Vol. XXI, No. 156 [ Business World Online ]
Monday, March 10, 2008 | MANILA, PHILIPPINES
POSSIBLE MISINTERPRETATION and consequent misuse of tax incentives granted to firms operating in the country’s economic zones and free ports have prompted the Bureau of Internal Revenue, or BIR, to draft a circular designed to ensure the government gets the right taxes from businesses there.
In a March 5 draft circular, BIR Commissioner Lilian B. Hefti clarified that exemption from local and national taxes applies only to the income of a company’s registered operations within the economic zones or free ports that are registered with the Philippine Economic Zone Authority, or PEZA.
Draft
The draft circular stresses that income of economic zone- or free port-based companies from activities nor registered with PEZA remain subject to regular taxes under the National Internal Revenue Code.
Regular taxes include the 20% final tax on interest from peso-denominated bank deposits and deposit substitutes, 7.5% on foreign currency deposit, 5% or 10% on capital gains, as well as 1% on the sale of shares of stock.
Firms within economic zones or free ports conducting transactions which involve release of documents are also liable to pay documentary stamp tax. Value-added tax is also imposed on imported goods.
"Based on the interpretation of the commissioner, insofar as preferential tax treatment is concerned, the 5% [tax, in lieu of local and national taxes,] applies only to [gross] income earned from a company’s registered activities," BIR Deputy Commissioner Nelson M. Aspe said in an interview over the weekend.
The national government’s share from the preferential tax is 3%, while the local government hosting the economic zone gets 2%.
Mr. Aspe did not disclose the amount of revenues the government has been foregoing due to misinterpretation of the tax exemption.
He said, however, that the circular is being issued to remind regional directors of the proper taxes to collect from companies operating in economic zones.
Exhausting all possible means
"We are trying to exhaust all possible administrative means of generating revenues," Mr. Aspe added.
The BIR is tasked to collect P845 billion to help finance the government’s P1.227-trillion spending plan for this year.
Last year, the BIR collected P712.098 billion, P59.365 billion — or 9% — more than its collection in 2006, but still P53 billion — or 7% — short of its P765-billion target for that year.
The BIR has yet to report its collection in January, but has said that its Large Taxpayers Service, which collects up to 70% of the bureau’s total revenue, netted P32.06 billion — 14% more than that unit’s P28.173-billion collection in the same month last year. — ABLL
