The P11.154 billion investments in ecozone logistics services enterprises (ELSEs) registered by the Philippine Economic Zone Authority are expected to further grow with the inclusion of this economic activity under the new Strategic Investment Priorities Plan (SIPP), clarifying the eligibility of this support services sector to export activities for government tax and fiscal incentives.
The Philippine Economic Zone Authority (PEZA) reported that it has registered 340 ELSEs with total investments of P11.154 billion. Of these, Japanese FDI share in ELSE accounts for P3.499 billion.
Among the leading Japanese ELSEs are Nagase Philippines International Services Corporation; Inabata Philippines, Inc.; Lima Logistics Corporation; Tokai Electronics Philippines, Inc.; and NX Logistics Philippines, Inc.
ELSEs are traders supplying production-related raw materials and equipment that cater exclusively to requirements of ecozone locators. It provides a critical support particularly to export manufacturing companies with their requirements for logistics support to facilitate their import and export shipments, sourcing of raw materials, inventory management, just in time deliveries, localization and process customization.
PEZA OIC Tereso O. Panga explained that the inclusion of ELSEs in the SIPP was provided in the recently released Memorandum Circular (MC) No. 2023-001 dated 31 January 2023, which clarified the coverage of logistics services as one of the activities in support of exporters under the 2022 SIPP pursuant to Section 300 of the CREATE Act and Sections 2 and 3 of its Implementing Rules and Regulations.
The same has been circularized by PEZA through MC No. 2023-010 and the BIR under Revenue Memorandum Circular No. 15-2023, both dated 03 February 2023.
SIPP lists the priority industries, sectors, and business projects that may qualify for investment incentives under Republic Act No. 11534 or the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act.
Panga lauded the Department of Finance (DOF), Department of Trade and Industry (DTI), Board of Investments (BOI), and the Bureau of Internal Revenue (BIR) for finally resolving our pending concern on the recognition and eligibility of ELSEs for registration with the investment promotion agencies (IPAs) with incentives.
Initially, PEZA made a case to BOI for the inclusion in the SIPP of other ecozone locators (other than those into export manufacturing and IT services) that provide support to export activities such as ecozone developers/operators, utilities, facilities and logistics service enterprises. These are the types of enterprises that PEZA are authorized to register under R.A No. 7916 otherwise known as the Special Economic Zone Act of 1995 or the PEZA Charter.
“While the BOI has adopted our recommendation with the inclusion of support to export activities in the SIPP, we encountered a problem with the BIR RMCs that limited the grant of incentives to only those registered business enterprises whose activities are covered by their definition for export enterprise. The limitation has effectively barred both existing (prior to CREATE) and new locator investors (under CREATE) providing support to export activities from enjoying their incentives,” said Panga.
“With the clarification issued by the BOI and BIR, the existing ELSEs can now enjoy their incentives (i.e., Zero VAT rating on qualified local purchases) pursuant to the sunset provision. For new ELSEs, they may be entitled to the incentives under the CREATE Act,” he explained.
With the MC, it affirms the entitlement to VAT zero rating incentives on local purchases of ELSEs registered under type 3 of Board Resolution No. 97-366, as amended, or the Guidelines for Registration and Operations of Ecozone Facilities Enterprise Engaging in Warehouse Operations.
However, to be considered as exporters under the definition of Section 293 (E) of the CREATE Act, ELSEs shall render at least 70 percent of their output/services to another registered export enterprise either through direct or constructive exports.
“Together with the ELSEs and other locators that provide support to export enterprises, PEZA ecozones have long been a participant in the global value chain by attracting global manufacturing and ICT industry leaders to set up their facilities in the ecozones, thus generating the much-needed jobs, investments, and export revenues for the country,” noted Panga.
This is a welcome development particularly for Japanese investors as they look forward to PBBM’s state visit to Japan this week.
Overall, there are 884 Japanese locator companies, the biggest investors in the PEZA zones and accounting for P745.637 billion investments or 27.42 percent of the total investments in PEZA. These companies also generated $15.865 billion exports and 315,619 direct jobs as of November 2022.
The PEZA OIC said, “We hope the BOI and BIR will issue as soon as possible a similar clarification on the eligibility of the other ecozone locators that provide critical support to export locators such as the ecozone developers, embedded ecozone power, water, and telecommunications utilities, environmental management facilities with their inclusion in the SIPP. These enterprises complete the ecosystem in the ecozones without which our RBEs cannot operate efficiently.”