Scope: zones and covered incentives
- Republic Act No. 7227, as amended by Republic Act No. 9400, governs tax and customs treatment, incentives, and enterprise status rules for designated freeport and special economic zones, including: Subic Special Economic Zone (SEC. 12), Clark Special Economic Zone and Clark Freeport Zone (SEC. 15), Poro Point Freeport Zone (SEC. 15-A), Morong Special Economic Zone (SEC. 15-B), and John Hay Special Economic Zone (SEC. 15-C).
- Enterprises operating in these zones are treated as receiving incentives such as tax and duty-free importation of raw materials and capital equipment under the amended provisions and cross-referenced rules (e.g., Section 1(b) for Subic; Section 2 for CFZ; Section 3 for PPFZ; Section 4 for MSEZ; Section 5 for JHSEZ).
- The Act applies to registered business enterprises within the named zones and to governing authorities responsible for administration and monitoring (Sections 3–5 and Section 8).
- Business enterprises within the zones are subject to a five percent (5%) tax on gross income earned in lieu of national and local taxes, subject to each zone’s specific allocation rule (Sections 1(b), 2, 3), and for Morong in lieu of national and local taxes except real property tax on land (Section 4).
Tax regime: in lieu of taxes and customs treatment
- Each covered zone is required to be operated and managed as a separate customs territory (or separate customs territory/“separate customs territory ensuring free flow or movement of goods and capital”), ensuring free flow of goods and capital within, into, and exported out of the zone (Sections 1(b), 2, 3).
- Exportation or removal of goods from the zone to other parts of the Philippine territory is subject to customs duties and taxes under the Tariff and Customs Code of the Philippines (as amended), the National Internal Revenue Code of 1997 (as amended), and other relevant tax laws (Sections 1(b), 2, 3).
- For the Subic Special Economic Zone, no national and local taxes are imposed within the zone, and in lieu of such taxes, a five percent (5%) tax on gross income earned is paid by all business enterprises within the zone and remitted as three percent (3%) to the National Government and two percent (2%) to the Subic Bay Metropolitan Authority (SBMA) for distribution to affected LGUs (Section 1(b)).
- The distribution to affected LGUs is based on: population (50%), land area (25%), and equal sharing (25%) (Section 1(b)).
- For the Clark Freeport Zone (CFZ), no national and local taxes are imposed on registered business enterprises within the CFZ, and in lieu of such taxes, a five percent (5%) tax on gross income earned is paid and remitted as three percent (3%) to the National Government and two percent (2%) to the treasurer’s office of the municipality or city where they are located (Section 2).
- For the Poro Point Freeport Zone (PPFZ), no national and local taxes are imposed on registered business enterprises within the PPFZ, and in lieu of such taxes, a five percent (5%) tax on gross income earned is paid and remitted as three percent (3%) to the National Government and two percent (2%) to the treasurer’s office of the municipality or city where they are located (Section 3).
- For the Morong Special Economic Zone (MSEZ), registered business enterprises must pay a five percent (5%) tax on gross income earned in lieu of all national and local taxes except real property tax on land, remitted as three percent (3%) to the National Government and two percent (2%) to the treasurer’s office of the municipality or city where they are located (Section 4).
Special creation, governance, and public utility limits
- The President is authorized to create, by executive proclamation, a Clark Special Economic Zone covering lands of Clark military reservations and contiguous extensions under the 1947 Military Bases Agreement (as amended), located within specified areas in Angeles City, Mabalacat and Porac (Pampanga), and Capas and Bamban (Tarlac), subject to concurrence by resolution of local government units directly affected (Section 2).
- The Clark Air Base proper is declared a freeport zone if it is of an area not more than four thousand four hundred hectares (4,400 has.), with exceptions for: (1) a twenty-two-hectare commercial area near the main gate and (2) the Bayanihan Park of seven and a half hectares (7.5 has.) located outside the main gate of the Clark Special Economic Zone (Section 2).
- The governing body of the Clark Special Economic Zone is established by executive proclamation, exercising powers and functions exercised by the Export Processing Zone Authority pursuant to Presidential Decree No. 66, as amended (Section 2).
