Establishment of Export Processing Zone Authority (EPZA)
- A body corporate named the Export Processing Zone Authority (EPZA) is created under the supervision of the Office of the President.
- EPZA’s functions are declared governmental.
Principal Office and Branches
- EPZA’s main office is in the Greater Manila Area.
- EPZA may set up branches or agencies throughout the Philippines as necessary.
Purposes and Specific Powers of EPZA
- Manage and operate export processing zones, starting with Mariveles, Bataan, and future zones.
- Construct, acquire, lease, and operate infrastructure and facilities useful for commerce and zone objectives (e.g., factories, warehouses, utilities, transport).
- Draw and manage water resources, undertake land reclamation.
- Acquire agricultural lands beyond constitutional limits for its operations.
- Regulate enterprises within zones to protect domestic industries and operate zones as public utilities with fair and uniform fees.
- Grant use, lease, or franchises for port facilities and utility services inside the zones under reasonable terms.
- Fix and collect charges for storage, leases, permits, and services.
- Exercise exclusive jurisdiction and police authority over zones, including control of cargo and movement.
- Contract indebtedness and issue bonds subject to statutory conditions.
- Organize internal agencies and adopt a corporate seal.
Capitalization of EPZA
- Capital includes existing assets, government contributions (including 200 million pesos cash appropriation), and capitalized surplus.
- Budget releases coordinated with the Budget Commission.
Governance: Board of Commissioners
- Seven members: four ex officio (Deputy Governor of Central Bank, Vice-Chairman of Board of Investments, Finance Undersecretary, Trade and Tourism Undersecretary), three presidential appointees.
- The President designates the Chairman, who is also the Administrator.
Qualifications and Disqualifications of Board Members
- Must be Filipino citizens of good moral character, competence in finance, law, industry, or related fields.
- Prohibited from engaging in political activities, professions, or businesses conflicting with Authority’s functions.
- No direct or indirect financial interest in contracts with the Authority.
Terms and Removal
- Appointed members serve six-year terms, initial staggering provided.
- Members can be suspended or removed for cause by the President.
Board Meetings and Decision-Making
- Regular monthly meetings; quorum is four members.
- Four affirmative votes required for actions or resolutions.
Compensation
- Chairman receives annual salary plus monthly allowance.
- Members receive per diem for meetings; no other allowances except travel expenses.
Board Powers and Duties
- Formulate policies and rules; effective after publication.
- Recommend establishment of new zones, with site proclamation and title conveyance by the President.
- Approve budgets and personnel organization.
- Enter into contracts for Authority’s administration and objectives.
- Recommend compulsory arbitration in labor disputes threatening zone operations.
- Recommend immigration permissions for foreign nationals employed in the zones.
- Submit reports to the President.
Administrator and Deputies
- Administrator is Board Chairman; two deputies appointed and removable by the Board.
- Deputies work full-time, receive fixed salaries and allowances.
- Administrator manages affairs, expedites investor procedures, prepares Board agendas and reports, organizes the Authority.
Personnel Rules and Exemptions
- Authority adopts its own merit system for personnel selection, promotion, transfer, and dismissal.
- All personnel exempt from Wage and Position Classification Office regulations.
- Department heads appointed by the Board; other officials by the Administrator upon recommendation.
Foreign Enterprises and Employment
- Foreign-owned businesses may operate inside zones regardless of restrictions under other laws.
- Employ foreign nationals in supervisory or technical positions up to 5% of personnel for up to five years; extensions governed by existing laws.
- Foreign nationals and dependents allowed entry and residence during employment periods.
Tax and Customs Treatment of Merchandise in the Zone
- Goods brought into zones for processing are exempt from customs, internal revenue laws, and local taxes, except for prohibited items.
- Domestic goods sold into the customs territory from the zone are taxable as domestic sales.
- Goods sent from the zone to customs territory treated as imports with applicable duties.
- Exported goods from the zone receive exemptions from export taxes.
Additional Incentives for Zone Enterprises
- Net operating losses can be carried over for five years.
- Accelerated depreciation options available.
- Exemption from export taxes, imposts, stabilization taxes.
- Priority foreign exchange assistance from Central Bank.
- Financial assistance equivalent to incentives accorded by the Board of Investments.
- Exemption from local taxes and some licenses, with real estate tax obligation remaining.
Power to Contract Indebtedness and Issue Bonds
- Board may authorize borrowing or bond issuance subject to vote and Presidential approval with economic agency consultations.
- Limits imposed on authorized indebtedness in pesos and foreign currencies.
- Bonds and indebtedness exempt from taxes, with Government guarantees possible.
- Central Bank to assist in foreign exchange allocation for loan servicing.
- Competitive bidding laws may be waived in loan or project procurements subject to certain conditions.
Establishment of Sinking Fund
- Funds for meeting debt obligations managed in a Central Bank account invested under Monetary Board approval.
- Government appropriations cover guaranteed debts if sinking fund is insufficient.
Non-Profit Nature and Tax Exemptions of the Authority
- Authority reinvests revenues in operations and development.
- Exempt from all national and local taxes, fees, tariffs, and customs duties except under conditions allowing Presidential lifting after five years.
Treatment of Road Networks
- Internal roads in zones declared national roads eligible for highway funds.
Exercise of Eminent Domain
- Authority empowered to acquire properties by purchase or condemnation for zones, facilities, housing, watershed protection.
- Condemnation proceedings to be conducted in Authority’s name.
Public Lands and Housing Projects
- Lands for zones and low-cost housing surveyed and conveyed by the President to the Authority, GSIS, or SSS.
- Housing units to be sold to qualified zone workers under conditions excluding site development costs.
- Authority administers and regulates housing projects jointly with GSIS/SSS.
Relocation and Compensation
- Residents in affected barrios to be relocated to low-cost housing.
- Compensation for residential structures built before April 15, 1972, based on fair market value.
Procurement and Bidding
- Competitive public bidding required for most supplies and services.
- Exceptions for emergencies and small purchases with monetary limits.
- Bids evaluated on cost, quality, bidder’s qualifications, delivery, and compliance.
Auditing and Financial Accountability
- Auditor General appoints auditor; audits Authority’s finances.
- Auditor’s reports submitted to President, Congress, and Board.
- Authority can respond to audit findings before report finalization.
Penal Provisions
- Violations punishable by imprisonment (5-10 years) and fines (₱5,000 to ₱10,000).
- Violations also grounds for revoking permits and privileges.
- Corporate offenders’ responsible officers liable; foreign officers subject to deportation.
- Government officials who abet violations are also penalized and may be disqualified from public office.
- Unpaid taxes and duties lead to forfeiture of goods and property.
Transitory Provisions
- EPZA assumes assets, liabilities, contracts, and personnel of Foreign Trade Zone Authority.
- Separated employees entitled to gratuities and benefits.
Repealing, Separability, and Effectivity Clauses
- Conflicting laws and regulations repealed or modified accordingly.
- Provisions are separable; invalidity of one does not affect others.
- Decree effective immediately upon approval.