The government will soon require cigarette manufacturers planning to set up shop in the country’s special economic zones (SEZs) to register with the Bureau of Internal Revenue (BIR), the Department of Finance (DOF) said.
Finance Secretary Carlos G. Dominguez III said new cigarette manufacturers in SEZs will not be allowed to operate without the BIR registration, noting that this rule is in line with the Duterte administration’s sustained drive against tax evasion and the illicit tobacco trade.
Dominguez said the alleged illicit activities in SEZs of certain locators registered with the Philippine Economic Zone Authority (PEZA) is “alarming."
He said that on top of enjoying tax breaks granted by the investment promotion agency (IPA), these errant firms have been depriving the government of unpaid income taxes, excise taxes, value-added tax (VAT) and customs duties.
In a letter to Department of Trade and Industry (DTI) Secretary Ramon Lopez regarding this concern, Dominguez said the BIR is now drafting these revised rules covering the operations of cigarette makers inside SEZs.
Dominguez traced the alleged illicit activities of certain PEZA-registered locators in SEZs to “lackadaisical” monitoring and weak enforcement of laws.
Existing PEZA registration requirements do not mandate compliance and submission of secondary licenses or authorization from agencies like the BIR for locator-applicants engaged in the manufacture of regulated products such as cigarettes, medicines, oil and alcohol.
As a result of this loophole, two enterprises which are both PEZA-registered locators, were able to allegedly manufacture unregistered cigarettes inside an SEZ and supply these illicitly to the domestic market.
The BIR Strike Team seized these unregistered cigarettes and several cigarette-making machines from the companies’ warehouses and filed a complaint against the firms for violating the Tax Code and incurring deficiency excise taxes.
“The fact that the alleged illicit activities occurred inside the PEZA Ecozone is alarming,” Dominguez said in his letter to Lopez.
"Not only did PEZA provide tax breaks to the alleged perpetrators, the government has lost billions of pesos in income taxes, excise taxes, VAT and customs duties when these illicit goods entered the local market,” he added.
Lopez, as Trade Secretary, supervises over the DTI-attached PEZA.
“It appears that these manufacturers took advantage of the lackadaisical monitoring inside the Zone to perpetrate their schemes under the cover of the laws, rules and policies enacted to favor them,” Dominguez said.