Exemption from Local Taxes and Fees of Yamazen Machinery and Tools Philippines, Inc. (YMPI)

February 15, 2017 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Atty. Walter L. Abela, Jr. Partner, Navaro Amper and Co. 19th Floor Net Lima Plaza 5th Avenue corner 26th Street Bonifacio Global City, Taguig SUBJECT : Exemption from Local Taxes and Fees of Yamazen Machinery and Tools Philippines, Inc. (YMPI) Dear Atty. Abela : This has reference to your letter requesting for confirmation of your opinion that YMPI is exempt from payment of local taxes imposed by the host local government unit (LGU). It is represented that YMPI was registered with the Philippine Economic Zone Authority (PEZA) as an Ecozone Logistics Service Enterprise, with PEZA Registration Certificate No. 11-07-L, dated 12 April 2011. In the certification issued on 28 December 2016 by Ms. Mary Harriet O. Abordo, PEZA Deputy Director General for Operations, the incentives available to YMPI are stated as follows: "xxx xxx xxx This is to certify further the available incentives to YMPI under its registration Agreement and Supplemental Agreements with PEZA dated 12 April 2011 and 24 September 2012, are as follows : 11.3 The REGISTRANT's (YMPI) warehousing/logistics operations subject of this approval shall not be entitled to the Income Tax Holiday (ITH) incentive, nor the special five percent Gross Income Tax (5% GIT) incentive, in lieu of all national and local taxes, nor to other tax incentives under R.A. 7916, as amended, except tax and duty-free importation of goods to be imported by the REGISTRANT (YMPI) and to VAT zero rating on goods sourced from local suppliers, to be subsequently supplied to its export enterprise-clients . xxx xxx xxx." From the PEZA certification issued, it could be inferred that YMPI is entitled only to the following incentives: (i) Tax and Duty-Free Importation of goods to be imported by YMPI ;and (ii) VAT zero rating on goods, sourced from local suppliers, to be subsequently supplied to its export enterprise clients . The said certification likewise states that, YMPI is not entitled to the following: (i) ITH incentives ;(ii) Special 5% GIT incentive in lieu of all national and local taxes ;and (iii) All other tax incentives under Republic Act (RA) No. 7916 , otherwise known as the Special Economic Zone of 1995. Section 23 of RA No. 7916 states: "xxx xxx xxx Section 23. Fiscal Incentives. Business establishments operating within the ECOZONES shall be entitled to the fiscal incentives as provided for under Presidential Decree No. 66, the law creating the Export Processing Zone Authority, or those provided under Book VI of Executive Order No. 226 , otherwise known as the Omnibus Investment Code of 1987. (underscoring supplied) x x x." The relevant provision of Book VI, E.O. No. 226 is also hereby quoted as follows: "xxx xxx xxx 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: Provided, That machineries owned by zone registered enterprises which are actually installed and operated in the Zone for manufacturing, processing or for industrial purposes shall not be subject to the payment of real estate taxes for the first three (3) years of operation of such machineries: Provided, further, That fifty percent (50%) of the proceeds of the real estate taxes collected from all real properties located in the Zone and such other areas owned or administered by the Authority shall be remitted to the Authority by the province/city/municipality responsible for the collection of such taxes under the provisions of the Real Property Tax Code. All real estate taxes accruing to the Authority as herein provided shall be expanded for such community facilities, utilities and/or services as the Authority may determine . xxx xxx xxx." In view thereof, the incentive referred to by your Office, which is Article 78 (a) of EO 226 cannot be availed by YMPI, by virtue of the explicit prohibition as stated in the certification issued by PEZA to YMPI. Further, by express provision of Section 25 of RA No. 7916, as amended by RA No. 8748, it is provided that: "xxx xxx xxx SEC. 25. Applicable National and Local Taxes. All persons and service establishments in the ECOZONE shall be subject to national and local taxes under the National Internal Revenue Code and the Local Government Code .x x x." In reference to the previous BLGF opinions, specifically the opinion dated 8 January 2016 addressed to SANAC Philippines, Inc. (SPI),and the 14 September 2015 opinion issued to Ms. Lina P. Figueroa, they are immaterial to the instant case. While it is true that this Bureau earlier held that a PEZA logistics enterprise shall be exempt from the payment of LGU permit fees and taxes, for as long as it conducts its business inside the zone, the incentives specifically granted to the SPI differ from that of YMPI. Further, please be informed that in a letter dated 13 October 2015 of PEZA Director General Lilia B. De Lima to Mr. Isami Matsui, President of SPI, copy enclosed, it is provided that SPI shall be subject to the Regular Corporate Income Tax and to all local (business and real property taxes) and national taxes. In view of the foregoing, the Opinion rendered by this Bureau dated 8 January 2016 addressed to SPI is hereby reversed and set aside. Premises considered, this Bureau, regrets that it cannot agree to or support the opinion rendered by that office for lack of legal basis under the LGC and RA No. 7916, as amended. We hope we have clarified the matter. Very truly yours, (SGD.) NIO RAYMOND B. ALVINA OIC Executive Director