- The governing body for Clark has no regulatory authority over public utilities; regulatory authority belongs to agencies created by law for that purpose, including the Energy Regulatory Commission created under Republic Act No. 9136 and the National Telecommunications Commission created under Republic Act No. 7925 (Section 2).
- The President is also authorized to create, by executive proclamation, additional special economic zones covering specified municipalities and areas in Bataan and Zambales, subject to concurrence by resolution of directly affected LGUs and upon recommendation of the Philippine Economic Zone Authority (PEZA) (Section 2).
Incentive entitlement rules and tax conflict resolution
- Entities operating in the CFZ are entitled to incentives including tax and duty-free importation of raw materials and capital equipment under the CFZ regime (Section 2).
- Enterprises to be created within the additional special economic zones are entitled to the same incentives provided under Republic Act No. 7916 (as amended) (Section 2).
- The PEZA is required to register, regulate, and supervise all registered enterprises within the special economic zones for purposes of administering these incentives (Section 2).
- Poro Point Freeport Zone (PPFZ) is operated and managed as a freeport and separate customs territory ensuring free flow of goods and capital, and provides incentives including tax and duty-free importation of raw materials and capital equipment (Section 3).
- John Hay Special Economic Zone (JHSEZ) grants registered business enterprises operating after the effectivity of this Act the same tax and duty incentives as provided under Republic Act No. 7916 (as amended) (Section 5).
- For administering incentives in the JHSEZ, the PEZA must register, regulate, and supervise all registered enterprises (Section 5).
- The Conversion Authority and the John Hay Management Corporation (JHMC) are restricted to acquiring, owning, holding, administering or leasing real properties, and to other activities incidental thereto (Section 5).
- When national and local laws conflict regarding tax exemption privileges in the CFZ, PPFZ, JHSEZ, and MSEZ, the conflict is resolved in favor of the zones (Section 6).
- The CFZ and PPFZ are subject to paragraphs (d), (e), (f), (g), (h), and (i) of Section 12 of Republic Act No. 7227 (as amended) (Section 6).
Transitional and ongoing contract incentives
- Business enterprises presently registered and granted tax and duty incentives by Clark Development Corporation (CDC), Poro Point Management Corporation (PPMC), John Hay Management Corporation (JHMC), and Bataan Technological Park Incorporated (BTPI) are entitled to the same incentives until the expiration of their contracts entered into prior to the effectivity of Republic Act No. 9400 (Section 7).
Administration, monitoring, and database
- Governing authorities must administer and implement the incentives granted to their respective registered enterprises (Section 8).
- Governing authorities must submit to the Department of Finance (DOF) their respective annual tax expenditures based on computed costs in terms of revenue foregone on the tax incentives granted (Section 8).
- For monitoring, the DOF must create a single database of all incentives provided by all these governing authorities (Section 8).
- The DOF must monitor and review incentives granted and must submit an annual report to the President (Section 8).
Implementation timeline and IRR coordination
- The DOF, coordinating with the PEZA, the Bureau of Internal Revenue (BIR), and the Bureau of Customs (BOC), and in consultation with BCDA, SBMA, CDC, JHMC, PPMC, and BTPI, must promulgate and publish the necessary rules and regulations for effective implementation within two months from the date of effectivity of Republic Act No. 9400 (Section 10).
Penalties for smuggling (perpetual bar)
- Any registered business enterprise found guilty of smuggling by final judgment, as principal, accomplice, or accessory, is perpetually barred from doing business in any freeport and special economic zone (Section 9).
- The perpetual bar applies in addition to the penalties and sanctions imposed by existing laws (Section 9).
Repeals and separability
- Separability clause: If any portion or provision of the Act is declared unconstitutional, the remainder of the Act or provisions not affected remain in force and effect (Section 11).
- Repealing clause: All laws, decrees, orders, proclamations, rules and regulations, or other issuances or parts inconsistent with the Act are repealed or modified accordingly (Section 12).
- Section 50 of Republic Act No. 7916 (as amended) is repealed (Section 12).
- Section 13(b)(3) of Republic Act No. 7227 (as amended) regarding public utilities engaged in the provision of electric power and telecommunications services is repealed (Section 12).