PEZA asks Cebu City to amend tax rule

CEBU, Philippines - The Philippine Economic Zone Authority (PEZA) is asking the Cebu City Council to amend the city’s existing ordinance, which states that all PEZA-registered enterprises operating in the ecozones in the city shall not be exempted from real property taxes.

Procolo Olaivar, PEZA manager for legal services group, said City Ordinance 2016 maybe considered illegal because it is contrary to the provisions of Republic Act 7916 or the Philippine Special Economic Zone Act of 1995, which states that all PEZA-registered enterprises enjoying the five-percent gross income tax incentive are exempt from national and local taxes, including real property tax.

Republic Act 7916 defines local taxes as those taxes like real estate taxes and other local taxes, fees and charges imposed by local government units pursuant to the Local Government Code.

Olaivar said the provisions of Republic Act 7916 “leave no room for interpretation that PEZA-registered enterprises enjoying the five per cent incentive are exempt from national and local taxes, including real property taxes.”

Olaivar cited a recent ruling of the Supreme Court, which states that it is a fundamental principle that municipal ordinances are inferior in status and subordinate to the laws of the state.  

“An ordinance in conflict with a state law of general character and statewide application is universally held to be invalid,” the Supreme Court said in its ruling in the case of Batangas CATV vs. Court of Appeals.

Olaivar has sent a communication to Councilor Jose Daluz III, vice chairman of the City Council’s committee on budget and finance, to ask for his help in amending ordinance 2016.

In a separate letter to Mayor Michael Rama, the PEZA official said the existing provision of City Ordinance 2016 needs to be reconsidered due to serious doubts on its validity as it contradicts the provisions of Republic Act 7916.

There are several establishments in Cebu City that are accredited by PEZA and are enjoying a five percent tax out of its gross income, three percent of which goes to the national coffers while the rest goes to the city government.

Olaivar believes that if the issue will not be resolved immediately, several investors who wish to invest in Cebu City may have second thoughts of doing so.

The City Council said it will study the issues raised by the PEZA official.

Meanwhile, the City Council has endorsed for PEZA accreditation the 30.4 hectares of land at the South Road Properties purchased by SM Prime Holdings Inc.

The Council has authorized Rama to sign documents related to the accreditation, hoping that the Bureau of Internal Revenue (BIR) will finally waive the payment of taxes for the sale of the lots.

It was reported that because the tax collectibles were not paid by the city immediately, the total amount of unpaid taxes may already reach close to P800,000.   - (THE FREEMAN)