Written by Catherine T. Manahan, 23 February 2007
News about the priority bills being calendared for the 2-day special session of Congress called by Malacaņang have failed to mention the twin measures that would have made the foreign investors celebrate Kung Hei Fat Choi with gusto.
These are the Congressional Conference Committee (CCC) Reports consolidating House Bill (HB) No. 4900 and Senate Bill (SB) No. 2259 proposing a one-time amnesty on the tax and duty liabilities of business enterprises registered within the Special Economic Zones (SEZs) of Clark, John Hay, Morong and Poro Point.
These SEZs have their registered enterprises in tenter hooks due to the spectre of facing potentially huge deficiency tax and customs duty assessments as a result of the pronouncements of the Supreme Court in the cases of John Hay People’s Coalition vs. Lim, et. al., G.R. No. 119775 dated 23 October 2003 and Coconut Oil Refiners Association, Inc. vs. Torres, et. al., G.R. No. 132527 dated 29 July 2005.
This judicial activism on the part of the Third Branch of the government invalidated the tax incentives granted to the registered enterprises within the said SEZs that have been created by presidential proclamations and executive issuances (e.g. Proclamation Nos. 163 and 216, series of 1993; Proclamation No. 420, series of 1994 and Proclamation No. 984, series of 1997) for being un-constitutional. This change in the game rules mid-stream caused already some investors to either pack their bags to re-locate to China or freeze any intended additional investments or CAPEX.
On the other hand, the second CCC Report consolidates HB No. 5064 and SB No. 2260 which propose to amend Republic Act (RA) No. 7227, a.k.a. the Bases Conversion and Development Act of 1992 (BCDA Law) for purposes of including in the BCDA Law the establishment of the Clark, John Hay, Morong and Poro Point SEZs and the corollary grant of tax incentives (i.e. 5% final tax on gross income earned, among others) to the registered enterprises located therein.
The same consolidated bill also provides for the preservation of the tax and duty incentives granted by the Clark Development Corporation, Poro Point Management Corporation, John Hay Management Corporation and Bataan Techonological Park, Inc., including such governing bodies, to their registered business enterprises until the expiration of their original contracts entered into with the government prior the effectivity of this proposed law. This curative statute serves to address the lacuna in the law that was cited in the aforementioned court decisions.
The first remedial measure seeks to impose only a minimum amnesty tax of twenty-five thousand pesos (P25,000.00) within six months from the effectivity of this proposed law, to be paid upon filing of a notice and return with the BIR and the Bureau of Customs.
This amnesty tax shall cover only the applicable tax and duty liabilities covered by the difference between (i) all national and local tax impositions under relevant laws, rules and regulations; and (ii) the 5% tax on gross income earned by the affected SEZ-registered enterprises.
However, it will not include those liabilities pertaining to applicable taxes and duties on articles, raw materials, capital goods, equipment and consume items removed from the SEZ and Freeport and entered into the customs territory of the Philippines (i.e. areas outside the fenced areas of the SEZs/Freeports) for local or domestic sale. These transactions shall be subject to the usual taxes and duties under the Tax Code and the Tariff and Customs Code of the Philippines, as amended.
The second measure, in addition to the major features earlier described, empowers the President to create SEZs after the concurrence of local government units and upon the recommendation of the Philippine Export Zone Authority ( PEZA) and to entitle their registered enterprises to the tax incentives under RA No. 7916 (PEZA Law), subject to PEZA registration, regulation and supervision.
Curiously, this provision must have intended to protect the presidential issuance (i.e. Proclamation No. 1035 dated March 10, 2006) declaring the Clark SEZ/Freeport as a special economic zone under PEZA, immediately after the release of the John Hay and Coconut Oil Refiners’ Association Rulings earlier discussed.
Legal debates among the practitioners loomed after said proclamation considering the explicit provisions in the PEZA law which state that the PEZA provisions shall not be applicable to economic zones already created or to be created under the BCDA Law or other special laws and governed by authorities constituted under said laws.(SEC. 50, RA 7916).
Thus, this particular provision of the HB 5064, effectively repeals the foregoing PEZA provision, and protects Proclamation No.1035 from any potential litigations.
These measures are currently being exchanged between both houses of Congress. As of this date, HB 4900 has already been signed by the Senate President while HB 5064 has recently been transmitted to the Senate President also for signature. Both bills will thereafter be submitted to the President for her final signature.
The signing of these bills into law would finally resolve the apparent tax inequity caused on the affected enterprises located in the SEZs of Clark, John Hay, Morong and Poro Point, and hopefully would be one great gift for the Philippine economy to usher in the Year of the Fire Pig in 2007.
