Providing For A Comprehensive Investment Incentives Program For The Tourism Industry

Case Overview and Summary

Summary of Presidential Decree No. 535 (Tourism Incentives Program of 1974)

Declaration of Policy (Section 2):
- The State aims to encourage and promote tourism in the Philippines, particularly in providing services to foreign tourists and travellers, to increase foreign exchange earnings and hasten economic development.

Definition of Terms (Section 3):
- "Philippine Tourism Authority" refers to the agency defined in Presidential Decree 189.
- "Registered Tourism Enterprise" refers to an entity registered with the Authority and engaged in rendering services to foreign tourists and travellers covered by the Tourism Priorities Plan.

Tourism Priorities Plan (Section 4):
- The Department of Tourism shall submit a Tourism Priorities Plan annually, setting forth the tourism activities and facilities to be prioritized and given incentives.

Incentives for Investors (Section 5):
- Investors in registered tourism enterprises shall enjoy the basic rights and guarantees under Section 4 of Republic Act No. 5186 (Investment Incentives Act).

Conditions for Availment of Tourism Incentives (Section 6):
- Enterprises must be registered with the Authority and meet the following requirements:
    - Ownership and control requirements (at least 60% Filipino-owned)
    - Compliance with constitutional or statutory requirements for activities reserved for Filipino citizens or corporations
    - Adequate accounting system to segregate operations
    - Revenue requirements (70% foreign currency for enterprises in Greater Manila, 50% for those outside Greater Manila)

Joint Registration (Section 7):
- Hotel owners and operators can register jointly if certain conditions are met.

Incentives Available to Registered Tourism Enterprises (Section 8):
- 50% of foreign exchange earned in the first 5 years is deductible from net taxable income (Section 8a)
- Net operating loss in the first 10 years can be carried over as a deduction for 6 years (Section 8b)
- Tax credit for taxes withheld on interest payments on foreign loans (Section 8c)
- Exemption from real estate taxes for the first 5 years (Section 8d)
- Exemption from tariff duties and compensating tax on imported machinery, equipment, and spare parts for 7 years (Section 8e)
- Tax credit for compensating tax and customs duties on locally purchased machinery, equipment, and spare parts (Section 8f)
- Deduction for undistributed profits reinvested (50% for expansion in Greater Manila, 75% for expansion outside Greater Manila or from Greater Manila to outside) (Section 8g)

Incentives to Philippine Nationals Investing in Registered Tourism Enterprises (Section 9):
- Investment allowance as a deduction from taxable income up to 10% of actual investment (Section 9a)
- Exemption from income tax on gains reinvested in new issues of stock or purchase of foreign-owned stock in registered tourism enterprises within 6 months (Section 9b)

Incentives to Foreign Nationals Investing in Registered Tourism Enterprises (Section 10):
- Exemption from withholding tax on dividends remitted abroad.

Other Incentives (Section 11):
- Provisions in Sections 10, 11, and 12 of Republic Act No. 5186 shall also apply.

Suspension or Cancellation of Incentives (Section 12):
- Incentives may be suspended or cancelled in accordance with Section 13 of Republic Act No. 6135.

Tourism Enterprises Registered Under Republic Act No. 6135 (Section 13):
- Enterprises registered under Republic Act No. 6135 shall continue to be governed by its provisions, but certain incentives under this Decree shall apply prospectively or only to expanded capacity.

Applicability to Existing Tourism Enterprises (Section 14):
- Existing enterprises not registered under Republic Act No. 6135 can register under this Decree, with incentives applicable prospectively or only to expanded capacity.

Certificate of Registration (Section 15):
- Registered tourism enterprises shall be issued a certificate of registration by the Authority, stating the enterprise's name, area of investment, nature of activity, registered capacity, and terms and conditions.

Implementing Agency (Section 16):
- The Philippine Tourism Authority shall issue rules and regulations for implementation within 60 days.

Penal Provisions (Section 17):
- Penalties shall be as provided for in Section 19 of Republic Act No. 6135.

Repealing Clause (Section 18):
- All laws, decrees, orders, rules and regulations inconsistent with this Decree are modified or repealed accordingly.

Effectivity (Section 19):
- This Decree shall take effect immediately.