Davao

           - Other Areas

       

       

      1,000.0

      500.0

      250.0

      d. Rural Banks

          - In Metro-Manila

          - Cities of Cebu and Davao

          - In all other cities

          - In 1st to 4th class municipalities

          - In 5th and 6th class municipalities

       

       

       

                  100.0

      50.0

      25.0

      10.0

      5.0

      e. Cooperative Banks 

      10.0
       

      At least 25% of the total authorized capital stock shall be subscribed by the subscribers of the proposed bank, and at least 25% of such subscription shall be paid-up, provided that in no case shall the paid-up capital be less than the minimum required capital stated in Item 1 above.

      In case a foreign entity will engage in the retail business or invest in a retail store in the Philippines, the following are the requirements:

      a. Net worth of at least two hundred million US dollars of the parent corporation, for those that want to establish enterprises under Categories B and C, and net worth of at least fifty million US dollars for Category D;

      b. Ownership of at least five retail stores or franchises anywhere in the world or at least one branch with minimum capitalization of twenty-five million US dollars;

       c. Five-year track record in retailing; and

      d. The foreign retailer’s home country offers reciprocity rights to Filipino retailers.

       

       
       

      iv. Land ownership regulations

       

      Foreigners are not permitted to own land in the Philippines, except in cases of hereditary succession. However, foreigners investing in the Philippines are allowed to lease private land for 50 years, renewable once for a maximum period of 25 years.

      The Condominium Act allows for the ownership of condominium units by foreign investors or multinational corporations in some situations. If the common areas of a condominium project are co-owned by the owners of individual units, the units may be conveyed or transferred only in favor of Filipino citizens (except in cases of hereditary succession) and Filipino corporations. Where the common areas are held by a corporation, the transfer or conveyance of units to non-Filipinos is allowed, provided that the foreigners’ interest in the project does not exceed the 40 percent limit provided under the existing laws.

       

      v. Foreign exchange control regulations

       

      Foreign investments must be registered with, and foreign loans approved by, the Bangko Sentral ng Pilipinas (BSP), so these can be serviced, repatriated or paid back using the foreign currency sourced from the local banking system. Certain types of foreign loans must be approved by the BSP, regardless of the source of foreign exchange that will be tapped to service and repay the loan. Outside the banking system, foreign exchange is freely traded.

       
       
       
       
       

    • Investment Incentives

       a.   Preferential Policies

       

      i.             Omnibus Investments Code of 1987 (E.O. 226) as amended
       
      This code integrates the basic laws on investments, clarifying and harmonizing their provisions to encourage and guide domestic and foreign investors. It was passed through EO 226, which took effect on 13 August 1987. Proponents who will invest in priority areas of activity listed in the Investment Priorities Plan (IPP) can qualify for incentives.
      These are the requirements to be qualified for investment incentives:
      1. Investing in PIONEER Areas and areas of investments listed in the Investment Priorities Plan (IPP).
      2. At least 50% of production is for exports, if Filipino-owned.
      3. At least 70% of production is for exports, if majority foreign-owned enterprise (more than 40% foreign equity).
       
      Under the Investment Priorities Plan (IPP) 2014-2016: Industry Development for Inclusive Growth published by the Department of Trade and Industry – Board of Investments, the following activities comprise the recommended list of preferred activities for investments under the 2014 Investment Priorities Plan:
       
      I. Preferred List of Activities
      1. Manufacturing
      a. Motor vehicle (based on Logistics Efficiency Index; excluding motorcycles, e-bikes and golf carts) and motor vehicle parts and components:
       
