Address of Sen. Richard J. Gordon
Joint Tourism and Trade & Investment Committee
Briefing American Chamber of Commerce
Corinthian Plaza Building
14 August 2007
I welcome this opportunity to meet with these two committees of the American Chamber of Commerce, especially to discuss with you a topic that I have lived with and championed for well over a decade now.
To anyone who says that I am pushing this proposed Tourism Act of 2007 because I am one of the presidential wannabes in year 2010, I will remind them that I was championing an aggressive national tourism policy way back when I was the chairman of the Subic Bay Metropolitan Authority in 1993, eight years before I became tourism secretary and over a decade before I became senator.
I have stood on this issue before the Senate and before any forum that cared to listen because I really believe that tourism can be a powerful engine for national development. Despite my relentless advocacy, however, I must report that Congress has not yet fully agreed with me and passed the law. In the last session of the last Congress, the Senate passed the vital measure. But a counterpart measure was not as lucky in the House, a victim of congressional absenteeism and absentmindedness.
So now the proposed Tourism Act must pass muster in the new Congress, and all the pitfalls and challenges that naturally come with a new body of legislators, many of whom are seeing action in the legislature for the first time.
I have refiled Senate Bill 88, complete with the amendments and refinements introduced by my peers in the previous Senate. And my counterparts in the House have done the same. It remains to be seen whether both houses will treat the issue with energy and dispatch so that the Tourism Act of 2007 will indeed come to pass this year – and not in another season.
You would think that a country that needs more jobs for its unemployed, more economic activity in its far-flung regions, more export receipts to sustain the momentum of growth – you would think we would rush passage of a bill that, implemented earnestly, could easily result in a million new jobs and billions of dollars in foreign exchange every year. But no, it has not happened.
Our legislators have been slow to take up the challenge. And oddly, even some members of our tourism industry have actually fought us, anxious to protect their privileges from the liberalizing effects of a serious tourism development program.
This conundrum is not unique to the Philippines, however. I would remind you that up to now – counting from the assassination of John F. Kennedy in 1963, Martin Luther King, Robert Kennedy, John Lennon to who knows how many others – American legislators still have to marshal the will to pass a gun control law. Even the recent awful spectacle of gun violence in an American university has not stirred much action in the US Congress.
In the Philippines you might say that we have the equivalent of the National Rifle Association. But I can assure you that in this fight for the Tourism Act, common sense and public interest will prevail. It's just a question of when.
Objectives of the Tourism Bill
Members of Amcham need no instruction from me about the great importance of tourism as a global industry today. Its compelling strengths can be quickly summarized:
Tourism is considered the biggest industry in the world, with links to many industries. It produces 12% of the world GDP.
According to the UNWTO World Tourism Barometer, the year 2007 has started on a higher than expected note for global tourism. From January through April, international tourist arrivals worldwide rose by over 6% to 252 million, representing an additional 15 million, representing an additional 15 million arrivals as against the same in 2006.
At the close of the 20th century, tourism accounted for one out of every 10 jobs in the world. Today, the industry now accounts for one out of nine workers.
Significantly, world tourism today is growing well ahead of forecasts. In 1995, with tourism arrivals standing at 534 million, it was projected that international tourism arrivals will reach 937 million by 2010. UNWTO's Tourism 2020 Vision forecasts that tourism arrivals are expected to reach nearly 1.6 billion by year 2020. Of these worldwide arrivals in 2020, 1.2 billion will be intraregional and 378 million will be long haul travelers.
The year 2007 is showing a higher than expected note for global tourism. Arrivals are up by over 4%. Significantly, Asia and the Pacific has achieved the strongest growth as 9%, with Europe coming up close with 6%. Although arrivals to the Americas stood at 4%, this performance is double the 2007 forecast growth of 2%.
Amidst these clear signs of a booming global industry, the Philippines' share in the boom has been small. This despite the remarkable wealth of natural and cultural sites in the country. And the often-celebrated tourism experience in the Philippines.
We will generate by yearend some 3 million in tourist arrivals this year.
These will contribute some $2.5 billion in tourist export receipts.
