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    PEZA

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    PEZA Article on LBT

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    PEZA

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    111 views3 pages

    PEZA-registered Firms and Local Business Taxes: Taxwise or Otherwise

    Uploaded by

    Mhilet
    PEZA

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 3

    PEZA-registered firms and

    local business taxes


    Taxwise or Otherwise
    By John Paul M. Vargas, 14 January 2016
    It’s business permit renewal period once again. While some may assume that this
    annual process is a clear-cut routine devoid of uncertainties, still some Philippine
    Economic Zone Authority (PEZA)-registered firms could be uncertain whether they are
    required by law to secure a mayor’s permit from the local government unit (LGU) or to
    pay local business taxes (LBT).

    To provide a backdrop for the issue, we combed through the history of policy positions
    on the matter and found that PEZA long ago clarified the question on liability for LBT
    under its Memorandum Circular (MC) No. 2004-024 dated 24 September 2004. The rule
    covers all PEZA-registered entities, whether enjoying income tax holiday (ITH) or the
    5% gross income tax (GIT) regime, except those who opted to be taxed under the 30%
    regular corporate income tax regime. This exception also includes those registered as
    Logistics Services Enterprises (formerly classified as Warehousing/Logistics Facilities
    Enterprises) which are now subjected to the 30% regular corporate income tax.

    Notably, MC 2004-024 is clear with regard to the exemptions from mayor’s permit and
    LBT under these conditions:

     All PEZA-registered enterprises entitled to


    ITH, 5% GIT and tax and duty-free
    importation, including Logistics Services
    Enterprises, are exempted from securing a
    mayor’s permit from the LGU concerned;

     PEZA-registered enterprises availing of


    ITH are exempted from the payment of all
    local taxes, licenses, imposts and fees,
    including LBT; and

     PEZA-registered enterprises availing of


    the 5% GIT incentive are exempted from
    the payment of all national and local taxes,
    including LBT.
    By local taxes, we refer to all taxes, fees and charges imposed by LGUs pursuant to the
    Local Government Code of 1991, including LBT.

    From the foregoing, all PEZA-registered entities, either under ITH or 5% GIT, are
    exempted from securing a mayor’s permit and from payment of LBT.

    But what about PEZA-registered entities currently under or opting to be under the 30%
    regular corporate income tax and Logistics Services Enterprises? Are they also
    exempted from securing a mayor’s permit and from payment of LBT?

    On the requirement to secure a mayor’s permit, since MC 2004-024 made no


    exclusions, we gather that all PEZA-registered entities, including those currently under
    or opting to be under the 30% regular corporate income tax and Logistics Services
    Enterprises are also covered by the exemption.

    As to the payment of LBT, Section 23 of Republic Act (RA) No. 7916 (or the PEZA Law)
    provides the exemption by stating that “business establishments operating within the
    ecozones shall be entitled to the fiscal incentives as provided for under P.D. No. 66 or
    those provided under Book VI of Executive Order No. 226, otherwise known as the
    Omnibus Investment Code of 1987”.

    Section 18 of Presidential Decree No. 66 (the law creating the Export Processing Zone
    Authority) provides that any business enterprise engaged in the production, processing,
    packaging, or manipulation of export products shall, to the extent of their construction,
    operation or production inside the zone, be exempt from the payment of any and all
    local government imposts, fees, licenses or taxes except real estate taxes.

    Similarly, Article 78 of Executive Order 226 provides that zone registered enterprises
    shall, to the extent of their construction, operation or production inside the zone be
    exempt from the payment of any and all local government imposts, fees, licenses or
    taxes except real estate taxes.

    You may be asking -- If the PEZA and related laws, as well as MC 2004-024, are
    explicit in granting PEZA-registered enterprises exemptions from mayor’s permit and
    LBT, why the uncertainty in its implementation?

    To date, there have been no PEZA Board resolutions or issuances specifically


    exempting the payment of LBT by PEZA-registered entities under the 30% regular
    corporate income tax including Logistics Services Enterprises, thus, the confusion.
    In addition, some LGUs have existing Memorandums of Agreement (MoA) with PEZA
    requiring registered enterprises within the jurisdiction of the LGU to pay regulatory fees.
    For instance, the City Treasurers of Makati and Taguig are authorized to collect mayor’s
    permit fees, garbage fees, health certificate fees and sanitation inspection fees from
    PEZA-registered enterprises. The authority of PEZA to enter into such agreement with
    LGUs is based on Section 13 of RA 7916 which expressly vests PEZA with the power to
    “operate, administer, manage and develop the ecozone” and “register, regulate, and
    supervise the enterprises in the ecozone in an efficient and decentralized manner”.

    By implication, the MoA modified or amended MC 2004-024 by providing exceptions to


    PEZA incentives. It also created a distinction between PEZA-registered enterprises
    located in LGUs with and without MoAs -- the latter enjoying more favorable conditions.

    Unless and until PEZA clarifies the matter through a formal Board resolution or issuance
    rationalizing the MoAs, the issue on the legality of imposing fees in connection with the
    mayor’s permit and imposing LBT on PEZA-registered enterprises remains.

    The continued viability of PEZA depends on the influx of investors who place their trust
    in the hands of this government and its systems. We owe our investors transparency in
    informing them at the onset of available incentives and hidden costs of doing business
    in the country.

    The views or opinions expressed in this article are solely those of the author and do not
    necessarily represent those of Isla Lipana & Co. The firm will not accept any liability
    arising from the article.

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