Last February 17, 2012, the Bureau of Internal
Revenue (BIR) issued Revenue Regulation No. 2-2012 titled “Tax Administration
Treatment of Petroleum and Petroleum Products Imported into the Philippines
Including those Coming in Through Freeport Zones and Economic Zones and
Registration of All Storage Tanks, Facilities, Depots and Terminals.”
For us lay people, this looks another one of those regulatory things that are
harmless enough and not worthy of our time.
Tax administration treatment? Aren’t we supposed to be inside a tax free zone?
Republic Act 7227, the law that created this freeport, is specific enough under Section 12, paragraph (b), to wit:
“The Subic Special Economic Zone shall be operated and managed
as a separate customs territory ensuring free flow or movement of goods and
capital within, into and exported out of the Subic Special Economic Zone, as
well as provide incentives such as tax and duty-free importations of raw
materials, capital and equipment,”
and paragraph (c) which states very clearly that aside from the 5% tax on gross income,
“no taxes, local and national, shall be imposed within the
Subic Special Economic Zone,”
and that,
“in case of conflict between national and local laws with
respect to tax exemption privileges in the Subic Special Economic Zone, the same
shall be resolve in favor of the latter.”
The BIR seemed to be saying though that while RR 2-2012 will apply the Value Added Tax (VAT) and excise taxes on all imported petroleum products to the Subic Freeport, the tax will be reimbursed through zero-rating when the importers and sellers are able to provide proof that the products have been “sold to a duly registered locator and have been utilized in the registered activity/operation of the locator.”
Now hold your horses!
Taking gasoline stations inside the Freeport as an example, how do you think they will be able to get their proof? Are they going to ask everybody to show their CRTEs upon every purchase of gas? Are they going to construct separate gas pumps for tax-free and with-tax gas prices?
And how in the world can it be proven during purchase that the gas will be utilized in the registered activity and operation of the locator?
Oh yeah, here is RR 2-2012’s answer: “joint supervision over the facilities with the BIR, through the assignment of revenue officers.”
Sure. Add more “righteous” personnel to the mix. Pathetic!
Bottom line, RR 2-2012 tramples on RA 7227. It does not matter if BIR will reimburse the tax later. By law, they cannot apply this tax in the first place.
RR 2-2012’s Repealing Clause states that, “All regulations, rulings or orders, or portions thereof which are inconsistent with the provisions of these Regulations are hereby revoked, repealed or amended accordingly.”
I think it is questionable that a mere government agency regulation can override a law, RA 7227, legislated by the Philippine Congress.
While we can certainly commiserate with the BIR in what is reported to be rampant smuggling resulting to BIR revenue losses, this is a problem better coordinated with other government agencies like the Bureau of Customs.
It is very disconcerting that investors and locators are the ones who will be penalized and forced to take the brunt of additional bureaucracy when the solution to the problem simply lies in government agencies doing their jobs. Put another way, isn’t corruption the basic problem that this regulation is trying to solve?
RR 2-2012 will take effect on March 3, 2012 or fifteen days following publication in a leading newspaper of general circulation.
We therefore appeal to Finance Secretary Cesar Purisima and BIR Commissioner Kim Jacinto-Henares to rescind RR 2-2012, and to our legislators in congress and President Aquino to repeal this ineffective, overreaching, and burdensome regulation.
(SBFCC Newsletter Volume 17 Issue 3)
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