      ·         Body panel stamping
      ·         Engines, transmissions, and transaxle
      ·         Large injection molded parts
      ·         Bumpers; instrument panel; door trims; center console; grill; wheel house finisher; lamps; shock absorber; wiper motor/blade; engine mounts; electric power steering; combination meter; instrument cluster; chassis & sub-frame; interior finishing; switches; seat mechanism; retractable seat belts; window regulator; constant velocity joints/transmission; aluminium radiators; plastic fuel tanks; fuel pumps; brake system and components; evaporators and condensers; relays; flame laminated automotive fabric; door & rear view mirrors; automotive glass; engine parts & assembly; and transmission parts & assembly
      ·         Controller assembly, motor, and battery (other than lead acid) for electric vehicle
      b. Shipbuilding including parts and components
      c. Aerospace parts and components
      d. Chemicals
      ·         Oleo-chemicals
      ·         Petrochemicals and derivatives
      ·         Chlor-Alkali Plants
      e. Virgin paper pulp
      f. Copper wires and copper wire rods
      g. Basic iron and steel products, steel grinding balls, long steel products    
          (billets and reinforcing steel bars), and flat hot/cold-rolled products
      h. Tool and Die
      ·         Simple, Compound and Progressive Dies for metal stamping or metal forging
      ·         Molds for die casting, for plastic injection or blow molding, glass blow molding, forging, encapsulation molds
      ·         Jigs and fixtures for metal cutting and metal forging
       
       
       
       
       
      2. Agribusiness and Fishery
      a. Commercial production (Subject to geographical supply considerations. In the case of poultry and livestock production, this is limited to areas in ARMM, Mindoro and Palawan.)
      ·         Coconut, corn, cassava, coffee, cocoa, fisheries, poultry and livestock;
      ·         High value crops – rubber, spices, vegetables and fruits;
      ·         Emerging commodities – sampaloc, jackfruit, peking duck, native pigs, siling labuyo, peanuts, monggo, and achuete.
      b. Commercial processing (Subject to geographical supply considerations. In the case of poultry and livestock production, this is limited to areas in ARMM, Mindoro and Palawan.)
      ·         Extraction of higher value substances from agricultural and forest-based raw materials through bioprocessing;
      ·         Conversion of agricultural and fishery products, their by-products and wastes, to a form ready for further processing or final consumption.
      c. Production of animal and aqua feeds excluding those for game animals, fowls and other species for pet/leisure purposes (Subject to geographical supply considerations. In the case of poultry and livestock production, this is limited to areas in ARMM, Mindoro and Palawan.)
      d. Production of fertilizers and pesticides (Subject to geographical supply considerations. In the case of poultry and livestock production, this is limited to areas in ARMM, Mindoro and Palawan.)
      e. Modernization of sugar mills
      f. Mechanized agriculture support services, e.g. harvesting, plowing, and spraying/dusting (Subject to geographical supply considerations. In the case of poultry and livestock production, this is limited to areas in ARMM, Mindoro and Palawan.)
      g. Agriculture support infrastructures, e.g. facilities for drying, cold chain storage, blast freezing, bulk handling and storage; packing houses, trading centers, ice plants in Less Developed Areas, AAA slaughterhouse, AAA dressing plant (Subject to geographical supply considerations. In the case of poultry and livestock production, this is limited to areas in ARMM, Mindoro and Palawan.)
       
      3. Services
      a. Integrated Circuit Design
      b. Creative Industries/Knowledge-Based Services (Covers start-ups of small newly incorporated domestic players/enterprises only.):
      ·         Animation
      ·         Software development (Covers only those with own Intellectual Property that are developed for commercial sale.)
      ·         Game development
      ·         Health Information Management Systems
      c. Ship repair
      d. Charging stations for e-vehicle
      e. Maintenance, Repair and Overhaul (MRO) of aircraft
      f. Industrial waste treatment
       
      4. Economic and Low-cost Housing (horizontal and vertical) (Based on a price ceiling of Php3.0 million and subject to geographical considerations.)
       
