Tax issue sets back domestic ecozone plan

THE BUREAU of Internal Revenue appears to be the “main stumbling block” to the planned establishment of a new type of industrial zone, including those intended for domestic market-oriented companies, according to the European Chamber of Commerce of the Philippines.

This was based on a recent meeting between ECCP members and Lilia G. de Lima, director general of the Philippine Economic Zone Authority (Peza).

“The BIR has issues with the incentives that Peza would offer to investors in such zones,” said ECCP vice president for external affairs Henry J. Schumacher.

These special zones are intended only for less developed areas that have been affected by typhoons or those that do not have the infrastructure that exist in Central Luzon and Central Cebu, Schumacher said.

“Our stand is that incentives are needed to offset the higher cost of doing business in the Philippines. If inclusive growth is to be achieved, investments (are) needed to be directed to new locations and that’s exactly what Peza is trying to achieve,” Schumacher said in an interview yesterday.

The Joint Foreign Chambers has long been urging the government to expand the authority of Peza and pursue the creation of a new type of economic zone—proposed to be called Domestic Economic and Export Zone (D/EEZ)—that will support production more for the domestic market than for export.

Based on the current setup, locators in Peza-managed ecozones are required to export at least 70 percent of their production, which means they can sell only up to 30 percent of their output to the domestic market to enjoy existing perks. Beyond that volume, however, companies will already be subject to regular taxes and duties.

Trade Secretary Gregory L. Domingo earlier pointed out that the prevailing issue in having domestic enterprises within Peza ecozones involved the tax treatment of locators. He said the tax structure for Peza enterprises is different from that for domestic enterprises.

“We’re actually in the midst of formulating a policy on how to treat (taxation policies and assessment of duties). The point raised was, if a Peza enterprise that is exporting wants to sell to the domestic market, what duties and taxes should be given?” Domingo earlier said.