DOF-DBM Joint Circular Providing for the Guidelines and Procedures on the Release of the Share of Local Government Units (LGUs) from the Gross Income Earned by All Businesses within the Cagayan Special Economic Zone ("CSEZ")

February 27, 2012 DOF MEMORANDUM FOR : The Secretary SUBJECT : DOF-DBM Joint Circular Providing for the Guidelines and Procedures on the Release of the Share of Local Government Units (LGUs) from the Gross Income Earned by All Businesses within the Cagayan Special Economic Zone ("CSEZ") The Department of Budget and Management ("DBM") submits, for the Secretary's signature, the DBM-DOF Joint Circular providing for the Guidelines and Procedures on the Release of the Share of Local Government Units (LGUs) from the Gross Income earned by all businesses within the Cagayan Special Economic Zone ("CSEZ"), hereinafter referred to as the "Joint Circular". EDSAac Background: The Joint Circular is an initiative of the DBM and seeks to implement Special Provision No. 4 of Republic Act No. 10147, otherwise known as the General Appropriations Act for the year 2011, on the "Allocations to Local Government Units", to wit: Special Provision No. 4. Allocation and Release of LGU Share in Gross Income Tax Paid by all Businesses and Enterprises within the Economic Zones. The amounts appropriated for the LGU share in the gross income tax paid by all businesses and enterprises located within Economic Zones shall be allocated to the LGU beneficiaries pursuant to the provisions of R.A. No. 7922, subject to the guidelines to be jointly issues by DBM and DOF: PROVIDED, That the foregoing share from collections realized in CY 2009, as reflected in FY 2011, BESF, as well as those in prior years for unremitted shares, shall be released to the LGU beneficiaries, subject to the submission of the certifications of actual collections by the BIR and remittance to the BTr. The proposed Joint Circular has incorporated the comments and inputs of the Bureau of Treasury, Bureau of Internal Revenue, and this office. STIcEA As provided in R.A. No. 7922 (establishing a Special Economic Zone and Free Port in Cagayan), all registered enterprises which conduct their business activities inside the CSEZ shall, in lieu of paying local and national taxes, pay five percent (5%) final tax on their gross income earned to the BIR. The following LGUs shall be entitled to their respective shares out of the said 5% tax in the following proportion: 1. 1% of the 5% final tax (equivalent to 20%) of the total tax collected to the Province of Cagayan; and 2. 1/2% of the 5% final tax (equivalent to 10%) of the total tax collected to be shared by the municipalities affected by the declaration of the CSEZ in proportion to their income from business activities within the CSEZ. Under the Joint Circular, the Department through its attached agencies shall have the following roles and responsibilities: EHASaD Bureau of Internal Revenue 1. Prepare a certification on the total computed LGU share based on the revenue collections; 2. Transmit the certification to the Bureau of Treasury; 3. Include the amount reflected in the certification as one of the authorized deductions in the computation of the Internal Revenue Tax Collection Base; cSaADC 4. Submit to DBM the validated BIR certification. Bureau of Treasury 1. Validate the certification on the total computed LGU share transmitted by BIR 2. Transmit to BIR a certification on remittances or statement of deposited collections On the other hand, the DBM shall be responsible in including under the Special Purpose Fund-Assistance to LGUs the amount certified by BIR and BTr, and issuing the necessary release documents corresponding to the respective shares. SHIcDT Recommendation : Upon examination of the proposed Joint Guidelines, we find the proposed DOF-DBM Joint Circular, to be legally proper and in order. We recommend approval thereof. (SGD.) CARLO A. CARAG Undersecretary Revenue Operations and Legal Affairs Group