      5. Hospitals (Subject to geographical considerations.)
       
      6. Energy
      a. Exploration and development of energy sources (including energy crops or upstream biofuels)
      b. Power generation plants (Subject to capacity installation gap based on DOE’s five-year supply-demand forecast or up to 2019, i.e., if forecast is 6000MW, then the first 6000MW capacity receives the incentives, and said installation gap will be divided among areas in Luzon, Visayas and Mindanao.)
      c. Ancillary services
       
      7. Public Infrastructure and Logistics
      a. Airports and seaports (includes RO-RO ports) for cargo and passenger
      b. Air, land and water transport (Limited to brand new ships, aircrafts, seaplanes, RO-RO; buses, boats, mass rail – limited to capital equipment incentive only)
      c. LNG Storage and Regasification Facility
      d. Bulk water treatment and supply
       
      8. PPP Projects
       
      II.  Export Activities
      1. Production and manufacture of export products
      2. Services Exports
      3. Activities in support of exporters
       
      III. Special Laws
      1. Industrial Tree Plantation (P.D. 705)
      2. Mining (R.A. 7942) (limited to capital equipment incentive)
      3. Publication or Printing of Books/Textbooks (R.A. 8047)
      4. Refining, Storage, Marketing and Distribution of Petroleum Products (R.A. 8479)
      5. Rehabilitation, Self-Development and Self-Reliance of Persons with Disability (R.A. 7277)
      6. Renewable Energy (R.A. 9513)
      7. Tourism (R.A. 9593)
       
      IV. ARMM List
       
      The ARMM List covers priority activities that have been identified by the Regional Board of Investments of the ARMM (RBOI-ARMM) in accordance with E.O. No. 458. The RBOI-ARMM may also register and administer incentives to activities in this IPP for projects locating in the ARMM.
       
      b.   Financial and Tax Incentives
       
      Under the Board of Investments’ 2014 Investment Priorities Plan: Industry Development for Inclusive Growth[1], fiscal incentives will be granted by the State for enterprises that venture into these priority areas, provided they qualify for certain criteria and fulfill the terms and conditions of their registration.
      Aligned with the goals, priorities and strategies of the updated Philippine Development Plan (2011-2016), the IPP takes off from  the  six  priority  areas of economic activity under the PDP, namely: agro-industry; manufacturing; IT-BPM; logistics; tourism; and, construction.
      Upon registration with the BOI, the enterprise will be entitled to the following incentives:
      i. Tax Exemptions
      a. Income Tax Holiday (ITH)
      1.  BOI registered enterprises shall be exempt from the payment of income tax reckoned from the approved target or actual date of commercial operations, whichever comes first, but in no case earlier than the date of registration, as follows:
      • Six (6) years for new projects granted pioneer status;
      • Six (6) years for projects located in Less Developed Areas (LDAs), regardless of status (pioneer or non-pioneer) or type of projects (new or expansion);
      • Four (4) years for new projects granted non-pioneer status; and
      • Three (3) years for expansion and modernization projects. (As a general rule, ITH shall be limited only to incremental sales given a specified base year)
       
      2. New registered pioneer and non-pioneer enterprises, expansion enterprises granted pioneer incentives under Article 40 of EO 226, and t hose located in LDAs may be granted one (1) bonus year of ITH incentive for each of the following criterion:
      • Capital Equipment to Labor Ratio Criterion. The ratio of derived dollar cost of capital equipment to the average number of direct labor does not exceed US$1 0,000; or
      • Net Foreign Exchange Earnings/Savings Criterion. The net foreign exchange      savings or earnings for the first three (3) years of commercial operation should at least be US$500,000; or
      • Indigenous Raw Material Cost Criterion. The indigenous raw materials used in the manufacture or processing of the registered product is at least fifty percent (50%) of the total cost of raw materials for each of the taxable year beginning the start of commercial operation up to when the extension using this criterion was applied for.
      In no case shall a registered firm avail of ITH for a period exceeding eight (8) years.
       
      b. Duty free importation of capital equipment, spare parts and accessories, subject to conditions.
       
