Cigarette manufacturers planning to set up shop in the country’s special economic zones (SEZs) will soon need to register with the Bureau of Internal Revenue (BIR) before they can be allowed to operate, according to the Department of Finance (DoF).
In a statement on Tuesday, the DoF quoted Finance Secretary Carlos Dominguez 3rd as informing Trade Secretary Ramon Lopez that the BIR is now drafting the revised rules covering the operations of cigarette makers inside SEZs.
“Meanwhile, the interagency meeting resolved to require secondary licenses, i.e., BIR registration to manufacture cigarettes secured from the Excise Tax Division, prior to issuance of the locator’s certificate of registration by the PEZA,” he told Lopez in a letter.
Lopez, as Trade Secretary, supervises over the Department of Trade and Industry-attached Philippine Economic Zone Authority (PEZA).
The interagency meeting, meanwhile, was attended by the Finance department BIR, Bureau of Customs and PEZA.
“We expect the completion of the revised rules by the BIR soon after the PEZA and other stakeholders have provided comments thereon,” Dominguez also said.
He added the BIR is also reviewing Revenue Regulations (RR) 9-2015 after Albay Second District Rep. Jose Maria “Joey” Salceda called on the revenue agency to “uniformly affix stamps on all cigarette packs whether for export or local consumption.”
Under RR 9-2015, cigarettes manufactured for exports are required to strictly comply with all existing BIR rules and regulations relating to the registration of brands, manufacture, import, utilization and withdrawal of raw materials; work in process and finished products; labels and posting of export bonds, among others, the DoF explained.
The Finance department said these policy developments are the BIR’s response to reports of alleged illicit activities in SEZs of certain locators registered with PEZA.
Dominguez has tagged these activities as “alarming” because “not only did PEZA provide tax breaks to the alleged perpetrators, the government has lost billions of pesos in income taxes, excise taxes, VAT (value-added tax) and customs duties when these illicit goods entered the local market.”
He traced the alleged illicit activities of certain PEZA-registered locators in SEZs to “lackadaisical” monitoring and weak enforcement of laws.
Existing PEZA registration requirements do not mandate compliance and submission of secondary licenses or authorization from agencies like the BIR for locator-applicants engaged in the manufacture of regulated products such as cigarettes, medicines, oil and alcohol, the DoF noted.
As a result of this loophole, it said two enterprises which are both PEZA-registered locators, were able to allegedly manufacture unregistered cigarettes inside an SEZ and supply these illicitly to the domestic market.
The BIR Strike Team seized these unregistered cigarettes and several cigarette-making machines from the companies’ warehouses and filed a complaint against the firms for violating the Tax Code and incurring deficiency excise taxes, the Finance department reported.