PEZA fears existing investors might find CREATE as ‘bad faith’

Published April 11, 2021, 7:00 AM

by Bernie Cahiles-Magkilat

Existing registered business enterprises (RBEs) in the Philippine Economic Zone Authority (PEZA) or other investment promotion agencies (IPAs) might find the new CREATE Law as ‘bad faith’ on the part of the government.

This was raised by PEZA Deputy Director General Tereso Panga following the signing of the CREATE Law by President Duterte, who also vetoed some line-items provided in the bicameral approved CREATE Act.

Included in the line-item vetoed by the President is the removal of the extension of availment of tax incentives by existing RBEs. The justification for this veto is that “extension of incentives for existing projects is unfair to ordinary tax payers/unincentivized enterprises and further, only new activities and projects deserve fresh incentives.” 

“This may be a sound fiscal policy, but from the perspective of RBEs who have relied on fiscal incentives for sunk investments as committed by the IPAs through their Registration Agreements prior to the effectivity of CREATE—they might consider the act as ‘bad faith’ on the part of the government,” warned Panga, who is PEZA DDG for policy planning.

Under CREATE, RBEs have no choice but to make do with the 10-year sunset period (after the lapse of ITH) and thereafter, graduate to the regular 25 percent corporate income tax (CIT) rate. 

“This scenario could be a make or break for the Philippines as the affected ecozone locators,” said Panga. 

Under this incentive regime, he explained, the affected investor might decide to retain their facilities and invest in new projects to be entitled to a longer ITH and Special CIT period (total of 14- 17 years) or worse, they might just pack up and leave to seek a  better location and more willing host-country that can offer better incentives as their for “sunk-in investments” with the investment promotion agency or PEZA prior to CREATE were cut short by the mandatory sunset period for RBEs. 

“In due time, we pray that our existing locators will be able to adjust to CREATE and secure their investments in the Philippines,” said Panga as he expressed hope that locators especially the big ticket projects, which have been with PEZA for the past 20- 25 years because of the conducive environment inside the ecozones/freeports under the respective IPAs, will “stick it out with us through thick and thin.”

PEZA and other IPAs’ saving grace though is that CREATE retained the “separate customs territory” status of the ecozones, as provided in the PEZA law. “This is crucial towards ensuring the continued viability of PEZA in the performance of its mandate and in sustaining the success and long-term operations of our valued ecozone investors,” he pointed out.

PEZA locators appreciate being inside ecozones essentially because of the one-stop/non-stop shop and brand of service. The business ecosystem brought about by the on-site cluster of industries, world-class facilities and amenities, more efficient and lower cost of doing business have made the ecozones very attractive to investors. 

The separate customs territory status vested in the ecozones have also allowed PEZA to exercise exclusive jurisdiction over the ecozones and manage these into a decentralized, self-reliant and self-sustaining ecozones with minimum government intervention.  Panga said the retention of the said provision in the CREATE is a big advantage to PEZA when it comes to investment promotions. The same is true for locators as they get to enjoy tax and duty-free importation for production related materials and zero-VAT rating on their local purchases, and benefit from PEZA electronic import/export permits and joint PEZA-BOC automated systems on customs clearing (super green lane treatment), as well as opportunities for local sales and constructive exportation following the cross-border doctrine as applied to ecozones being separate customs territories.