      A registered enterprise with a bonded manufacturing warehouse shall be exempt from customs duties and national internal revenue taxes on its importation of required supplies/spare parts for consigned equipment or those imported with incentives. The availment period shall not exceed ten (10) years from date of registration.
       
      c. Exemption from wharfage dues and export tax, duty, impost, and fees. All enterprises registered under the IPP will be given a ten (10) year period from the date of registration to avail of the exemption from wharfage dues and any export tax, impost, and fees on its non-traditional export products.
       
      d. Tax and duty-free importation of breeding stocks and genetic materials Agricultural production and processing projects will be exempt from the payment of all taxes and duties on their importation of breeding stocks and genetic materials within ten (10) years from the date of registration or commercial operations.
       
      ii. Tax Credits
      a. Tax credit on the purchase of domestic breeding stocks and genetic materials. A tax credit equivalent to one hundred percent (100%) of the value of national internal revenue taxes and customs duties that would have been waived (had these been imported) on the purchase of local breeding stocks and genetic materials within ten (10) years from the date of registration or commercial operations.
      b. Tax credit on raw materials and supplies
      Tax credit equivalent to the national internal revenue taxes and duties paid on raw materials, supplies, and semi-manufactured products used in the manufacture of export products and forming part thereof.
       
      iii. Additional Deductions from Taxable Income
      a. Additional deduction for labor expense (ADLE)
      For the first five (5) years from date of registration, a registered enterprise shall be allowed an additional deduction from taxable income equivalent to fifty percent (50%) of the wages of additional skilled and unskilled workers in the direct labor force. This incentive shall be granted only if the enterprise meets a prescribed capital to labor ratio and shall not be availed of simultaneously with ITH.
      This additional deduction shall be doubled or become one hundred percent (100%) if the activity is located in an LDA. The privilege, however, is not granted to mining and forestry-related projects as they would naturally be located in certain areas to be near their source of raw materials.
      ADLE cannot be simultaneously availed of with ITH.
       
       
       
       
       
      b. Additional deduction for necessary and major infrastructure work
      A registered enterprise locating in LDAs or in areas deficient in infrastructure, public utilities, and other facilities may deduct from taxable income an amount equivalent to the expenses incurred in the development of necessary and major infrastructure works.
       
      iv. Zero-rated Value-Added Tax (VAT)
      The BOI endorses to the BIR two types of zero percent (0%) VAT applications:
      a. For purchases of raw materials and supplies used in the manufacture and which form part of the registered export product; and
      b. For purchases of goods, services, or properties of firms exporting one hundred percent (100%) of their product. (Motor vehicles are not covered, except specialized vehicles such as backhoe, forklift, etc.)
       
      c.   Other Incentives
       
      Investors can also avail of the following non-fiscal incentives:
       
      1.    Employment of foreign nationals
      2.    Simplification of customs procedures for the importation of equipment, spare parts, raw materials and supplies and exports of processed products
      3.    Importation of consigned equipment for a period of 10 years from date of registration, subject to posting of a re-export bond equivalent to 100% of the estimated taxes and duties.
      4.    The privilege to operate a bonded manufacturing/trading warehouse subject to customs rules and regulations
       

    • Industrial Area Info

       a.   Characteristics of the Region

       

      i.             Reasons to Invest in the Philippines
       
      The Board of Investments provides the following reasons why investing in the Philippines is an advantageous and correct decision:
       
      1.    Strategic Business Location
       
      The Philippines is located right in the heart of Asia – today the fastest growing region. It is located within four hours flying time from major capitals of the region. Sited at the crossroads of the eastern and western business, it is a critical entry point to over 500 million people in the ASEAN market and a gateway of international shipping and air lanes suited for European and American businesses.
       
      2.    Low cost of doing business
      Wages are typically less than a fifth of that in the U.S. Local communication, electricity and housing costs are also 50% lower compared to the U.S. rates. Foreign companies that are now outsourcing programming and business processes to the Philippines estimate 30 to 40% business cost savings, 15 to 30% call center services and application systems and 35 to 50% software development.
       
      3.    People Power
      The Filipino workforce is one of the most compelling advantages the Philippines has over any other Asian country. With higher education priority, the literacy rate in the country is 94.6% - among the highest. English is taught in all schools, making the Philippines the world’s third largest English-speaking country. Every year, there are some 350,000 graduates enriching the professional pool.
       
      4.    Liberalized and Business-Friendly Economy
      An open economy allows 100% foreign ownership in almost all sectors and supports a Build-Operate-Transfer (BOT) investment scheme that other Asian countries emulate. Government corporations are being privatized and the banking, insurance, shipping telecommunications and power industries have been deregulated. Incentive packages include the corporate income tax, reduced to a current 32%, with companies in the Special Economic Zones are subject to only 5% overall tax rates. Multinationals looking for regional headquarters are entitled to incentives such as tax exemptions and tax and duty-free importation of specific equipment and materials.
       
