Should govt give incentives to new players?

This undated file photo shows a local labor group staging a rally against cement importers who are allegedly committing massive tax fraud.

In a bid to push down cement prices, the Board of Investments (BOI) continuously provides incentives to companies. In the 2010 Investment Priorities Plan (IPP), the BOI included the grinding of imported clinker into cement as among the business activities qualified for incentives.

This covers the manufacture of cement whether or not integrated with quarrying. New finishing mills may be considered for registration.

Existing cement manufacturers, which will put up new facilities or expand existing operations, must show compliance of at least 85-percent utilization based on clinker capacity of their existing plants and no existing plant shall fall below 85-percent utilization based on clinker capacity.

New cement manufacturer, with interlocking directors, regardless of whether their interest in an existing cement manufacturing company is nominal or substantial, must show compliance of at least 85-percent utilization based on clinker capacities of the existing cement manufacturing company.

The BOI said incentives were needed to attract new players into the industry, which are hoped to bring down prices through competition.

While conceding that it is the duty of the government to protect the consumers, Cemap opposed this move, saying it would disadvantage firms with big-ticket investments that produce their own clinker.

“I know the history and it is amazing that they are giving incentives to an industry with so much unused capacity. Why give incentives? You give incentives to an industry that is not there,” Ordoñez said.

The government must only give tax breaks to bring about behavior that is needed, he said.

“For example there’s an industry that is too risky, then you give incentives. There’s an industry that you cannot build too much demand and the capacity is limited you cannot resolve, when no one wants to come in then you give incentives.”

Giving incentives left and right is also unfair to the Filipino people especially to the taxpayers, he said. The money, he noted, could have been spent to build schools and feed the poor.

Cement is an existing industry and has a lot of extra capacity so there is no reason for the government to give more support. The incentives should have been given to some other industries that really need assistance.

Ordoñez also said it is too unfair to give incentives to grinding mills arguing that grinding is only 20 percent of the system of production.

“If its only 20 percent of the system, your grinding capacity is even underutilized. Why do you give incentive to that? So we think that this is really wrong because you want to give money, and number two it’s unfair to the current players. If you’re doing this and you want to build some more because you have a lot of capacity and these guys come in who doesn’t have any investment and got tax breaks that’s unfair,” he said. “So our objection to incentives is that it creates a wrong playing field. It’s not level it’s biased.”

The current three cement makers also feared the influx of undervalued imported clinker cement with the implementation of the IPP to the cement industry. This would kill cement making, Ordoñez said, and it is the country’s lone integrated manufacturing industry. –ANGELO SAMONTE, Manila Times