The Philippines’ 2022 Strategic Investment Priority Plan

The Philippines extended and expanded the tax incentives for a wide range of industries under the 2022 Strategic Investment Priority Plan (SIPP).  The selected industries are those the government deems to be critical to the country’s development such as artificial intelligence, and high technical manufacturing.

Incentives in the SIPP take the form of income tax holidays (ITH), enhanced deductions (EH), and a preferential five percent corporate income tax rate (CIT).

The Philippines recently extended tax incentives for investments in numerous fields with the launch of the 2022 Strategic Investment Priority Plan, as the government seeks to spur the economy and develop strategically important industries.

On June 14, 2022, the 2022 Strategic Investment Priority Plan (SIPP) came into effect, expanding tax incentives to several new areas. The plan was approved by then-president Rodrigo Duterte on May 24, 2022, in Memorandum Order No. 61.

The SIPP stands to benefit investors in a wide range of industries that the government deems critical to upgrading its industrial and high-tech sectors, from electric vehicles to medical devices to artificial intelligence.

A tiered approach to incentives

The SIPP lists activities that qualify for investment incentives under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act. The CREATE Act is major fiscal stimulus legislation that came into force in 2021 to aid the Philippines’ recovery from COVID-19-related economic disruption.

The SIPP builds on the 2020 Investment Priorities Plan (IPP), which granted incentives for areas the government deemed to be priorities for investment amid the initial outbreak of COVID-19. The IPP is explicitly integrated into the SIPP.

Incentives in the SIPP take the form of income tax holidays (ITH), enhanced deductions (EH), and a preferential 5 percent corporate income tax rate (CIT). Typically, an incentive will have 4-7 years of ITH before transitioning to 5-10 years of either EH or CIT. Investors can elect whether to claim EH or CIT if engaged in export activities.

The length of the incentive depends on which of the three tiers the relevant activity falls under, whether the activity is domestic or for export, and whether the investment is in the National Capital Region, metropolitan areas, or areas contiguous and adjacent to the National Capital Region, or other regions.

The incentive structure is summarized as follows:

Incentive Scheme for Exporters

Incentive Schemes for the Domestic Market

Tier I

According to the SIPP, Tier I activities include all activities listed in the 2020 IPP, as amended by Memorandum Circular No. 2021-005 unless they are listed in Tier II or Tier III.

Activities listed in the 2020 IPP include, but are not limited to, the following:

• Qualified manufacturing activities, including agro-processing;
• Agricultural, fishery, and forestry products;
• IC design;
• Creative industries and knowledge-based services;
• Maintenance, repair, and overhaul of aircraft;
• Charging/refueling stations for alternative energy vehicles;
• Industrial waste treatment;
• Telecommunications;
• Mass housing; and
• Infrastructure and logistics.

In addition to the activities listed above, the 2020 IPP lists many other activities that now apply under the SIPP.

Tier II

The second tier of the SIPP focuses on activities that upgrade the Philippines’ value chains. This includes, but is not limited to, the following activities:

• Green ecosystems: Electric vehicle (EV) assembly, manufacture of EV parts, renewable energy, energy storage, recycling, etc.
• Health-related activities: Manufacturing in support of the Vaccine Self-Reliance Program and other health-related programs, medicines, active pharmaceutical ingredients, specialty hospitals, etc.
• Defense-related activities: As endorsed by the Department of National Defense, the Armed Forces of the Philippines, or the National Security Council.
• Industrial value-chain gaps: Activities that address value-chain gaps in steel, textiles, chemicals, green metals processing, crude oil refining, and lab-scale wafer fabrication.
• Food security-related activities.

Tier III

The third and final tier of the SIPP refers to activities that are strategically important for transforming the Philippines’ economy. This includes, but is not limited to, the following activities:

• Research & development and activities adopting advanced digital production technologies of the fourth industrial revolution: Robotics, artificial intelligence (AI), additive manufacturing, data analytics, digital transformative technologies, nanotechnology, biotechnology, production and/or adoption of new hybrid seeds, etc.
• Highly technical manufacturing, and production of innovative products and services: Manufacture of equipment, parts, and services, commercialization of intellectual property (IP) and R&D products/services, aerospace, medical devices, Internet of Things (IoT) devices and systems, full-scale wafer fabrication, advanced materials, etc.
• Establishment of innovation support facilities: R&D hubs, Centers of Excellence, science and technology parks, innovation incubation centers, tech startups, startup enablers, incubators and accelerators, and space-related infrastructures.

Strategically leveraging tax incentives

The SIPP introduces tax incentives for numerous industries and activities in the Philippines. Given the expansiveness of the SIPP, businesses operating in or considering investing in the Philippines would do well to assess whether they qualify for incentives under the SIPP. Further, additional industries not expressly included in the SIPP can potentially apply for incentives under the SIPP.

Businesses that qualify for SIPP incentives may face other strategic choices, such as whether to claim ITH or ED incentives. Accordingly, businesses seeking to claim SIPP incentives should consider how different incentive structures fit into longer-term business plans in the Philippines.

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