PEZA welcomes inclusion of ecozone logistics firms in SIPP

MANILA, Philippines — The Philippine Economic Zone Authority (PEZA) has welcomed the inclusion of ecozone logistics services enterprises (ELSEs) as an eligible activity in the new Strategic Investment Priorities Plan (SIPP) as this will allow these firms to qualify for investment incentives under 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,” PEZA officer-in-charge Tereso Panga said in a statement yesterday.

Through the recently issued memorandum circular 2023-001 dated Jan. 31, the BOI 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 two and three of its Implementing Rules and Regulations.

The same clarification was circularized by the PEZA through MC 2023-010 and the BIR under Revenue Memorandum Circular (RMC) 15-2023, both dated Feb.3.

“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,”the PEZA said.

While the BOI adopted the PEZA’s recommendation with the inclusion of support to export activities in the SIPP, Panga said they 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 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,” Panga said.

According to PEZA, the clarification affirms the entitlement to VAT zero rating incentives on local purchases of ELSEs registered under type three of Board Resolution 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 percent 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. They provide 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,” Panga said.

The PEZA has so far registered 340 ELSEs with total investments of P11.15 billion, P3.5 billion of which are from Japanese ELSEs.