To assist its registered firms, the Philippine Economic Zone Authority (PEZA) said some of their costs and charges during the COVID-19 community quarantine period may be considered as direct costs eligible for certain tax incentives.
PEZA on November 17 said the PEZA Board has approved the consideration of a number of expenses as deductible direct costs to help registered business enterprises (RBEs) that are entitled to the 5% GIT incentive.
The authority said, however, that this assistance applies only for the COVID-19 quarantine periods of enhanced community quarantine (ECQ), modified ECQ, and general CQ. It is also without prejudice to the Bureau of Internal Revenue’s (BIR) inherent power to audit the expenses.
It added that the BIR has approved this reprieve for RBEs that are enjoying the 5% GIT incentive, on the condition the expense is directly connected to providing PEZA-registered services.
In BIR’s letter of response to PEZA dated October 27, 2020, it noted that “if the enumerated expense can be directly attributed in providing the PEZA-registered services, then it should be treated as direct cost, otherwise, it is non-deductible.”
PEZA said the following expenses may be considered as direct costs of RBEs entitled to the 5% GIT incentive scheme:
Cost of temporary (near-site) housing/accommodations for employees of the enterprise, including accommodations inside the facility for stay-in employees
Cost of shuttle services for the employees
For these costs, BIR said “only the cost of temporary accommodation [and for shuttle services] for Operations and Maintenance personnel may be considered as direct cost, as they are the employees whose work can directly be attributed to the PEZA-registered services.”
Also possible direct costs are port charges at the Manila International Container Port, Port of Manila, and Ninoy Aquino International Airport that arise from delays in the release of shipments at these ports immediately after the ECQ was implemented in the National Capital Region.
BIR noted that the port charges may be considered direct costs pursuant to Section 27 (a) of the National Internal Revenue Code of 1997. These port charges arising from delays in the release of shipments cover only “finished goods or raw materials used in providing the PEZA-registered services.”
Other potential direct costs include the cost of disinfecting conducted by the company at its work area/facility/premises, and cost of personal protective equipment (PPE) and sanitation requirements.
BIR said such costs may be considered direct costs “for as long as incurred for Operations and Maintenance personnel and the work area/facility/premises which such personnel work in.”
Finally, COVID-19 tests for employees may also be considered a direct cost, but only if it can be proven that such tests are directly related to the registered services.
If these costs are not directly related to the rendition of the company’s registered service, “then they should be classified as operating expenses and must be disallowed as a direct cost,” stated the bureau.
On her part, PEZA director general Charito Plaza said the approval of the COVID-19 assistance is a great way to help the RBEs who, despite being badly hit by the pandemic, are the ones continuing to keep the economy going.
She added: “Since the start of the lockdown in March in the country, PEZA’s registered companies have implemented strict COVID-19 measures to protect the health and safety of the Filipino workforce while continuing to contribute in the global supply and demand.”
Plaza also expressed gratitude to the BIR for supporting PEZA’s initiative to assist its locator companies that help to keep the Philippine economy afloat and keep thousands of Filipinos employed in various ecozone industries.
“With sound economic and legal policies, we must continue to do our best to keep these companies in our country despite the present uncertainties,” she said.