Cigarette manufacturers planning to locate in Philippine special economic zones (SEZs) will soon be required to register with the Bureau of Internal Revenue (BIR)
Finance Secretary Carlos Dominguez III described as alarming the illicit activities of certain SEZ locators, which enjoy breaks while depriving government of taxes and customs duties
BIR is now drafting revised rules covering operations of cigarette makers inside SEZs
The government will soon require cigarette manufacturers planning to locate in Philippine special economic zones (SEZs) to register with the Bureau of Internal Revenue (BIR), part of the drive to avoid tax evasion and illicit tobacco trade.
Finance Secretary Carlos Dominguez III in a statement described as “alarming” the alleged illicit activities in SEZs of certain locators registered with the Philippine Economic Zone Authority (PEZA).
These errant firms not just enjoy the tax breaks granted by the investment promotion agency, they also deprive the government of revenue through unpaid income taxes, excise taxes, value-added tax (VAT) and customs duties, he added.
In a letter to Department of Trade and Industry (DTI) Secretary Ramon Lopez, Dominguez said BIR is now drafting revised rules covering the operations of cigarette makers inside SEZs.
Lopez, as trade secretary, supervises the DTI-attached PEZA.
Dominguez traced the alleged illicit activities of certain PEZA-registered locators in SEZs to “lackadaisical” monitoring and weak enforcement of laws.
Existing PEZA registration requirements do not mandate locator-applicants that manufacture regulated products such as cigarettes, medicines, oil and alcohol to submit secondary licenses or authorization from agencies like BIR.
Dominguez said that with this loophole, two PEZA-registered locators were able to allegedly manufacture unregistered cigarettes inside an SEZ and illicitly supply these to the domestic market.
The BIR Strike Team has seized these unregistered cigarettes and several cigarette-making machines from the companies’ warehouses and filed a complaint against the firms for violating the Tax Code and incurring deficiency excise taxes.
“The fact that the alleged illicit activities occurred inside the PEZA ecozone is alarming. Not only did PEZA provide tax breaks to the alleged perpetrators, the government has lost billions of pesos in income taxes, excise taxes, VAT and customs duties when these illicit goods entered the local market,” said Dominguez in his letter to Lopez.
“It appears that these manufacturers took advantage of the lackadaisical monitoring inside the Zone to perpetrate their schemes under the cover of the laws, rules and policies enacted to favor them,” Dominguez said.
The BIR raid on the warehouses of the PEZA-registered locators was discussed at a recent hearing conducted by the House ways and means committee chaired by Albay representative Joey Salceda.
Dominguez said he agrees with Salceda’s proposal during the hearing that PEZA should “reinvigorate its police force to patrol the zones against illicit activities” so that the BIR, Bureau of Customs (BOC) and other regulatory agencies can easily avail of its services to enforce laws and rules against violators inside economic zones.
“Moreover, keeping a close watch on those engaged in manufacturing regulated goods from the moment the raw materials enter the Zones up to the removal from warehouses is consistent with best practices employed to monitor excisable products and goods,” Dominguez added in his letter.
He said BIR is also reviewing Revenue Regulation (RR) No. 9-2015 after Salceda called on the revenue agency to “uniformly affix stamps on all cigarette packs whether for export or local consumption.”
Under RR 9-2015, cigarettes manufactured for exports must strictly comply with all existing BIR rules and regulations on the registration of brands, manufacture, import, utilization and withdrawal of raw materials; processed and finished products; and labels and posting of export bonds, among others.
Meanwhile, the interagency meeting among DOF, BIR, BOC and PEZA resolved to require secondary licenses—BIR registration to manufacture cigarettes to be secured from the Excise Tax Division—before the locator’s Certificate of Registration (COR) is issued by PEZA—Dominguez said.
He said the revised rules are expected to be completed by the BIR “soon after the PEZA and other stakeholders have provided comments thereon,” he added.
Dominguez told Lopez the “collaboration among DTI, DOF and the agencies mentioned, is therefore, necessary in order to address the illicit trade both in and out of the Zones.”
“We strongly believe that the strong commitment towards this endeavor will further improve investor confidence in our country,” Dominguez said.
PEZA early this month said it was investigating two locators manufacturing cigarettes for 100% export after they were found to be deficient in complying with BIR requirements.
PEZA director-general Charito Plaza earlier said the agency will hold talks with BIR and DOF on strengthening PEZA’s assistance to BIR by further integrating into PEZA systems the BIR requirements that are not yet part of PEZA’s processes. These requirements include those pertaining to PEZA-registered export enterprises manufacturing cigarettes and tobacco products for 100% export.
PEZA said it has also initiated talks with BOC on a stronger collaboration to resolve concerns over the movement of goods of PEZA enterprises and to address other BOC requirements. – Roumina Pablo