Department of Finance bucks creation of more ecozones

MANILA, Philippines – The Department of Finance (DOF) is opposing the creation of more economic zones, saying that tax incentives given to businesses registered in these areas are too generous and would severely affect government revenues.

There are several measures filed in Congress seeking the creation of economic zones in Bataan, Ilocos Sur, Cebu, Davao Oriental, Davao del Norte and Samal Island.

The DOF said the government stands to lose roughly P90 billion in revenues if pending measures filed at both the House of Representatives and the Senate are passed into law.

The pending bills propose various tax incentives to the different enterprises registered in economic zones.

These tax perks include income tax holiday and zero percent value added tax (VAT) on the purchase of machinery, capital equipment, raw materials, supplies, parts and products used in the fabrication of machinery by a registered export-enterprise from a domestic manufacturer.

The proposed fiscal incentives also include deferred imposition of the minimum corporate income tax and tax exemption on the importation of breeding stocks and genetic materials within 10 years from registration of commercial operation of the enterprise.

In its position paper, the DOF said the creation of separate authorities to manage the proposed economic zones would be a duplication of the Philippine Economic Zone Authority (PEZA), an investment promotion agency under the Department of Trade and Industry.

It said that PEZA is already vested with powers to set the general policies on economic zones and to supervise and coordinate the establishment of all ecozones in the country.

“The tax incentives are too generous. Granting such incentive would only diminish government revenues and would run counter with ensuring long-term fiscal sustainability. It also deviates from the intent of rationalizing and harmonizing the grant of fiscal incentives,” the DOF also said.

The department said that each pending bill seeking the creation of ecozones would translate to a revenue loss of P3 billion yearly.  There are at least 29 measures pending at both the Senate and the House of Representatives. –Iris C. Gonzales, Philippine Star