HEADS UP | Freedom from Debt Coalition rings alarm on possible export zone tax avoidance

November 27, 2017 - 9:25 PM

MANILA – Social Watch Philippines (SWP) and the Freedom from Debt Coalition (FDC)on Monday sounded alarm bells on the issue of possible tax evasion with a move being pushed by Senator Juan Edgardo Manalang Angara to solidify the zero-rating of value added tax (VAT) enjoyed by indirect exporters or suppliers in special economic zone.

SWP and FDC pointed out that “Angara and his family’s links to the Aurora Pacific Economic Zone and Free Port Authority, or APECO, is publicly acknowledged.

“Public service means upholding public interest at all times. It is never about promoting self or private interests. It is in this context that we in Social Watch Philippines and the Freedom from Debt Coalition are alarmed by Sen. Sonny Angara’s move to which solidify the zero-rating of value added tax (VAT) being enjoyed by indirect exporters or suppliers in special economic zones, as this abets tax avoidance, if not tax evasion.”

The express inclusion of the vat zero-rating in the tax reform measure, said Freedom from Debt Coalition, “could pre-empt subsequent moves by Congress to rationalize fiscal incentives. In this context, there constitutes a conflict of interest with Sen. Angara’s participation on this issue. We respectfully call on him to resign his position as chair of the Senate Committee on Ways and Means.”

Zero-rating not just exempts the enterprise from paying VAT from its sale of goods and services, explains FDC. “It entitles the enterprise to an input VAT credit, a refund, so to speak, for all the VAT that the enterprise paid for on the VAT-able inputs used in its operations.

“In effect, government actually subsidizes the operations of the enterprise.

“In the ideal VAT system, enterprises who are purely exporting their goods should be entitled to the zero-rating privilege because they end up paying the VAT in the country to which their good is being shipped. However, in our not-so-ideal VAT set up, enterprises that are merely part exporter and actually sell part of their goods domestically are able to bleed our government coffers by simply being ecozone locators.”

Based on the list of PEZA-registered enterprises as of August 2017, 1,920 of the 3,374 operating registered enterprises are not categorized as an export enterprise. It means that 57% of PEZA enterprises are operating not mainly for export, Social Watch Philippines pointed out.

“Furthermore, at least 15% of PEZA enterprises fall under the ‘Transport Storage sub-industry,’ which is basically a sector that deals with non-tradeables, unlike usually exported products, such as apparel and other manufactured final goods.

Need to plug tax leakages
“It is publicly acknowledged that economic free zone is close to the heart of the Angaras. The older Sen. Edgardo Angara authored the Aurora Pacific Economic Zone and Freeport Authority in 2013. It was the current senator who filed the counterpart bill in the House of Representatives.

“We believe that Sen. Angara should rescind SB 1592 as is retains the leakages from the zero-rated VAT granted to indirect exporters and mitigates against the fiscal reforms we seek in the current tax system.

“Technically, tax breaks or incentives that the government gives to various sectors are considered tax expenditure. These are forgone revenues that could have been spent to support the programs for the poor,” said Freedom From Debt Coalition.