Bureau of Local Government Finance Opinion

September 14, 2015 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Ms. Lina P. Figueroa Principal, Tax Advisory & Compliance Punongbayan & Araullo 19th and 20th Floors, Tower 1 The Enterprise Center 6766 Ayala Avenue 1200 Makati City Madam : This refers to your letter dated August 10, 2015, requesting clarification on the exemption privilege of PEZA companies from local permits, fees and charges. The request is being made in view of the position taken by this Bureau embodied in a letter dated March 18, 2013 addressed to Yazaki-Torres, wherein it expressed the view that income of PEZA registered firms that are subject to the regular corporate income tax rate shall also be subject to the local business. As mentioned in the letter, this Bureau requested a clarification from PEZA on whether or not income of PEZA-registered enterprise declared as regular rate and taxes by the Bureau of Internal Revenue (BIR) under the regular rate (30%) is exempt from the local business taxes. Under a letter dated September 13, 2013, Atty. Procolo M. Olaivar , Manager, Legal Service Group of PEZA, issued an opinion on the matter, the pertinent portion of which reads as follows: "Enterprises with revenue derived from non-PEZA-registered activities (and thus not entitled to the 5% GIT incentive) continue to be exempt from local government permits, taxes, fees, etc. This is because the enterprise does not shed its PEZA-registered status just because it has realized income from non-PEZA-registered albeit related, activities. For as long as the enterprise conducts its business inside the Ecozone, it remains exempt from LGU permits/taxes . Should it do business outside the Ecozone, such business shall be subject to LGU Taxes." The above-cited opinion of PEZA was embodied under a 1st Indorsement dated September 19, 2013 addressed to the City Treasurer of Calamba, copy enclosed. Pertinent to your request relative to local permits, fees and charges, it may be worth noting that Section 4 of R.A. No. 8748, amending R.A. No. 7916, quoted hereunder, does not provide any exemption from local permits, fees and charges to PEZA enterprises, thus: "Section 4. Chapter III, Section 24 of Republic Act No. 7916 is hereby amended to read as follows: 'Section 24. Exemption from National and Local Taxes . Except for real property taxes on land owned by developers, no taxes, local and national, shall be imposed on business establishments operating within the ECOZONE. In lieu thereof, five percent (5%) of the gross income earned by all business enterprises within the ECOZONE shall be paid and remitted as follows: HTcADC '(a) Three percent (3%) to the National Government; '(b) Two percent (2%) which shall be directly remitted by the business establishments to the treasurer's office of the municipality or city where the enterprise is located.'" However, such exemptions are provided under Article 78 (a) of E.O. No. 226, otherwise known as the Omnibus Investment Code of 1987 , quoted as follows: " Article 78 . Additional Incentives . A zone registered enterprise shall also enjoy all the incentive benefits provided in Article 39 hereof under the same terms and conditions stated therein. In addition zone registered enterprises shall also be entitled to the following: (a) Exemption from Local Taxes and Licenses . Notwithstanding the provisions of law to the contrary, zone registered enterprise shall, to the extent of their construction, operation or production inside the zone be exempt from the payment of any and all local government imposts, fees, licenses or taxes except real estate taxes which shall be collected by the Province/City/Municipality responsible for the collection thereof under the provisions of the Real Property Tax Code: . . ." (Underscoring for emphasis) It is the view of this Bureau that the above opinion of PEZA is in conformity with the immediate preceding provision of Article 78 (a) of Book VI, Executive Order No. 226 ( not No. 22 ), also known as the Omnibus Investments Code of 1987 ( not 1988 as previously cited in the September 19, 2013 indorsement to the City Treasurer of Calamba ). We hope that this will help clarify matters. Very truly yours, (SGD.) SALVADOR M. DEL CASTILLO OIC-Executive Director