The Philippine Economic Zone Authority (PEZA) has welcomed the recognition of the ecozone logistics services enterprises (ELSEs) as an eligible activity in the new Strategic Investment Priorities Plan (SIPP) which 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.
“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.
ELSE as qualified activity
The BOI has recently released 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 03 February 2023.
Initially, PEZA made a case to BOI for the inclusion in the SIPP of other ecozone locators (other than those into 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 are authorized to register under R.A No. 7916 otherwise known as the Special Economic Zone Act of 1995 or the PEZA Charter.
According to Panga, “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. 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.”
“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,” he explained.
The MC affirms the entitlement to VAT zero rating incentives 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”. However, 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.
ELSEs are traders supplying production-related raw materials and equipment that cater exclusively to requirements of ecozone locators. It provides a critical support particularly to export manufacturing companies with their 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.
“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.
To date, PEZA has registered 340 ELSEs with total investments of Php11.154 Billion. Of these, Japanese FDI share in ELSE accounts for Php3.499 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.
This is a welcome development particularly for Japanese Investors as they look forward to PBBM’s state visit to Japan this week.
Overall, the 884 Japanese locator companies continue to be the biggest investors in the PEZA zones accounting for PhP745.637 Billion investments or 27.42% of the total investments in PEZA. These companies also generated US$15.865 Billion exports and 315,619 direct jobs as of November 2022.
The PEZA OIC said, “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 telecommunications 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.”
PEZA vows to strengthen EODB
With this, PEZA is resolved to further strengthen its ease of doing business (EODB) and digital transformation especially with the inclusion of the ecozone development program in the newly launched Philippine Development Plan 2023-2028, and in support of the DTI Science, Technology, Innovation-Driven Industrialization Strategy.
PEZA’s EODB has received recognitions from investors and even various organizations such as the UNCTAD-ASEAN and the US Department of State.
Likewise, Philippine Chamber of Commerce and Industry (PCCI) President George Barcelon highlighted the ease of doing business in PEZA, among others, and how it correlates to the country’s ability to attract investments. He likewise emphasized the reason behind investors wanting to invest in the country through PEZA thus the need for LGUs to adopt the DNA of PEZA.
“I think our solution is for the local government to have the DNA of PEZA. If you talk about growth [and] inclusivity for the country, the growth should be throughout the Philippines and I think the local government plays a key role in making things easy for people to want to invest in the area of their jurisdiction,” expressed Barcelon.
PEZA OIC Panga expressed, “More than ever, we commit to strengthen our investment promotion and facilitation efforts by remaining true to our mandate and aggressively promoting the Philippines as an investment haven in Asia.”
In 2022, a total of 29 ecozone development projects have been approved by the PEZA Board and are now awaiting presidential proclamation.
Meanwhile, in January 2023, PEZA has recorded an 83.69% increase in investments with the approval of 19 new and expansion projects of ecozone locators and developer/operators that is expected to bring in PhP6.393 Billion investments.
