Ecozone logistics services eligible for SIPP perks

• Ecozone logistics service enterprises have been recognized as an eligible activity under the new Strategic Investment Priorities Plan, PEZA said

• As such, ELSEs may qualify for investment incentives under Republic Act No. 11534, the Corporate Recovery and Tax Incentives for Enterprises Act

• PEZA has registered 340 ELSEs with total investments of P11.15 billion, with Japanese investors accounting for P3.5 billion of the amount

The Philippine Economic Zone Authority (PEZA) welcomed the recognition of ecozone logistics service enterprises (ELSEs) as an eligible activity in the new Strategic Investment Priorities Plan (SIPP).

The SIPP lists the priority industries, sectors, and business projects that may qualify for investment incentives under Republic Act No. 11534, or the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act.

ELSEs are traders supplying production-related raw materials and equipment that cater exclusively to requirements of ecozone locators. They provide a critical support, particularly to export manufacturing companies with requirements for logistics support to facilitate their import and export shipments, sourcing of raw materials, inventory management, just in time deliveries, localization and process customization.

“We thank the Department of Finance (DOF), Department of Trade and Industry (DTI), Board of Investments (BOI), and the Bureau of Internal Revenue (BIR) for finally resolving our pending concern on the recognition and eligibility of ELSEs for registration with the investment promotion agencies (IPAs) with incentives,” said PEZA officer-in-charge Tereso Panga in a statement.

The BOI recently Memorandum Circular (MC) No. 2023-001 dated 31 January 2023, which clarified the coverage of logistics services as one of the activities in support of exporters under the 2022 SIPP, pursuant to Section 300 of the CREATE Act and Sections 2 and 3 of its Implementing Rules and Regulations.

The same has been circularized by PEZA through MC No. 2023-010 and the BIR under Revenue Memorandum Circular No. 15-2023, both dated February 3, 2023.

Initially, PEZA made a case to BOI for the inclusion in the SIPP of other ecozone locators (other than those in export manufacturing and IT services) that provide support to export activities such as ecozone developers/operators, utilities, facilities and logistics service enterprises.

These are the types of enterprises that PEZA has authorized to register under R.A No. 7916, otherwise known as the Special Economic Zone Act of 1995 or the PEZA Charter.

“While the BOI has adopted our recommendation with the inclusion of support to export activities in the SIPP, we encountered a problem with the BIR RMCs that limited the grant of incentives to only those registered business enterprises whose activities are covered by their definition for export enterprise,” Panga said.

“This ‘limitation’ has effectively barred both existing (prior to CREATE) and new locator investors (under CREATE) providing support to export activities from enjoying their incentives,” he said.

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“With the clarification issued by the BOI and BIR, the existing ELSEs can now enjoy their incentives (i.e., zero VAT rating on qualified local purchases) pursuant to the sunset provision. For new ELSEs, they may be entitled to the incentives under the CREATE Act.”

The MC affirms the entitlement to the VAT zero rating incentive on local purchases of ELSEs registered under type (3) of Board Resolution No. 97-366, as amended, or the “Guidelines for Registration and Operations of Ecozone Facilities Enterprise Engaging in Warehouse Operations”.

To be considered as exporters under the definition of Section 293 (E) of the CREATE Act, ELSEs shall render at least 70% of their output/services to another registered export enterprise either through direct or constructive exports.

“Together with the ELSEs and other locators that provide support to export enterprises, PEZA ecozones have long been a participant in the global value chain by attracting global manufacturing and ICT industry leaders to set up their facilities in the ecozones, thus generating the much-needed jobs, investments, and export revenues for the country,” noted Panga.

Investments of ecozone logistics service enterprises

To date, PEZA has registered 340 ELSEs with total investments of P11.15 billion. Japanese foreign direct investments in ELSE account for P3.5 billion.

Among the leading Japanese ELSEs are Nagase Philippines International Services Corporation; Inabata Philippines Inc.; Lima Logistics Corporation; Tokai Electronics Philippines Inc.; and NX Logistics Philippines Inc.

President Ferdinand Marcos Jr. is scheduled for a state visit to Japan this week. He is expected to invite more Japanese investors to the country’s economic zones as he pushes his ambitious plan to revive the Philippine economy and turn it into a higher-middle-income economy.

Overall, the 884 Japanese locator companies continue to be the biggest investor group in the PEZA zones, accounting for P745.64 billion investments, or 27.42% of the total investments in PEZA. These companies also generated US$15.87 billion in exports and 315,619 direct jobs as of November 2022.

“We hope the BOI and BIR will issue as soon as possible a similar clarification on the eligibility of the other ecozone locators that provide critical support to export locators such as the ecozone developers, embedded ecozone power, water, and telecommunication utilities, environmental management facilities with their inclusion in the SIPP. These enterprises complete the ecosystem in the ecozones, without which our RBEs cannot operate efficiently,” said Panga.