PEZA affirms SC ruling vs mineral manufacturer

The Philippine Economic Zone Authority (PEZA) has affirmed the Supreme Court’s recent ruling that businesses operating within its ecozones are not entirely exempt from Value-Added Tax (VAT), particularly on goods and services consumed outside the ecozone but still within Philippine territory.

PEZA Director General Tereso Panga said the decision aligns with the agency’s long-standing interpretation of VAT rules, specifically the application of zero-VAT rating to qualified local purchases of PEZA-registered business enterprises (RBEs).

“The high Court’s clarification — that VAT zero-rating applies only to goods and services consumed or rendered within the ecozone — is aligned with the cross-border doctrine,” Panga said in a statement to the DAILY TRIBUNE. “This reinforces the principle that ecozones are considered separate customs territories, and that tax incentives, including VAT zero-rating, are applicable strictly within these zones.”

The Supreme Court's Third Division, in a decision dated 5 March 2025 and penned by Associate Justice Japar Dimaampao, partially granted Coral Bay Nickel Corporation’s claim for a VAT refund.

Coral Bay, a domestic firm engaged in the manufacture and export of nickel and cobalt mixed sulfide, is registered with PEZA and operates inside a special economic zone in Palawan.

The Court clarified that PEZA-registered companies are only entitled to zero-rated VAT if the goods or services are consumed within the ecozone, which is considered a foreign customs territory under the cross-border principle.

Panga noted that the ruling confirms that zero-rating applies only to local purchases consumed inside the zone by export-oriented RBEs.

In Coral Bay’s case, which was registered with PEZA prior to the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, the SC ruled that only input VAT used inside the zone was eligible for refund.

“The SC ruled that purchases consumed outside the ecozone are subject to VAT, and that Coral Bay was entitled to a refund only for the portion of input VAT proven to have been used inside the zone. Under the current CREATE MORE regime, VAT zero-rating is outright applied to local purchases of export-oriented RBEs that are directly attributable to their registered activities. However, this treatment is not absolute. As clarified by the Bureau of Internal Revenue (BIR), certain transactions—such as Health Maintenance Organization (HMO) services extended to workers’ dependents—are vatable and excluded from this incentive,” Panga further expressed.

He explained that the updated policy addresses investor key investor pain points by allowing VAT exemptions on importations and zero-rating on local purchases, eliminating the need for exporters to advance VAT and wait for refunds—a system common across ASEAN countries.

“Importantly, CREATE MORE liberalizes the condition for availing VAT incentives by replacing the 'direct and exclusive use' requirement with the more flexible 'directly attributable' standard. This broadened scope covers essential support services such as janitorial, security, financial consultancy, marketing, and administrative services — enhancing operational ease for export-oriented RBEs,” Panga said.

Panga also emphasized that both the CREATE and CREATE MORE laws retain the status of ecozones and freeports as separate customs territories, a designation that continues to govern VAT treatment for RBEs’ local purchases and importations.