Tax breaks eyed

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Monday, August 25, 2014


THE Cebu City Council has approved an Investment Incentive Code, while Mandaue City is coming up with a list of “preferred business activities” that can be offered tax holidays.

Both cities are vying for more investors, as well as the expansion of existing businesses.

The newly approved ordinance also provides for the creation of the Cebu City Investment Incentive Board and the City Investment Assistance Center.

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Councilor Alvin Arcilla, who proposed it, said the “landmark” ordinance was required by the Department of Interior and Local Government (DILG).

The DILG, Mandaue City Treasurer Regal Oliva explained in a recent public consultation, has also called Mandaue City’s attention to the need to update its schedule of fair market values and business tax rates.

Competitiveness

Cebu City placed seventh nationwide in the 2014 index of competitive cities and towns, recently released by the National Competitiveness Council. Mandaue City ranked 70th out of 136, which a local official earlier said was caused by a miscommunication with the study team.

Cebu City was ranked 10th nationwide in terms of economic dynamism. Mandaue City placed 68th.

The Investment Incentive Code for Cebu City seeks to create confidence among investors and “to provide diverse employment opportunities to the residents of Cebu City.”

The code will apply to all direct investments in the City, including domestic and foreign, resident and non-resident, but will exclude portfolio investments and short-term monetary operations.

The City has yet to identify the specific types of business that will be given incentives, and the newly-created board has the authority to do that, said Vice Mayor Edgardo Labella.

Investment board

Mayor Michael Rama will chair the investment incentive board, and his vice-chair will be the councilor who heads the committee on trade, commerce and entrepreneurship.

Its members will include the chair of the council’s committee on budget and finance, the city planning and development officer, the city treasurer, the provincial director of the Department of Trade and Industry (DTI) 7, the president of the Cebu Chamber of Commerce and Industry (CCCI), and a representative from the private sector.

Rules

It will create the implementing rules for the ordinance within 90 days of its approval.

The board will also have to initiate research work to identify priority development areas, as well as the types of business activities that will be promoted.

New and existing investors who intend to avail themselves of the incentives must operate in Cebu City.

They must have a capital of at least P3 million but not more than P15 million for small-scale, more than P15 million to P100 million for medium-scale, and more than P100 million for large-scale industries.

They will be required to employ at least 10 city residents, for small-scale operations; 20 for medium-scale; and 100 for large-scale establishments.

Discounts

Instead of having to pay a tax equivalent to one-twentieth of one percent of their capital investment, a registered and qualified enterprise will get a business tax exemption.

All real properties acquired by the company in the first three years from the date of registration will be entitled to an additional tax discount of 10 percent on the basic real property tax, as long as these properties are exclusively used for their business.

“With the influx of investors, it is a compelling need to give incentives to create a climate that will be conducive for the businesses,” Vice Mayor Labella told Sun.Star Cebu.

Mandaue City, for its part, plans to give tax incentives to manufacturing firms to encourage them to expand their business, said Administrator James Abadia.

This will help the City achieve its new vision of becoming the country’s primary source of high-quality consumer products by 2020, he said during a consultation with taxpayers last Thursday.

The City adopted the vision as it implements a governance framework called the Performance Governance System (PGS). Under the PGS, a local government unit adopts a vision and comes up with a strategy to achieve this through a multi-sectoral approach.

Preferred

Abadia said the City is coming up with a list of “preferred business activities” that will be offered tax holidays.

A highly urbanized city, Mandaue hosts several manufacturing enterprises. It is known for its furniture-making industry.

Manufacturing firms are exempted from the City’s proposed higher business tax rates.

The City Council is set to pass an ordinance raising the City’s business tax rates next month. The proposed increase ranges from 10 to 60 percent.

Another ordinance raising the City’s schedule of fair market values (SMV) by 20 to 300 percent is also targeted to be passed next month.

The City’s SMV has not been updated for 25 years, while its business tax rates have not changed for 15 years. Higher market values mean higher real property tax.

Oliva said the City hopes to implement the new SMV and business tax rates next year.

But the increases will be staggered to give taxpayers time to adjust.

Published in the Sun.Star Cebu newspaper on August 25, 2014.

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