THE Supreme Court (SC) has clarified that companies registered with the Philippine Economic Zone Authority (PEZA) are not fully exempt from payment of value-added tax (VAT).
In a decision of the 3rd Division promulgated on March 5, 2025, the petition for review on certiorari filed by Coral Bay Nickel Corporation against the Bureau of Internal Revenue (BIR) was granted.
The company sought a refund from the BIR for unutilized input VAT it paid in 2012 for goods and services used outside the PEZA zone.
The BIR failed to act on the refund claim which prompted the company to bring the case to the Court of Tax Appeals (CTA).
The CTA 3rd Division granted the company a refund amounting to P11.873 million, but the decision was reversed by the en banc.
Coral Bay then filed its appeal to the SC, which ruled that under Republic Act No. 7916 or the Special Economic Zone Act of 1995, PEZA companies are exempt from national and local taxes, which do not include VAT.
The SC stressed that when a PEZA company purchases goods outside the ecozone and consumes them within the Philippines, those goods are subject to VAT.
“Certainly, the idea that PEZA-registered enterprises may still incur input VAT is supported not only by the principles underlying the VAT system but also by logical necessity,” the court said in the decision penned by Associate Justice Japar Dimaampao.
The SC also said that if PEZA-registered companies could enjoy VAT zero-rating on any of its purchases, regardless of whether the goods are consumed or services rendered outside the ecozone, it would be subject to abuse especially if the goods and services have no connection with the registered activity of the company.
“This expansive and unrestrained tax privilege could not have been the intent of Congress in extending such incentives to PEZA-registered enterprises,” the court said. (ABS-CBN News)
