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