Bernardo M. Villegas
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Bright Prospects for Hotel Industry (Part 2)

          Tourism destination development is being addressed by the Department of Tourism with the support of the provinces and the Tourism Infrastructure and Enterprise Zone Authority (TIEZA) through its tourism enterprise zone development program that aims at creating integrated marine resorts in non-urban destinations such as Panglao Island in Bohol province; San Vicente in Palawan; Boracay Island; Bataan province which has the first TIEZA enterprise zone.  There are also the MICE (Meetings, Incentives, Conferences and Events) facilities in urban centers such as Iloilo (the most improved urban center).  Metro Manila, Cavite, Batangas, Cebu, Bohol, Iloilo, Negros, Ilocos Sur, Ilocos Norte, Mountain Province, Palawan and Davao are already moving to develop urban and non-urban tourism products based on their natural, historical and cultural attractions.  While the Government is addressing infrastructure concerns, both directly and through PPP initiatives (including at the Local Government levels), there is still much ground to cover on the tourist accommodation front as room shortfalls are expected to steadily increase in the urban and non-urban situations across the country.

         The Philippine Hotel Owners Association (PHOA) is actively seeking incentives from the Government to compensate for the handicaps faced by the Philippine tourism industry as described above in comparison to its ASEAN peers.  There are already existing incentives that resulted from the Tourism Act of 2009.   Among these incentives are:

         --Income Tax Holiday (ITH) for new enterprises in the Greenfield and Brownfield Tourism Zones for a period of six years from the start of business operations, which may be extended up to a maximum of six years depending on the substantial expansion or upgrade to be undertaken by the enterprise prior to the expiration of its first six year ITH. 

    --Newly registered Tourism Economic Zone enterprises shall likewise be allowed to carry over as deduction from gross income for the next six consecutive years immediately following the year of the loss, their net operating losses for any taxable year immediately preceding the current taxable year which had not been previously offset as deduction from gross income.

     --Five percent income tax on gross income inline of all other national and local taxes, license fees, imposts and assessments except real estate taxes and such fees as may be imposed by TIEZA after the ITH.

         --Exemption from all taxes and customs duties on importation of capital investment and equipment.

         --Tax deduction not to exceed 50% of the cost of environmental protection and cultural heritage preservation activities, sustainable livelihood programs for local communities and similar activities.

         In addition to these existing tax incentives, the PHOA is asking the Government for the follow additional incentives:

         --Retain Pioneer status for hotel projects, and grant Board of Investments (BOI) fiscal incentives for tourism developments throughout the country, lifting all investment restrictions in the accommodation sector.  BOI Regulation No. 2013-001 restricted incentives for accommodation establishment projects in Metro Manila, Cebu City, Mactan Island and Boracay Island.  This severely stifled overall tourism development as these are among the most popular destinations.  Tourist arrivals in these locations have registered double-digit growth numbers year-on-year.

         The Department of Tourism presented initial estimates showing the room gaps in these most popular destinations by 2022.  Metro Manila will have a room gap of 69,185; Cebu- Mactan will have a gap of 14,931. while Boracay will have 17, 775.   As a basis for comparison, Metro Manila, with only 24,000 hotel rooms as of 2016 falls far below Metro Bangkok with 44,000 room capacity.  Competitive incentives can attract additional room investments and allow Manila to catch up, given the expected growth in demand in the coming years as infrastructures are improved.

         --Provide incentives for renovation of existing but earlier-built hotels, in all hotel categories, to encourage owners to reinvest and enhance the quality of hotels nationwide.  These incentives may attract some foreign investors to partner with some domestic hotel owners in improving existing facilities, especially in the rural areas.  It is also recommended that these incentives include a tax offset equal to 50% of the total investment amount, with the reinvestment carried over for a maximum of three years.  The PHOA supports the position of the Department of Tourism that proposes to retain the pioneer status criteria for the “modernization of hotels/apartment hotels/serviced apartments/ condotels, and resorts accredited by the DOT with a project cost of at least the Philippine peso equivalent of a minimum of US$2,000/room.”

         --Carry forward for tax purposes the net losses incurred during Income Tax Holiday periods until hotel operation stabilizes.  Hotels and resorts take around three years to stabilize and become profitable because of high initial start-up costs and ramp up time.  Allowing net losses to be carried forward will encourage more investors as they will be able to enjoy the full benefit of the tax holidays granted to them.

         --Fully implement the fiscal incentives in all the TIEZA zones across the Philippines.

         On its part, the hotel or accommodation industry must fine-tune its marketing strategy.  While it is obvious that there is a great opportunity for the Philippines to expand its presence in both ASEAN and international non-ASEAN markets, it must develop products and packages appropriate to the needs of these markets.  It should focus on product development catering to the mid- high-end segments of the MICE market.  For the non-ASEAN segments, especially from the rapidly growing middle class of Northeast Asia, product development could pay greater attention to island-marine-beach/diving, ecotourism, city entertainment and gaming, nature and cultural sightseeing.  Trade shows, festivals, sports events, cultural performances and similar events while targeting specific markets should be cost effective.

         The hotel or accommodation sector is the catalyst that will energize one of the major engines of growth of the Philippine economy which is the international and domestic tourism industry.  It is an essential part of the tourism infrastructure as tourists require accommodation and the bulk of their spending is on accommodation services and facilities.  In performing this vital role, the hotel sector needs the full support of the government in many aspects of its operations involving infrastructure (roads, airports, seaports), information and communication technology (ICT), transportation technology (transit operations, traffic management), expansion and development of new hotels or accommodation facilities in popular destinations and finally the appropriate labor policies considering the seasonality of its manpower requirements.  Thanks to the very proactive stance being taken by the Philippine Hotel Owners Association (PHOA), the government and the private sector are jointly addressing the challenges offered by the bright prospects faced by the hotel sector the Philippines.  For comments, my email address is bernardo.villegas@uap.asia.