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Move to convert Bataan Economic Zone meets with resistance

Monday, August 10, 2009 | MANILA, PHILIPPINES [ BusinessWorld Online ]


THE FINANCE Department has opposed a measure seeking to convert the Bataan Economic Zone (BEZ) into the Bataan Special Economic Zone and Freeport (BSEZFP), saying this would result in foregone state revenues of as much as P15 billion a year.

Senate bill no. 2118 aims to provide various fiscal perks to locators of the proposed Bataan Freeport in a bid to encourage more investments and to create more jobs.

These include a four-year income tax holiday (ITH) for registered firms in developed areas and a six-year ITH for enterprises in less developed areas. Items that will enter the country through the Bataan free port will also be exempt from the payment of duties.

The measure also establishes the Bataan Special Economic Zone and Freeport Authority (BSEZFPA), which will administer the provision of incentives to registered firms.

The BSEZFPA will have an authorized capital stock of P20 billion, 60% or P12 billion of which will be shouldered by the National Government. The remaining 40% or P8 billion will be raised by the BSEZFPA board through the selling of shares to the public, subject to the approval of the Finance secretary.

In a four-page letter to the Senate Committee on Economic Affairs dated July 30, Finance Undersecretary Gil S. Beltran said such measures were no longer needed since the existing BEZ is already attracting investments.

"The DoF [Department of Finance] believes that the proposed conversion of the existing Bataan Economic Zone into the Bataan Special Economic Zone and Freeport is no longer necessary," the letter read.

Mr. Beltran, who heads the department’s domestic finance group, noted that from 1994 to 2007, locators in BEZ increased to 49 entities from 39. He added that from 1995 to 2007, the total investments in BEZ rose to P7.76 billion from just P1.4 billion from 1982 to 1994.

The Finance department also warned that the establishment of another free port would generate difficulties in customs administration and could worsen the problem of smuggling.

"We strongly take the position that there should be a moratorium in the creation of more free ports.

"Because of the ’free flow’ of goods into the free ports and the non-imposition of taxes and duties, the free ports become very vulnerable to smuggling activities," Mr. Beltran said.

The department also opposed the giving of an ITH to locators, claiming this would result in revenue losses of as much as P3 billion a year.

"The grant of generous income tax holidays to the proposed BSEZFP could result in annual foregone revenues amounting to at least P500 million to at most P3 billion," Mr. Beltran said.

The DoF added that requiring the National Government to spend P12 billion for BSEZFPA’s capitalization could affect its capability to spend for its projects.

"The capitalization requirement to the proposed authority will have negative budgetary implication to the national government, an unwelcome development especially at a time when the need for stronger revenues for social services and infrastructure becomes more pronounced," Mr. Beltran said.

"There should be more prudence in the disposition of our scarce resources," he added.

The Finance department also warned that the bill could widen the country’s budget deficit.

"The estimated fiscal impact of the bill, at P12.5 billion to P15 billion at the outset, would bloat our budget deficit and cause us to rely on more borrowings," the letter read.

The DoF said the Philippine Economic Zone Authority (PEZA), which oversees the operations of economic zones, should instead support improvements in BEZ’s infrastructure to make it more attractive to investors. — Alexis Douglas B. Romero

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