While those numbers are unprecedented in the country, they pale in comparison to the tourism dividends of our neighbors. Thailand gets 12 million arrivals yearly; Malaysia 15.7 million; Singapore 8 million, Indonesia 5 million. And now Vietnam, which just three years ago had fewer arrivals than us, has already overtaken us with 2.2 million arrivals [1] for the first 6 months of this year.
This sluggish performance of the Philippines in a booming global industry is what the proposed Tourism Act is principally designed to correct. The bill squarely addresses the many reasons why we are underperforming in tourism, and the specific steps that must be taken for Philippine tourism to rise finally from the shallows and partake of the boom in global tourism.
Three major policies are mandated by the bill:
- To establish a national policy for tourism as an agent for investment, employment, growth and national development;
- To reorganize the Department of Tourism and its attached agencies so that it can effectively and efficiently implement that national policy; and
- To provide necessary incentives for domestic and foreign investment in tourism.
It seems so elementary but we don't have a national policy for tourism development as an integral part of national development planning. Up to now, the sector has been treated as a poor cousin of manufacturing and other industries, a surreal export receipt, and therefore undeserving of the same incentives given to other kinds of investments.
Because the industry consists of so numerous players – many of them small and medium-scale enterprises – it has ironically been treated as a wallflower at the big dance of national modernization and development.
The Tourism Act will end this nonsense. Tourism has as much right, if not more right, to join the big dance as the other industries. Its contribution alone to GDP, employment and export receipts has earned it this right.
Towards Global Competitiveness
With the policy and institutional changes, the proposed Tourism Act then identifies three key elements in our strategy to make the Philippine more globally competitive in tourism.
First, we will raise tourism standards across the board all over the country.
Second, we will strengthen our promotions abroad so that we will host 10 million tourist arrivals within five years.
And third, we will develop our tourism stock by creating new tourism zones to bring in investments and create jobs.
Raising tourism standards is about improving the service we give to tourists. We can no longer measure our tourism by local standards or what we used to do in the past. We have to measure ourselves against the world. This is what it means to be globally competitive.
Tourists must know what they can expect when they goes to a Philippine hotel, tour operator and tourist destination. They can expect good service comparable to other international tourist destinations and organizations. They will get their money's worth, They will be safe.
To enforce standards, there has to be a system of accreditation. Only enterprises that meet established standards will be accredited. Likewise the enterprises will be classified and graded so tourists will know what they get when they purchase a particular service.
Because so much of tourism is local, the enforcement of standards has to be the combined effort of the national and local governments.
Strengthening promotions is the second imperative for global competitiveness because the only way tourists will visit our country is if they know about us. We have to go out more, promote more, and market more. This was my shocking discovery as tourism secretary in the Macapagal-Arroyo government. We hardly spent anything and we didn't have much of a marketing and promotions program in tourism.
In contrast, it is no mystery why Malaysia, Thailand and Singapore have been leaving us in the dust. They don't have better destinations than us. Neither do they provide a more memorable tourism experience. They simply spend more to promote and advertise their tourist destinations and services.
Malaysia and Thailand reportedly spend over a hundred million dollars annually on tourism promotions and marketing. In return, their tourist arrivals exceed 10 million annually – 12 million for Thailand and 15 million for Malaysia. These in turn translate to over $10 billion in tourist revenues for each.
In contrast, we in the Philippines spend no more than $7 million annually on tourism promotions. It is true, of course, that our government is cash-strapped, and that there are so many things we should spend money on. Yet the simple fact is this: it takes only a few dollars in promotions to bring in one tourist to our country, and that one tourist will likely spend anywhere from $800 to $1000 during his stay. The budget is returned several hundreds of times over.
With the proposed Tourism Act, tourism promotions will become a strategic investment in tourism development. It spells out ways to raise from P4 to P5 billion for tourism promotions – to match what our neighbors are doing. This is less than half of 1% of the P1.126 trillion national budget.
The third leg of our tourism strategy is to build up our tourism capacity by developing tourism zones in strategic areas of the country.
Over the last four years, our tourism industry has been operating at capacity. Hotel rates now are very expensive because of this. And yet despite growth in tourist arrivals, there have been few, new investments in capacity building.
It is therefore of urgent importance that the country embark on a major development program to increase capacity by building new hotels, resorts and other tourism infrastructure.
