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The Entire Cebu as an Ecozone June 25, 2007

Posted by Janjan in All, Armchair Economist, Legally Opinionated and Jurisprudent.

I’ve read about an interesting project that the Cebu Chamber of Commerce and the Cebu Business Club are jointly collaborating on, namely, to have the entire Cebu, both province and city, declared by the National Government as an Ecozone. If both organizations can pull it off, I’m sure it will spur even more business investments into Cebu, to the end that some of these investments will be thrown to the rural areas of Cebu, thus lessening the diaspora of urban migration to Cebu City itself.

 It sounds nice, a win/win situation for both businesses and the employment force, but I’m questioning whether or not local government units would support this move.  A brief backgrounder:

 An economic zone, or ecozone for short, is defined by law as “selected areas with highly developed or which have the potential to be developed into agro-industrial, industrial, tourist/recreational, commercial, banking, investment and financial centers.”  Or, to put simply, it’s a special zone set aside by the national government for highly developed industries and given certain fiscal benefits like a special tax rate, special visas for business executives, and the like.  A good example of an ecozone would be the Clark export processing zone, our own Mactan export processing zone, and the Cebu I.T. Park in Apas, Lahug.  Each ecozone is run by the PEZA, or the Philippine Ecozone Authority.  To avail of the benefits of this law, a business must (1) be registered with the PEZA and (2) be located within an ecozone.

The nice thing about having a PEZA-registered company is their tax break benefit, which is preferential rate of 5% of the company’s gross income, in lieu of the regular 35% corporate income tax.  But that’s not all:  this 5% tax rate exempts the company from paying ALL national and local taxes, such as income tax, real property tax, VAT, customs duties, and the like.  Now, if you pair this with a registration with the Board of Investments (BOI), which grants registered companies with an income tax holiday of around 4 to 6 years, you have a killer tax break combo that spares companies from the burden of taxes which take up around 40% of their income.  (If you are interested in availing of this benefit for your company, contact this law firm, and look for me.)

So, the implication for having the whole of Cebu as an ecozone would be to encourage companies to set up businesses all around Cebu, not just in Cebu City.  Tourism-oriented industries will be sprouting up all around municipalities that are adjunct to the sea, like Bantayan Island, Argao, and San Remigio.  Manufacturing-oriented industries, like the Tsunishi ship-building facility in Balamban, can erect production facilities in far-away areas like Toledo and Dalaguete.  Agriculture-oriented industries can make vast corporate farms in Bogo, and Barili.  So, we will have a whole region-wide development that is not hinged on Cebu City alone.

However, I think that there would be some resistance to this move from the local governments, since the companies are EXEMPT from paying local taxes, thus depriving the local governments from a source of income.  They won’t be deprived of real property taxes though since the ecozone locator, or the organization that will set up the whole area as an ecozone, will still be liable to pay real property tax.

Personally, I am for this move because in the long run, encouraging businesses to grow and flourish in a rural community will have a spill-over effect of inviting more development into the municipality, such as the building of roads, the flourishing of the underground economy, and the retention of local employable talent in the community.  And think about it… why would the young men and women of these municipalities flock to Cebu City when in their very own community, they can find jobs?  I mean look at the Tsunishi facility in Toledo… it’s employs I think around 3,000 workers.  That gives the local people more money to spend on businesses in the community.  Just look at the numerous carinderias and eateries springing up around the factory and the hordes of trisikad drivers shuttling workers to and fro.

Also, think about all the corporate lawyers that will benefit from the need of registering so many companies…. 8)



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