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Revocation of PEZA registration

Revocation of PEZA registration by: Charity P. Mandap

Is your company registered with the Philippine Economic Zone Authority (PEZA) and enjoying various incentives?  If so, are you religiously following the rules imposed on PEZA registered entities? If you have been remiss in the past, now is the time to evaluate your compliance as you may be in danger of losing your PEZA registration and incentives your company enjoy because of those infractions.

The Special Economic Zone Act of 1995 provides the rules concerning registration, incentives, regulations, and tax treatment of PEZA-registered companies.  PEZA registration  allows the registrant to avail of the fiscal and non-fiscal incentives which include, among others, exemption from national and local taxes,  income tax holiday (ITH) for four or six years, 5% Gross Income Tax (GIT) incentive, additional deduction for training expenses, exemption from duties and taxes on merchandise, and exemption from wharfage dues, export tax, impost or fee.

However, these incentives and rights may be cancelled on any of the following grounds:  

      ·   Failure to maintain the qualifications of registration/permit/franchise   as required.
      ·  Violation of any pertinent provision of the pertinent laws and rules; and 
      ·  Violation of any of the implementing rules and regulations, the corresponding implementing memoranda or circulars or any of the general and specific terms and conditions of the registration agreement between the PEZA and the registrant or violation of the terms and conditions of the permit / franchise issued by PEZA.

In addition, delay by the ECOZONE enterprise in the implementation of the timetable of its project as set by the PEZA shall result in the automatic cancellation of the certificate of registration, unless extended or a different period is set by the PEZA.

In a recent case, the Supreme Court affirmed the decision of the PEZA and the Office of the President to cancel the registration of a PEZA-registered enterprise engaged in the business of recycling and processing of used clothing for export.  The controversy stemmed from the physical inventory made by the PEZA officers who discovered that the PEZA company had unaccounted importation of 8 million kilograms.  The company explained that the discrepancy in its import-export liquidations represented part of the waste materials generated in its recycling business.

After conducting a physical inventory and special audit, the PEZA Board passed a resolution canceling the company’s PEZA registration.  The cancellation was due to the PEZA company’s failure to account for the shortage in its imported used clothing, failure to secure the required permits for the withdrawal of goods and merchandise from specified zones, and noncompliance with various PEZA rules on the disposition of scraps and excess materials.  These causes  are considered violation of the rules and regulations of the PEZA.

The PEZA rules require that goods cannot be taken out of the ecozone without prior approval or permit of the PEZA.  In fact, permits to brings out the goods must first be secured prior to loading or before release of the goods from the factory premises or warehouse. Hence, even if the goods are still within the ecozone but if they have already been brought out of the factory or warehouse without prior permit from the PEZA, the company will already be considered in violation of the rules.

Consequently, mere failure of the PEZA company to account for shortages on raw materials, supplies or goods  which were imported tax and duty free constitutes as a prima facie proof that such goods or merchandise were illegally sent out of the ecozone.

In this respect, it is worthy to note that the cancellation of the PEZA registration will not necessarily result in the cessation of business operations of the enterpr ise.  Nor shall the cancellation of registration affect the assessment and collection of customs duties and taxes and forfeiture in accordance with the applicable provisions of the Tariff and Customs Code of the Philippines.

This article is not intended to be a substitute for professional advice.  For comments and inquiries, you may e-mail the author at Charity.Mandap@ph.gt.com.  For other tax concerns, please check out our other tax services.