QuestionsQuestions (Republic Act No. 7916)
RA 7916 aims to establish the legal framework and mechanisms for the creation, operation, administration, and coordination of special economic zones (Ecozones/SEZs). It seeks to transform selected areas into highly developed agro-industrial, industrial, commercial, tourist, banking, investment, and financial centers; attract productive foreign investments; generate employment and backward/forward linkages; stimulate repatriation of Filipino capital; promote technology-intensive cooperation; and vest Ecozones (in certain aspects) with the status of a separate customs territory consistent with national sovereignty and territorial integrity.
An Ecozone is a selected area with highly developed or potential to be developed into agro-industrial, industrial, tourist/recreational, commercial, banking, investment, and financial centers. It may contain one or more of: industrial estates (IEs), export processing zones (EPZs), free trade zones, and tourist/recreational centers.
An EPZ is a specialized industrial estate located physically and/or administratively outside customs territory and predominantly oriented to export production; enterprises may import capital equipment and raw materials free from duties, taxes, and other import restrictions. A Free Trade Zone is an isolated policed area adjacent to a port of entry and/or airport where imported goods may be unloaded and manipulated without being subject to import duties; however, movement of goods from the free-trade area to a non-free-trade area is subject to import duties.
Section 5 initially identifies specific portions of areas (including provinces/cities/municipalities/islands and existing EPZs and government-owned industrial estates, plus voluntary conversion of private industrial estates). The metes-and-bounds of each Ecozone are delineated in a Presidential proclamation upon recommendation of PEZA, in coordination with the concerned local councils and land use committees (e.g., National Land Use Coordinating Committee/Regional Land Use Committee).
The proposed area must (among others): be identified as a regional growth center in the Medium-Term Philippine Development Plan or by the Regional Development Council; have required infrastructure (roads/rail/telecom/ports/airports etc.); have adequate water and electric power; have vacant lands and expansion capacity; have a trainable labor force; have significant incremental advantage and potential profitability; be strategically located; and be situated where controls can easily be established to curtail smuggling.
Non-conforming areas may still be established provided development is only through local government and/or private initiative under RA 6957 (Build-Operate-Transfer) without national government financial exposure, and the area can be easily secured to curtail smuggling. After five years, it must reach a substantial degree of development, with indicators formulated by PEZA.
Within constitutional limits and sovereignty/territorial integrity, Ecozones are to be developed as decentralized, self-reliant communities with minimal government intervention. They should have needed infrastructure and services (transportation, telecom, etc.) to generate linkages and employment. Ecozones administer themselves on matters within exclusive competence of the national government and may enter mutually beneficial relations with entities within the Philippines and, subject to DFA/DTI administrative guidance, with foreign entities.
Ecozones are managed and operated by PEZA as separate customs territory. PEZA is vested with authority to issue certificates of origin for products manufactured or processed in each Ecozone in accordance with applicable rules of origin and relevant DTl/Finance regulations.
The national government is responsible for defense of the Ecozone and security of its perimeter fence in coordination with PEZA. Military forces sent for defense should not interfere with internal affairs of Ecozones and the national government bears their expenses. PEZA may provide and establish Ecozone internal security and firefighting forces.
A foreign investor with initial investment of not less than $150,000, his/her spouse, and dependent children under 21 are granted permanent resident status within the Ecozone with freedom of ingress and egress without special authorization from the Bureau of Immigration. PEZA also issues working visas renewable every two years to foreign executives/aliens with highly-technical skills certified by DOLE, and reports names to the Bureau of Immigration within 30 days after issuance.
PEZA is a body corporate attached to DTI, with a Director General (rank of department undersecretary) as ex-officio chairman and appointed by the President. The Board includes eight members: representatives of DTI, DOF, DOLE, DILG, NEDA, Bangko Sentral ng Pilipinas, plus one labor sector representative and one investor/business sector representative.
The Board sets general policies for Ecozones; reviews proposals for establishment (per Section 6 criteria) and endorses them to the President; regulates establishment/operation/maintenance of utilities and services in Ecozones and fixes just, reasonable, competitive rates; approves PEZA annual budgets and Ecozone development plans; issues implementing rules in relation to its powers; exercises powers under the Act; and renders annual reports to the President and Congress.
Business establishments are entitled to fiscal incentives under PD 66/EO 226 (Omnibus Investment Code) and Export Development Act-related benefits (e.g., tax credits for exporters using local materials). Under Section 24, no taxes (local and national) are imposed; instead, in lieu of taxes, 5% of gross income is remitted: 3% national government, 1% local government units, and 1% for a development fund for municipalities outside and contiguous to each Ecozone (with local government shares allocated by a formula based on population/land area/equal sharing). However, Section 25 states income derived by persons and service establishments are subject to the National Internal Revenue Code.
Ecozone goods may be available for immediate retail sales in the domestic market subject to taxes on raw materials and regulations. To protect domestic industry, PEZA draws up a negative list of industries whose products may not be sold locally by Ecozone enterprises. The negative list is regularly updated by PEZA.
Labor and management relations are governed by the Labor Code and relevant laws, with no less favorable salaries/benefits/working conditions for Ecozone employees. A tripartite body is to be created (within 30 days) involving DOLE, labor sector, and business/industry sectors to formulate a mechanism for industrial peace. PEZA, with DOLE, prescribes master employment contracts for all Ecozone enterprise staff/workers.
Employment of foreign nationals hired by Ecozone enterprises in supervisory, technical, or advisory capacities may not exceed 5% of the workforce without express authorization of the Secretary of Labor and Employment.
Investors desiring to terminate must comply with PEZA requirements and procedures, particularly those relating to clearing debts. Assets of the closed enterprises may be transferred and funds may be remitted out of the Ecozone subject to rules/guidelines/procedures jointly prescribed by the BSP, DOF, and PEZA.