Tighter rules eyed for cigarette makers in special ecozones

Gov't seizes illicit cases of cigarettes in Nueva Ecija

THE GOVERNMENT will soon require new cigarette manufacturers located in special economic zones (SEZs) to register with the Bureau of Internal Revenue (BIR), after discovering some companies produced illegal tobacco products while enjoying tax exemptions, the Finance department said in a statement on Tuesday.

The Department of Finance (DoF), quoting a letter sent by Finance Secretary Carlos G. Dominguez III to Trade Secretary Ramon M. Lopez, said the BIR is currently drafting revised taxation rules on operations of cigarette manufacturers in SEZs.

The Philippine Economic Zone Authority (PEZA), DoF, BIR and Customs have agreed to make the BIR registration a requirement before new locators can obtain a certificate of registration from PEZA, it added.

Mr. Dominguez said the BIR will issue the revised rules soon after receiving comments from concerned parties.

“The fact that the alleged illicit activities occurred inside the PEZA ecozone is alarming. Not only did PEZA provide tax breaks to the alleged perpetrators, the government has lost billions of pesos in income taxes, excise taxes, VAT and customs duties when these illicit goods entered the local market,” Mr. Dominguez said in his letter.

Mr. Dominguez attributed the rising illegal activities in some PEZA-registered companies to lax monitoring and weak law implementation.

“We already have an agreement with BIR, BoC (Bureau of Customs), DoF to integrate our systems, processes as far as cigarettes are concerned. It’s a need to integrate our laws, recesses (of) systems, that’s where the gap is,” PEZA Director-General Charito B. Plaza said in a Viber message when asked to comment.

PEZA earlier this month said it was talking to the BIR to integrate their systems to boost tax compliance and monitoring, especially those covering PEZA-registered manufacturers of cigarettes and tobacco products who are exporting all of their products.

It is also coordinating with Customs to align systems and requirements when moving goods of companies in economic zones.

Under PEZA’s rules for registration, companies are not required to comply and obtain secondary licenses or authorization certifications from other state offices such as the BIR, if they want to produce several taxable products like cigarettes, oil and alcohol.

The DoF said this allows locators to manufacture unregistered cigarettes inside an economic zone while enjoying tax perks, and supply to the local market illegally.

House Ways and Means Committee Chairman Jose Ma. Clemente S. Salceda told the BIR in a House hearing early this month to revoke Revenue Regulation (RR) No. 9-2015 granting tax exemption on export cigarettes and ordered the agency to put tax stamps on all cigarette packs, whether for export or local market.

Mr. Salceda also asked PEZA to strengthen its police force enforcement and let other regulatory agencies implement their own rules and regulations inside SEZs.

“Keeping a close watch on those engaged in manufacturing regulated goods from the moment the raw materials enter the zones up to the removal from warehouses is consistent with best practices employed to monitor excisable products and goods,” Mr. Dominguez said.

The BIR raided several warehouses of two PEZA-registered locators recently, confiscating unregistered cigarettes and machines to produce them. The companies produce cigarettes for exports but investigations found these were being distributed in Central Luzon.

BusinessWorld reached out to local agriculture industry group Samahang Industriya ng Agrikultura (SINAG) for comment but did not get a response at the deadline time. — Beatrice M. Laforga