Tax reform veto creates uncertainty over PEZA perks
THE Department of Trade and Industry (DTI) said there is uncertainty over whether firms registered with the Philippine Economic Zone Authority (PEZA) will keep their value-added tax (VAT) exemptions after Malacañang vetoed provisions of the first package of the Tax Reform for Acceleration and Inclusion (TRAIN) law.
This was after PEZA reasoned that the TRAIN will not repeal the PEZA law – which states that its economic zones are operated and managed as a separate customs territory – and was quoted in a Supreme Court decision but DTI still held its reservations.
“The supreme court decision is based on the laws that we have— the tax code and the PEZA. But the TRAIN package one, it’s also a law so it precedes all that is inconsistent but the supreme court law – the decision, is all this that is that was preceded,” Trade undersecretary for Industry Development Group Ceferino S. Rodolfo said in an earlier press briefing.
President Rodrigo R. Duterte in December vetoed five TRAIN provisions including the zero-rating on the sale of goods and services that cross separate customs territories and tourism enterprise zones, noting that the provision violates “the principle of limiting VAT zero-rating to direct exporters.”
Mr. Duterte noted in his veto that when goods or services cross separate customs territories without being taxed, it will lead to “leakages” in the tax system, which will defeat the TRAIN’s goal of making the tax process simpler and more efficient.
PEZA, an agency under DTI, gives fiscal and non-fiscal perks to certain commercial activities such as export-based manufacturing industries as well as business process outsourcing and knowledge process outsourcing businesses in economic zones.
In a briefing on Dec. 29, PEZA Director General Charito B. Plaza argued that “there are many interpretations of the veto of the President,” giving PEZA leeway to maintain its interpretation, effectively preserving the status quo.
In a dispute involving the Omnibus Investments Code, “there is a Supreme Court decision [which exempts PEZA]. If they’re going to implement otherwise, then that’s when we’re going to fight back because of the Supreme Court decision. But we’ll see,” she added.
PEZA’s Deputy General for Operations Mary Harriet O. Abordo argued that TRAIN does not change the fact that PEZA’s economic zones are considered foreign soil and will not be affected due to the cross-border doctrine.
