Splitting the pie: PEZA ITH or 5% GIT

IS YOUR company one of the more fortunate enterprises enjoying PEZA (Philippine Economic Zone Authority) incentives? If it is, then you are enjoying either the Income Tax Holiday (ITH) incentive or the 5% Gross Income Tax (GIT) regime.

As provided under Republic Act 7916, PEZA-registered enterprises may be entitled to ITH of four to six years, depending on whether the firm has been granted pioneer or non-pioneer status. After the expiration of the ITH period, they shall be subject to the 5% GIT, in lieu of all national and local taxes to which the enterprise is directly liable.

Under the law, the 5% GIT shall be split as follows: 3% to the national government, and 2% to the Local Government Unit (LGU) where the enterprise is located.

So, how do these PEZA enterprises remit the above taxes to the Bureau of Internal Revenue (BIR) and the LGU? Are they required to prepare and file two separate tax returns -- one for the BIR and one for the LGU? What if the enterprise is located in two or more cities/municipalities? How will the 2% share be split?

Under Revenue Regulations No. 01-00, a PEZA-registered enterprise under the 5% GIT regime shall still be required to file only one quarterly and final income tax return. However, after filing the income tax return with the BIR, the taxpayer should submit a copy of the filed return to the LGU for payment of the 2% share.

In case the enterprise is located in more than two sites, the said enterprise shall also submit together with its quarterly/annual income tax return a separate schedule showing (1) the “gross income earned” for the quarter without, however, showing the details on how the same has been computed; (2) the 5% special tax due thereon; (3) the 3% tax share of the National Government; and (4) the share of each city/municipality from the 2% tax share of cities and municipalities.

As provided in the PEZA implementing rules and regulations, the share of each city/municipality covering the area where the enterprise is situated shall be computed based on the ratio of the area of the city/municipality included in the lot occupied by the ecozone-registered enterprise to the total area occupied by the establishment. On the other hand, in case of IT enterprises that have different sites in different cities/municipalities, the share of the different LGUs where the sites are located shall be computed on the taxable income attributed to such sites.

Considering the above rules, it is then very important for PEZA enterprises to make sure that only the 3% share is remitted to the BIR. Any 2% LGU share erroneously paid to the BIR cannot be considered equivalent payment of that due to the LGU/s.

Nonetheless, in case an error has already been committed, the company may opt to apply for refund from the BIR.

In a recent Court of Tax Appeals (CTA) case (CTA Case No. 8465), where both the 3% share of the National Government and 2% of the LGU in the 5% preferential tax rate were remitted to the BIR, the overpayment representing the 2% share of the LGU was considered an erroneously paid tax. Hence, this entitled the PEZA-registered enterprise to a claim for cash refund or issuance of tax credit certificate.

The CTA noted that, unlike with a VAT refund, there is no specific regulation enumerating the documents needed to be presented when filing an administrative claim for refund of erroneous payment of the 5% special income tax for PEZA-registered enterprises. It thus held that so long as a taxpayer is able to fully substantiate the amount to be refunded, as well as show its entitlement for the refund, the taxpayer should be entitled to refund of its overpaid taxes.

In support of its claim for refund, the PEZA-registered enterprise submitted its duly accomplished application for tax credit/refund, BIR certificate of registration, PEZA registration, and pertinent quarterly and annual income tax returns. The CTA deemed the documents sufficient to determine the validity of the taxpayer’s claim for tax refund; hence, the taxpayer was entitled to a refund of its erroneously paid tax.

OTHER LGU REQUIREMENTS
The Jan. 20 deadline for LGU registration renewal is just mere days away.

PEZA law and circular explicitly provides that, regardless of the tax regimes, PEZA enterprises are exempt from the payment of any and all local government imposts, fees, licenses or taxes. However, as we all know, there are still some cities and municipalities that require PEZA-registered entities to obtain local government permits and pay the corresponding permit fees and other regulatory fees, such as zoning fee, garbage fee, and fire safety inspection fee, among others. Hence, we would like to take this opportunity to remind PEZA enterprises to assess their obligation to renew their LGU registration and ensure their compliance.

The author is a manager with the tax advisory and compliance division of Punongbayan & Araullo. P&A is a leading audit, tax, advisory and outsourcing services firm and is the Philippine member of Grant Thornton International Ltd.

source:  Businessworld

Oil discovered in Cebu close to shore

MANILA, Philippines -- A new oil discovery in Cebu declared by the Department of Energy is expected to augur well for the Philippines, which is heavily dependent on imported oil.

Australian firm Gas2Grid formally announced the approval by the Energy Department of its application to declare the Malolos-1 oil well on the shore ofCebu as an "oil discovery."

"The company advises (announces) that the Philippine Department of Energy has formally recognised Malolos-1 as an oil discovery and approved an extension of SC [Service Contract] 44 in order to conduct oil production with the aim of establishing a commercial oilfield," Gas2Grid said in an announcement.

Earlier Gas2Grid managing director Dennis Morton said application for declaration of an oil discovery is the first step in appraising and developing the Malolos oilfield.

Commercial production

"When approved by the DOE it will provide an additional minimum period of 12 months to flow test the well and establish commercial production. Following the completion of that work and with the DOE's approval of commercial status, the Malolos oilfield will enter a 25 year production phase.

Morton added that available technical data also indicated the possibly that Service Contract 44 "is much larger Malolos oilfield than initially assessed."

Service Contract 44, covers 750 square kilometres in central Cebu.

Gas2Grid successfully perforated and flow tested two oil bearing sandstones in Malolos-1.

"Oil was produced on short term test at indicative production rates of between 100 to 200 barrels of oil per day (bopd) ... Previously drilled wells, Malolos-1 and Malolos-4, recorded oil bearing sandstones over a 496 metre (1,627 feet) vertical interval. The recent oil test production rates (between 100 - 200 bopd) confirm Malolos-1 as an oil discovery well.

"We are confident that further testing of Malolos-1 will result in commercial oil production from a much larger Malolos oilfield than currently assessed," Gas2Grid said.

Although measurements and testing in Malolos-1 proved that the well can produce oil at rates between 100 to 200 barrels per day, "initial assessment of the oil volume potential within the Malolos oilfield is a 'Contingent Resource' oil in place in the two oil productive sandstones in the range of between a 'Low Estimate' (1C) of 4 million barrels and a 'High Estimate' (3C) of 42 million barrels, with a 'Best Estimate' (2C) of 12 million barrels of 'Total Oil Initially in Place'."

Land proximity

Another advantage of the onshore Malolos oilfield is its proximity to land which makes transporting its products and establishing a pipeline highly feasible and commercially viable. Most of the oilfields in the country are located far offshore and required relatively bigger investments in terms of infrastructure.

Little is known publicly concerning the discovery but a July 18, 2013 service contract for Malolos 1, provides the following description: "The Malolos Oil Field is located some eight kilometres by road from the Cebu's western coast.

Oil transportation options from the Malolos Oil Field include road transport by a new, all weather, concrete road from the well site to coastal port options at nearby Aloguinsan (8 kms - less than 10 minutes by road) or the larger, established port of Toledo (32 kms - 30 minutes by road). One option would be to load the oil onto marine transport for sale either to one of two oil refineries located in Batangas, Philippines (approximately 500 kms north) or in Singapore."

Although there had been gas finds in the Philippines, most of the wells are located offshore and require considerable investments to extract.

source:  ABS-CBN News