The proposed Tourism Act mandates the creation of the Tourism Enterprise Zone Authority (TEZA), which will take charge of attracting domestic and foreign investments to develop entire tourism zones, build hotels and resorts, malls and museums, and all sorts of tourism enterprises. TEZA will supervise development to prevent the untrammeled consumerism that sometimes disfigures tourism and damages the environment. It will be fair and firm toward investment, require adherence to a development plan, and provide penalties for violations.
Fiscal and Non-fiscal Incentives
Since the Amcham committees here today are concerned with investments, let me discuss the incentives package contemplated by the proposed Tourism Act. The package consists of both fiscal and non-fiscal incentives.
The Fiscal Incentives are:
Income tax holiday for six years.
Gross income taxation – In lieu of all other national and local taxes, license fees and imposts and assessments, except real estate taxes and such fees as may be imposed by the TEZA, a new enterprise shall pay a tax of 3% on its gross income, to be distributed as follows: -- one-third to be allocated to affected local governments -- one-third to the national government -- one-third to the TEZA
Capital investment and equipment – 100% exemption from all taxes and duties on capital equipment importations, and accelerated depreciation at a rate twice as fast as the normal rate.
Goods and services – goods importation exempt 100% of all taxes and customs duties plus a tax credit equivalent to all national revenue taxes paid on all locally produced goods and services
Social responsibility incentive – a registered enterprise shall be entitled to a tax credit equivalent to a reasonable percentage of the cost of environmental protection or cultural heritage preservation activities.
On the non-fiscal side, the incentives are:
Employment of foreign nationals
Special investors' resident visa
Foreign currency transactions – -- repatriation of investments -- remittance of foreign exchange -- foreign loans and contracts – right to remit payments to loans
No requisition of investment except in the event of war or national emergency, and only for the duration thereof.
Lease and ownership of land without prejudice to existing laws regulating the ownership of land by individuals and corporations
The incentives package has been a source of worry to our Department of Finance because we want the incentives to be extended to the entire chain of tourism industries – from hotels to transportation, tours, travel agents, and even the management and preservation of the environment.
I believe that at present the BOI and PEZA investments are not enough. In 15 years, PEZA has only established one tourism estate. BOI does not even consider tourism a separate sector; its attention is focused on export manufacturing and BPOs.
While BOI has incentives for tourism, these are extended to hotels only. I've told the finance department that its worry over revenue losses is fictional. How can there be revenue losses when there are no new investments entering the industry? How can you tax something that doesn't exist yet, and will only exist if you provide the incentives? At the end of the day, this is really about giving tourism its due in our country.
Tourism is an industry with tremendous potential at the present time. Just as it helped Thailand during its recovery from the 1997 financial crisis, so it can help us cope with the challenges of globalization.
Through this law, we are asking of government no more incentives than that which it is already giving other industries. Whatever refinements we have added are those that specifically arise from the nature of travel and tourism as an industry. It is unique, after all, that as a bona fide export earner, tourism does not send goods or services abroad. The good and the service stays here at home. Only the experience leaves with the tourist when he departs.
Conclusion
Let me now summarize and conclude.
The head of the WTO Francesco Frangialli has reported that "growing recognition of tourism's contribution to economic growth and job creation means that it is being given more and more attention by national governments, especially those in developing regions. Increased investment in infrastructure, marketing and promotion, development of domestic markets, liberalization of air transport, growing intraregional cooperation, and a growing number of public-private partnerships are key factors that have helped the tourism industry to expand."
Here in the Philippines, we have still have some way to go before tourism development can go full steam ahead. There is still some ambivalence on the part of government and the private sector. Total commitment to tourism development has not yet to happen.
Yet the overwhelming evidence that tourism is booming in our time and is a major boost to developing countries like the Philippines has compelled attention from many sectors of our society. As our campaign for the proposed Tourism Act continues, we are encouraged by the fact that we have considerably more supporters and advocates today than we had at the start. The Senate has registered its full support and should do so again. President Arroyo will likely certify the bill as urgent to the new Congress. So I keep my fingers crossed that before this new fiscal year is over this measure will fully become law. Then can we start the full-scale development of tourism in our country.
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