Perks for additional ecozones to cost government up to P2 billion

MANILA, Philippines – The Department of Finance (DOF) said the government stands to lose P1 billion to P2 billion a year from the creation of additional economic zones and freeport zones.

According to estimates by the DOF, the tax incentives granted to locators of these economic zones are not without cost to the government.

“Applying the redundancy rate for zone investments, the actual fiscal cost of the income tax holiday (assuming that the ecozone hosts only export-oriented enterprises) could range from P1 billion to P2 billion,” Finance Secretary Cesar Purisima said in the position paper of the department on proposed bills seeking to create additional economic zones.

At present, there are currently a number of bills pending in Congress seeking to create additional special economic zones in the country. Locators in these economic zones are exempt from national and local taxes, in lieu of which, five percent of the gross income earned by locators shall be paid and remitted to the government or three percent to the National Government and two percent to the treasurer’s office of the municipality or city where the enterprise is located.

However, the Finance department said that aside from revenue losses, the government would also need to spend at least P2 billion to build the infrastructure necessary to host an economic zone.

“Additional amounts are being required of the National Government in terms of equity infusion into the zone authorities that are usually created to manage the economic zone or Freeport. In the bills so far filed this 15th Congress, the national government capital infusion ranges from P160 million to P12 billion,” Purisima said.

As such, Purisima said that because of the serious fiscal implications of the measure, the government is greatly constrained from supporting bills creating economic zones and freeports.

“This is in line with the policy of deficit-neutrality which we would like to seriously advocate in the current administration, based on the principle of responsible fiscal resource management. We need to control the erosion of the tax base or exercise control over spending so that we can secure the necessary resources to fund the basic socio-economic needs of the people,” Purisima said.

The Finance chief said the Aquino administration strongly recommends a moratorium on the passage of proposed legislation creating more ecozones and freeports in the country.

“There are already seven operation freeports in Subic, Clark, Cagayan, Aurora, Bataan, Zamboanga and Poro Point. And there are 185 economic zones at present, 183 Philippine Economic Zone Authority (PEZA) zones, Morong and John Hay,” Purisima noted. –Iris Gonzales (The Philippine Star)