Registration Mandate for SEZ Manufacturers

Cigarette manufacturers operating in the Philippines’ special economic zones (SEZ) will soon have to register with the Bureau of Internal Revenue (BIR) to help curb illicit tobacco trade, reports The Philippine Star, citing the Department of Finance (DOF).

Some companies registered with the Philippine Economic Zone Authority (PEZA) have allegedly been engaging in illicit activity and enjoying tax breaks, according to Finance Secretary Carlos Dominguez III. “These errant firms have been depriving the government of unpaid income taxes, excise taxes, value-added tax (VAT) and customs duties whenever their illicit products are sold in the local market,” he said in a statement.

The BIR is drafting revised rules covering the operations of cigarette makers in SEZs, according to a letter from Dominguez to Trade Secretary Ramon Lopez.

“The fact that the alleged illicit activities occurred inside the PEZA Ecozone is alarming,” Dominguez wrote. “Not only did PEZA provide tax breaks to the alleged perpetrators, the government has lost billions of pesos in income taxes, excise taxes, VAT and customs duties when these illicit goods entered the local market.”

“It appears that the manufacturers took advantage of the lackadaisical monitoring inside the zone to perpetrate their schemes under the cover of the laws, rules and policies enacted to favor them,” said Dominguez.

PEZA-registered locators are subject to an income tax holiday between four years and eight years as well as duty-free importation of raw materials, capital equipment, machinery and parts. Locators can only sell up to 30 percent of their production to the domestic market—if they sell more than that, they must pay taxes and duties at regular rates.

“We expect the completion of the revised rules by the BIR soon after the PEZA and other stakeholders have provided comments thereon,” Dominguez wrote in his letter.