Investment Priorities Plan Philippines: Which Activities Qualify Under RA 5186

The Investment Priorities Plan (IPP) is the annual plan prepared by the Board of Investments and approved by the President upon the recommendation of the National Economic Council. Under Section 3(k) of Republic Act No. 5186, the Investment Incentives Act, it is the document that measures and indicates which economic activities are declared preferred and pioneer areas of investment, the corresponding measured capacities, the capital investments needed, and the raw material, manpower, and regional requirements of new industries. In short, the IPP is the list that tells investors which activities qualify for registration and incentives.

What the Investment Priorities Plan contains

Section 3(k) of the Investment Incentives Act requires the plan to contain the analysis, synthesis, and projections of data collected by the Board of Investments from public and private sources. Among the items it must measure and indicate are:

• The existing and prospective demand for specific products and commodities, final and intermediate;
• The existing capacities for producing those products and commodities;
• The gaps between prospective demand and existing supply, and the additional production capacities that must be induced where such gaps exist;
• The specific products and commodities, manufactured out of or with the use of domestic raw materials, whose export should be encouraged;
• The specific areas of economic activity to be declared preferred and pioneer areas of investment and the corresponding measured capacities;
• The capital investments necessary to bring such additional capacities into existence;
• The regions where such additional capacities can be located, considering natural resources, labor, transport facilities, power, and water supply.

The plan therefore does two things at once: it identifies the industries the State wants to grow, and it sets the scale of production the Board considers desirable.

Preferred areas of investment

Under Section 3(g), preferred areas of investment are the economic activities that the Board shall have declared as such in accordance with Section 18 of the Act. The IPP is where those declarations appear. A registered enterprise, to the extent engaged in a preferred area of investment, is granted the incentives listed in Section 7, which include deduction of organization and pre-operating expenses, accelerated depreciation, net operating loss carry-over, tax exemption on imported capital equipment, tax credit on domestic capital equipment, and employment of foreign nationals in limited proportions.

Pioneer enterprises

A pioneer enterprise under Section 3(h) is a registered enterprise engaged in the manufacture, processing, or production — and not merely the assembly or packaging — of goods, products, commodities, or raw materials that have not been or are not being produced in the Philippines on a commercial scale. It also includes an enterprise that uses a design, formula, scheme, method, process, or system of production or transformation of any element, substance, or raw material into another raw material or finished good which is new and untried in the Philippines. The final product must involve or will involve substantial use and processing of domestic raw materials, whenever available.

Pioneer enterprises enjoy the incentives in Section 7 plus additional benefits under Section 8, including tax exemptions under the National Internal Revenue Code (except income tax), post-operative tariff protection, and special rules on employing foreign nationals.

Measured capacity and the limits on qualification

Section 3(i) defines measured capacity as the estimated additional volume of production which the Board determines to be desirable in each preferred and pioneer area of investment, in order to supply the needs of the economy at reasonable prices, taking into account export potential. The definition sets boundaries: measured capacity shall not be less than the amount by which measurable market demand exceeds existing productive capacity, nor so much in excess of demand as to foster overcrowding in the area. For export market industries, the Board bases measured capacity on the availability of domestic raw materials after deducting the needs of the domestic market. In no case shall measured capacity be construed so as to result in a monopoly in any preferred or pioneer area.

How the plan is prepared and used

Section 16(a) directs the Board to draw up annually an investments priorities plan in the manner prescribed in Section 18, which shall be the basis for the implementation of the Act. Section 3(k) provides that the plan is prepared by the Board and approved by the President upon recommendation of the National Economic Council. The plan is not a mere policy statement: registration as a registered enterprise under Section 3(b) requires that the entity be engaged in a preferred area of investment and duly registered with the Board.

Frequently asked questions

What is the Investment Priorities Plan in the Philippines? It is the annual plan prepared by the Board of Investments and approved by the President upon the recommendation of the National Economic Council, containing the preferred and pioneer areas of investment and the data supporting them, as defined in Section 3(k) of Republic Act No. 5186.

What is the difference between a preferred area and a pioneer area? Preferred areas are economic activities the Board declares as such under Section 18. Pioneer areas involve manufacturing, processing, or production of goods not yet produced on a commercial scale in the Philippines, or the use of a new and untried design, formula, scheme, method, process, or production system, as defined in Section 3(h).

Who prepares and approves the Investment Priorities Plan? The Board of Investments prepares it, and the President approves it upon the recommendation of the National Economic Council, under Section 3(k) of Republic Act No. 5186.

Practical takeaways

• The IPP is the statutory list of preferred and pioneer areas of investment under Republic Act No. 5186.
• Preferred areas are declared by the Board under Section 18; pioneer status requires new production or a new and untried process, with substantial use of domestic raw materials whenever available.
• Measured capacity caps how much additional production the Board considers desirable in each area and cannot be set so as to create a monopoly.
• Registration as a registered enterprise requires engagement in a preferred area of investment and registration with the Board.
• Incentives attach to the area of investment: Section 7 incentives for preferred areas, plus Section 8 incentives for pioneer enterprises.

Primary sources

The rules discussed above are drawn from the following primary sources, as published in the Official Gazette and the national statute book.

• REPUBLIC ACT NO. 5186 - AN ACT PRESCRIBING INCENTIVES AND GUARANTEES TO INVESTMENTS IN THE PHILIPPINES, CREATING A BOARD OF INVESTMENTS, APPROPRIATING THE NECESSARY FUNDS THEREFOR AND FOR OTHER PURPOSES.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.