Philippines Creates Tax Incentives To Attract Shipbuilding Investors

HHIC-Phil, the country’s largest shipyard, filed the largest bankruptcy case in Philippine history in 2019 and remains closed today (HHIC-Phil)

Posted on Sep 20, 2021 5:49 PM by

The maritime executive

The Philippines is implementing a series of measures in hopes of reviving its shipbuilding and repair industry, which has been hit hard by the COVID19 pandemic.

According to a new article from the Manila Times, the Philippine government has identified shipbuilding as a strategic sector for economic recovery and is taking further steps to encourage investment. The Philippines has one of the fastest growing shipbuilding economies, with around 118 shipyards. The recent economic downturn has crippled the industry, which has contributed to material delivery delays, lockdown-induced labor disruptions, and increased operating expenses, leading to production delays and serious cash flow problems.

For this reason, the Philippine government has included the shipbuilding sector among the industries that are expected to receive economic benefits under a new Law on Business Recovery and Tax Incentives for Businesses (CREATE). The law offers tax relief for domestic and foreign shipyards doing business in the Philippines.

This could have significant benefits for a foreign bidder for the assets of the defunct HHIC-Phil shipyard in Subic Bay, the country’s largest shipbuilding plant. HHIC-Phil has been closed since bankruptcy in 2019, and the Philippine government has hinted that a North American buyer is in talks to acquire the yard by the end of the year.

At a recent Philmarine 2021 virtual conference, Reynaldo Lines, chief shipbuilding investment specialist in the Department of Trade and Industry (DTI), briefed the industry on the benefits of the law.

The Philippines 2020 Investment Priorities Plan (IPP), signed by President Rodrigo Duterte in November 2020, identified shipbuilding as one of the country’s preferred investment activities. Unlike in the past, when foreign-invested shipbuilding companies could only accept export orders, Lines said the new IPP now enables them to meet domestic market needs. In addition, shipbuilding companies will be entitled to a reduced corporate tax (CIT) rate of 30% to 25% for foreign and domestic shipyards, retroactively from July 2020.

Lines also added that the president is authorized by law to grant additional incentives to highly desirable projects with a minimum investment capital of $ 1 billion or capable of generating 10,000 jobs.

Shipyard owners will also be exempt from import duties for capital goods, raw materials, spare parts and accessories, including exemption from payment of value added tax (VAT).

These incentives are timely as the Philippines is experiencing significant domestic demand for vessels due to a decision by the Maritime Industry Authority (MARINA) to phase out wood-hulled vessels. The Philippine Navy has also been allocated a budget of $ 1.44 billion for the modernization and acquisition of new ships, and calls on industry players to step up their shipbuilding activities to meet demand.

The opinions expressed here are those of the author and not necessarily those of The Maritime Executive.

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