The government recently adopted measures making it mandatory for certain firms to establish corporate social responsibility (CSR) programmes in return for tax benefits.
The Philippine Board of Investments (BOI), a government organisation under the department of trade and industry and the lead agency in seeking investments in the Philippines, will now require firms registered under the 2007 Investment Priority Programme (IPP) to create such programmes. The aim is to ensure that some of the benefits of the fiscal incentives granted to those companies will reach the communities where the companies are located.
The League of Corporate Foundations' Philippine CSR Report 2007 revealed that the private sector's total expenditure for poverty reduction increased from $166m, between 1997 and 2002, to $262m, between 2002 and 2006. Almost half of this total, or over $197m, went to human services development, including education.
"This is to ensure that the benefits granted to these companies in terms of the fiscal incentives trickle down to the community hosting them and uplift the people's lives," Trade and Industry Undersecretary Elmer C Hernandez, who is also BoI's managing head, told local media.
The IPP grants fiscal incentives to companies investing in 12 preferred sectors: agriculture, fishery and support services; health care and wellness products and services; information and technology; electronics; motor vehicles; energy; infrastructure; tourism; shipbuilding and shipping; machinery and equipment, raw materials and intermediate inputs; iron and steel production; and research and development projects.
Companies that were granted a six-year income tax holiday (ITH) under the plan are required to submit CSR programmes in their fourth year of entitlement and must implement them during years five and six. During the last two years, the BoI will also require annual reports by companies on their CSR programmes to monitor their compliance.
Non-submission of the required annual report could mean discontinuance of the remaining tax advantages.
Hernandez said the new policy applies only to companies granted a six-year ITH. Those with four-year ITH will not be required to have CSR programmes but are encouraged to do so.
Initially, the plan will require companies to implement CSR programmes equal to a percentage of the fiscal incentives they are enjoying and in line with specific guidelines.
"We are still working on additional guidelines on how to do this but initially we want the CSR programmes of our registered companies to be aligned with the National Anti-Poverty Commission," Hernandez said.
The National Anti-Poverty Commission (NAPC) was created in 1998 to act as a "coordinating and advisory body" aimed at poverty alleviation in the Philippines.
The response from the private sector has been mixed.
Aniceto M Sobrepena, president of the Metrobank Foundation, which is one of the largest philanthropic organisations in the Philippines, told OBG he welcomes this new policy.
"This is consistent with the growing trend of promoting socially responsible firms in the country. The intent is clear, to make those companies, which benefit from government incentives, undertake meaningful projects in the communities they operate. The [requirements] do not seem onerous, since it is only after four years that the registered firm is required to submit its CSR programmes," said Sobrepena.
While the BoI's plans may have the right intentions, Alberto A Lim, director of the Makati Business Group, which is an association comprising over 800 CEOs and senior executives representing almost 450 of the largest and most dynamic corporations in the Philippines, questions the role the BoI is trying to play.
"On one hand BoI promotes investments by giving income tax holidays, while on the other hand it regulates investors by imposing a CSR tax on them. The BoI has to decide what it is - a promoter or regulator. It should not be both," he said.
Lim added, "The BoI itself has not had a good record of monitoring and enforcing its own performance requirements."
Lim's comment reflects a scepticism felt by many questioning the agency's ability to enforce policy. The BoI has been criticised for its inability to fulfil its requirements regarding an agreement it signed with the Philippine Stock Exchange (PSE). The BoI was to facilitate the listing of registered companies, but has not had great success in doing so.
Not only has enforcement come into question, but there is concern as well as to how it will determine the exact amount companies will be required to allocate to CSR programmes as well as deciding if certain exemptions should be made to organisations that have already adopted their own initiatives.
The BoI will attempt to work out these issues next week as it meets to finalise the specifics of the policy. In the meantime, companies have already begun contacting the NAPC to begin developing their programmes.