The Philippine Economic Zone Authority (PEZA) is looking to amend Republic Act 7916, also known as the Special Economic Zone Act of 1995. The draft proposal they intend to file in Congress contains several significant changes, most notably the establishment of a different set of incentives for exporters.
The Special Economic Zone Act of 1995, now on its 24th year, establishes eco-zones in strategic locations and introduces various ways to attract foreign investment to these zones.
The activities that qualify for a PEZA registration and incentives include export manufacturing, information technology (IT), tourism, medical tourism, agro-industrial export and bio-fuel manufacturing, logistics and warehousing services, and utilities.
PEZA, the agency in charge of promoting investments and facilitating business operations in the country, has several amendments laid out in the draft proposal. In an interview with Business World last April, PEZA Director General Charito B. Plaza was mum about the rest of provisions. Here’s what we know about the proposed changes.
Separate incentives for exporters and domestic-market firms
- First, PEZA wants to clearly establish different incentives for exporters and firms that serve the domestic market. Since other countries have separate incentives for exporters and domestic-market firms,Ms. Plaza believes this will attract more investors and create more competition in the country. Ms. Plaza also stated that having a separate incentives package will enable businesses in the country to have their needs addressed properly.
- This will balance out the proposed tax reforms in the TRABAHO (Tax Reform for Attracting Better and Higher Opportunities) Bill, which aims to cut the corporate income tax rate from 30 percent to 20 percent, among other changes.
Authority to recommend subsidies
PEZA is also pushing to be given authority to recommend subsidies for approval to the President. These subsidies will be given to PEZA-registered economic zone locators that bring new technology to the country, invest at least US1 billion, and create a minimum of 5,000 jobs.
With the power to grant subsidies, PEZA will be able to suggest more incentives, including allowances to be given to key industries for electricity, lease, and other real estate costs.
PEZA as a government-owned and controlled corporation
The proposed amendments may also include the transfer of PEZA from the Department of Trade and Industry (DTI) to the Office of the President, where it will function as a government-owned and controlled corporation.
“We are proposing an amendment to the PEZA law because the PEZA law is now 23 years old. There are so many weaknesses and [provisions are] lacking, like, for example, we want [the] PEZA to be directly under the OP already as a GOCC,” Ms. Plaza said in a news briefing last year.
“Right now, we are attached to the DTI and we don’t know our personality. Some say we are a GOCC, others say we are just a government instrumentality.”
This proposal, however, was met with considerable resistance from the DTI Trade Secretary and the chairman of the Philippine Chamber of Commerce.
PEZA aims to submit the draft proposal in Congress, although no further details were divulged.
To learn more about relevant Philippine laws and policies on tax incentives in the Philippines, get in touch with Duran & Duran-Schulze Law. Call (+632) 478 582 or email [email protected] for inquiries.