The Philippine Economic Zone Authority (PEZA) has asked President Ferdinand R. Marcos Jr. to “keep whole” the incentives granted to locators prior to the passage of the CREATE Law.

PEZA Director-General Tereso O. Panga told the press covering the Philippine Die and Mould Machineries & Equipment Exhibition at the World Trade Center that they have already submitted to the Office of the President the agency’s inputs to the planned amendments of the CREATE Law.  

A bill has been filed in Congress by Rep. Ralph Recto seeking to amend the CREATE Law. 

One important provision PEZA would like to be considered in the CREATE Law amendment is on the “sunset” provision. PEZA said incentives granted to locators registered prior to the CREATE law “must be kept whole.”

This means that whatever incentives promised to locators prior to the implementation of the CREATE Law must be “honored and respected” as those are the incentives granted to them based on their registration agreement with the investment promotion agency (IPA) or in this case, the PEZA. 

Panga said this as the pending bill by Recto has sought for the extension to three years the 17 years the “sunset incentives” provision in the CREATE law or a maximum of 20 years for new registered applicants. Under the old PEZA charter, its locators are allowed to enjoy specific incentives for an “indefinite” period.  

PEZA also reiterated the need for prospective application of the CREATE provisions in reference to the revenue regulation circulars of the Bureau of Internal Revenue instead of retroactive.

In addition, PEZA would like to ensure that locators that meet the 70 percent export threshold should no longer be required to go through the export cost allocation as they are eligible for outright VAT zero rating on their domestic purchases.

He explained that retention in the CREATE law of some of the original PEZA law provisions recognizes ecozones as separate customs category (SCT). “This is most crucial to PEZA's attraction and facilitation of investments,” said Panga.

In particular, he said, the cross-border doctrine and destination principle in taxation are applied to locators' transactions/movement of goods owing to the SCT status of ecozones. As a result, he said, locators get to enjoy additional incentives on top of their income tax holiday and special tax rates such as tax and duty-free importation, zero-VAT rating on local purchases, and VAT exemption on inter-zone sales/constructive exportations.

“This long-standing rule on SCT placing the ecozones under the IPAs' supervision and the grant of zero VAT-rating and VAT exemption incentives have been the selling point of PEZA and other free port authorities in attracting investors to locate in the ecozones,” Panga said.

He said this is also the same best practice across ecozones/freeports worldwide including competitors in ASEAN, which allow for goods introduced into said areas as deemed tax and duty free.

“As such, any attempt to remove these unique incentives and features of the ecozones will surely impact on PEZA as an investment promotion agency and the country's competitiveness as an investment destination,” he said.

Further, he cited an opinion by the Office of Solicitor General, sustaining PEZA's position that the SCT treatment for the ecozones--which makes the locator registered business enterprises VAT-exempt entities by virtue of the cross-border doctrine and destination principle in taxation--are still applicable despite the conflicting provisions of the CREATE Implementing Rules and Regulations and BIR Revenue Circular 24-2022.

The CREATE IRR and BIR RMCs has rendered the SCT status vested in the ecozones ineffectual.