      5.    Unlimited business opportunities
      As Asian economies integrate within the vast framework of the ASEAN Free Trade Agreement (AFTA), the Philippines is the natural and most strategic location for firms that want access to the large ASEAN market and its vast trade opportunities. The Philippines has enhanced and primed up various areas for investors and offers a dynamic consumer market accustomed to an array of product choices created by a competitive domestic economy.
       
      6.    Developing Infrastructure for Global Growth
      A well-developed communication, transportation, business and economic infrastructure links the three major islands and distinguishes the Philippine economy. Highly accessible by air, water and cyberspace, liberalization of inter-island shipping and domestic aviation further sparked improved facilities and services. The container terminals are suited to handle cargo traffic at the highest levels of efficiency. Communication provides redundant international connectivity 24/7 with fiber optic cable as primary backbone network and satellite as backup. Economic reforms emphasize regional growth, converting remote areas into business centers. The landmark BOT legislation allows private investors to build and operate infrastructure, then turn it over to the Philippine government after a set period of time.
       
      7.    First-class lifestyle
      The Philippines is second home to expatriates who enjoy the company of the warmest people in the region, the country’s openness to varied cultures and a decidedly global outlook. Expats enjoy accessible and affordable luxuries – business centers, housing, schools, hospitals, shopping malls, hotels and restaurants, beach resorts, and recreation centers.
       
      8.    Abundant resources
      An archipelago like the Philippines offers diverse natural resources, from land to marine to mineral resources. It is also the biggest copper producer in Southeast Asia and among the top ten producer of gold in the world. It is also home to 2,145 fish species, four times more than those found in the Bahamas. The 7,100 islands boast of beautiful beaches and breathtaking sceneries that offer soothing leisure and relaxation spots for vacationers and tourists.
       
      9.    All you need and more
      The Philippines offer state-of-the-art telecommunications facilities, adequate and uninterrupted power supply. There are ready-to-occupy offices and production facilities, computer security and building monitoring systems, as well as complete office services in specialized IT zones. With the government's focus on building up an IT-enabled economy, the Philippines is on its way to becoming the E-services Hub of Asia.
       
       
       
       
       
       
       
      b.   Japanese investors in the Philippines
       
      At present, there are 867 Japanese locator enterprises in economic zones operated by the PEZA. These companies have invested a total of P595.665 billion since 1995 up to September 2015.
      The following are the 20 largest of the Japanese locators and their respective investments in the country:

      Japanese locators

      Investments in the country

       

      Taganito HPAL Nickel Corp.

       

      P62.72 billion

       

       

      Toshiba Information Equipment (Philippines), Inc.

       

      P56.38 billion

       

       

      Ibiden Philippines

       

      P31.29 billion

       

      Coral Bay Nickel Corp.

       

      P28.29 billion

       

       

      Canon Business Machines

       

      P20.59 billion

       

       

      Epson Precision

       

      P17.32 billion

       

       

      Rohm Electronics

       

      P16.39 billion

       

       

      Toyota Autoparts Philippines

       

      P12.55 billion

       

       

      Tsuneishi Heavy Industries

       

      P11.89 billion

       

       

      TDK Philippines

       

      P8.10 billion

       

      Taiyo Yuden

       

      P7.94 billion

       

       

      Terumo

       

      P7.67 billion

       

       

      Pilipinas Kao

       

      P7.72 billion

       

       

      Nidec

       

      P7.62 billion

       

       

       

      Philippines Murata Land

       

       

      P7.4 billion

       

       

      Green Future Innovations

       

      P6.0 billion

       

       

      Brother Industries

       

      P5.98 billion

       

       

      Funai Electric Cebu

       

      P5.28 billion

       

       

      First Sumiden Circuits

       

      P5.22 billion

       

       

      Nidec Precision

       

      P4.32 billion