DBM Dilg Dof Joint Circular No. 99-2 (1999)

(NAR) VOL. 10 NO. 3 / JULY - SEPTEMBER 1999

[ DBM-DILG-DOF JOINT CIRCULAR NO. 99-2, April 20, 1999 ]

GUIDELINES AND PROCEDURES ON THE RELEASE OF THE TWO PER CENT (2%) SHARE OF LOCAL GOVERNMENT UNITS (LGUS) IN THE GROSS INCOME EARNED BY ALL BUSINESSES WITHIN THE SPECIAL ECONOMIC ZONES

I. Scope 1.1 These guidelines and procedures are issued to implement the provisions on the sharing, distribution and manner of disposition of the. two per cent (2%) share of the concerned LGUs from the total collection equivalent to five per cent (5%) of the Gross Income Earned by all businesses within the Subic, Clark, John Hay, Poro Point Special Economic and Free Port Zones and the other special economic zones under the Philippine Economic Zone Authority (PEZA) pursuant to the following: 1.1.1R.A. No. 7227 entitled, "An Act Accelerating the Conversion of Military Reservations into Other Productive Uses, Creating the Bases Conversion and Development Authority for this Purpose, Providing Funds Therefor and for other Purposes", and 1.1.2R.A. No. 7916 entitled, "An Act Providing the Legal Framework and Mechanism for the Creation, Operation, Administration, and Coordination of Special Economic Zones in the Philippines, Creating for this Purpose, the Philippine Economic Zone Authority." 2.0 Purpose 2.1 To provide the implementing and procedural guidelines on the release of funds to local government units which are entitled to the 2% share in the gross income earned by all businesses within the Special Economic Zones; 2.2 To delineate the responsibilities of the DILG, DBM and DOF thru BIR in the allocation and release of funds to the LGUsl; 2.3 To enhance tax collections in coordination with LGUs. 3.0 Definition of Terms 3.1 For purposes of this Joint Circular, the following terms shall be construed to mean, as follows 3.1.1Special Economic Zones (ECOZONES) — pertain to 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. These areas include Subic, Clark, John Hay, Poro Point Special Economic Zones and Free Port Zones and the ECOZONES established under the PEZA.3.1.2Gross Income Earned (GIE) — refers to gross sales or gross revenues derived from registered business activities within the ECOZONES, net of sales discounts, sales returns and allowances and minus cost of sales, cost of production or direct costs of services (depending on the nature of business) but before any deduction is made for administrative expenses or incidental losses during a given taxable period. 3.1.3Internal Revenue Tax Collection Base (IRTCB) — refers to the total internal revenue collections after all authorized deductions as enumerated under Annex "A" hereof, have been made by BIR. Forty percent (40%) of this amount is allocated for Internal Revenue Allotment of the LGUs. 4.0 General Guidelines 4.1 All registered enterprises which conduct their business activities inside Subic, Clark, John Hay and Poro Point Special Economic Zones and all the Special Economic Zones under PEZA shall, in lieu of paying local and national taxes, pay five percent (5%) final tax on their GIE to the BIR. 4.2 Concerned LGUs shall be entitled to a 2% share out of the 5% final tax on GIE, which is equivalent to 40% of the total tax collected, proportionately divided into the following: 4.2.1.One per cent (1%), which is equivalent to 20% of the total tax collected, to the LGUs affected by the declaration of the ECOZONE; and, 4.2.2One per sent (1%), which is equivalent to 20% of the total tax collected, to the Special Development Fund (SDF) of each concerned LGUs outside and contiguous to the base/ECOZONE areas. 4.3 The allocation of the 1% share of the affected LGUs and 1% SDF shall be distributed on the basis of 50% population, 25% land area and 25% equal sharing. The base data to be used shall be consistent with the DBM formula of allocating the Internal Revenue Allotment (IRA), as follows: 4.3.1For population, the census figures from the National Statistics Office using the same cut-off dates as that used by DBM. 4.3.2For land area, the certified Masterlist of Land Area issued by the Land Management Bureau of the Department of Environment and Natural Resources. 5.0 Specific Responsibilities of each Department 5.1 The DOF thru BIR shall: 5.1.1Submit to DBM on or before May 15, a certification of the total computed LGU share based on the revenue collections corresponding to 40% of the total final tax collected on GIE for the base year, which is two (2) years immediately preceding the current year. 5.1.2Include the amount reflected in the aforesaid certification as one of the authorized deductions in the computation of the IRTCB. 5.1.3In the case of the Subic, Clark, John Hay and Poro Point Special Economic Zones and pursuant to Section 57(a)(2) of the Implementing Rules and Regulations of R.A. No.7227, compute the individual share of each LGU and transmit the same to DBM on or before May 15. 5.2 The DILG shall: 5.2.1Issue immediately the necessary circular to all regional directors to effect the identification of LGUs affected by the declaration of the ECOZONE and those LGUs outside and contiguous to the ECOZONES entitled to receive the 2% share from the 5% gross income earnings paid by registered enterprises within and operating inside the ECOZONES in consultation with ECOZONE authorities. An appropriate timeframe for the formulation of the list shall be established by DILG. 5.2.2Submit immediately to BIR, copy furnished the DBM. in the case of Subic, Clark, John Hay and Poro Point Special Economic Zones, and to DBM only, in the case of all other Special ECOZONES under PEZA, the list of LGUs affected by the declaration of the ECOZONES and LGUs outside and contiguous to the ECOZONES. 5.3 The DBM shall: 5.3.1Include under the Special Purpose Fund-Assistance to Local Government Units of the proposed General Appropriations Act (GAA), the amount certified by the BIR as the total share of the LGUs affected by the declaration of the ECOZONE including those LGUs outside and contiguous to the ECOZONE. 5.3.2In the case of all other Special Economic Zones under PEZA, compute the individual share of each LGU, and 5.3.3Process Special Budget Requests of the affected LGUs and issue the necessary release documents corresponding to the 2% share of the LGUs from gross income earned or 40% of the total final tax collected by BIR from the ECOZONE enterprises. 6.0 Effectivity This Circular shall take effect immediately. Adopted: 20 Apr. 1999

(SGD.) RONALD V. PUNO Undersecretary Department of Interior and Local Government

(SGD.) BENJAMIN E. DIOKNO (SGD.) EDGARDO B. ESPIRITU Secretary Secretary Department of Budget and Management Department of Finance Attachment: ANNEX "A" Authorized Deductions from the Internal Revenue Tax Collection Particulars Legal Basis a) Rewards/Incentives to Informants Section 281(1) of the Tax CodeShare of the following from Franchise b) RA 6631/RA 6632 Tax:

1) Phil. Charity Sweepstakes Office 2) Phil. Tuberculosis Society, Inc.

3) White Cross, Inc.

4) City of Manila 5) City of Makati Share of the following from Hotel Room c) PD 1448 as amended by EO 120-A Taxes:

1) Phil. Convention & Visitors Corp.

2) Phil. Tourism Authority 40% Share of concerned LGUs from d) RA 7160 Mining Taxes Share of concerned LGUs from tax on RA 7171 e) locally-manufactured Virginia Tobacco Incremental collection on Documentary RA 7660 f) Stamp Tax Share of concerned LGUs from VAT RA 7643 g) collection h) 40% Share of concerned LGUs from the RA 7227 and RA 7916 collection of taxes from businesses and enterprises within the ECOZONE i) COA share from Net General Fund Section 24(3) of PD 1445 j) Those deductions that may henceforth be authorized by law