Republic of the Philippines

HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila

Nineteenth Congress
First Regular Session

HOUSE BILL No. 2378

Introduced by Honorable Luz V. Mercado

EXPLANATORY NOTE

In line with our thrust to reduce poverty incidence in the Province of Southern Leyte we deemed
it proper to initiate measures that will generate employment at the said province. Since special
economic zones has been proven by time to generate sizable employment in other areas of the
country, it is in our best interest to replicate the success of ecozones in other places for our economic

benefits.

The industrial activities that the proposed ecotone will bring to our constituents will not only
benefit Southern Leyte but the entire country as well in terms of added revenue and national economic

output

Therefore, passage of this bill is hereby being earnestly sought

MMencag’

LUZ VERANO MERCADO


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Republic of the Philippines
HOUSE OF REPRESENTATIVES

Quezon City, Metro Manila

Nineteenth Congress
First Regular Session

HOUSE BILL No. 2378

Introduced by Honorable Luz V. Mercado

AN ACT
ESTABLISHING THE ECONOMIC ZONE AND FREEPORT IN THE PROVINCE OF
SOUTHERN LEYTE CREATING FOR THIS PURPOSE THE SOUTHERN LEYTE
ECONOMIC ZONE AND FREEPORT AUTHORITY APPROPRIATING FUNDS
THEREFOR AND FOR OTHER PURPOSES

Be it enacted by the Senate and House of Representatives of the Philippines in Congress
assembled:

CHAPTER!
GENERAL PROVISIONS

SECTION 1. Short Title. —- This Act shall be known as the "Southern Leyte
Economic Zone and Freeport Act of 2017"

SECTION 2. Declaration of Policy. — \tis hereby declared the policy of the State to
actively encourage, promote, induce and accelerate the sound and balanced industrial,
economic and social development of the country in order to provide jobs to the people
especially those in the rural areas, increase productivity and individual and family
income, and thereby improve the level and quality of living conditions through the
establishment among others, of special economic zones and free ports in suitable and


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strategic locations in the country and through measures that will attract legitimate and
productive foreign investments.

CHAPTER II

CREATION OF THE ECOZONE

SECTION 3. Creation of the Southern Leyte Economic Zone and Freeport. — In
pursuit of the foregoing declared policy and subject to the concurrence of the concemed
local government units (LGUs) of Southern Leyte by the zone, there is hereby established
a special economic zone and free port in the Province of Southern Leyte to be known as
the Southern Leyte Economic Zone and Freeport hereinafter referred to as the Southern
Leyte Ecozone. The Southern Leyte Ecozone shall cover an area as much as necessary in
the City of Maasin at Barangay Guadalupe or any barangay in Maasin City, Municipality of
Bontoc, San Francisco, Hinundayan and other municipalities that may be declared by an
ordinance of the local government of the Province of Southem Leyte.

SECTION 4. Governing Principles. — The Southern Leyte Ecozone shall be
managed and operated by the Southern Leyte Economic Zone and Freeport Authority,
hereinafter as the SLEZFA created under Section Sof this Act. under the following principles:

(a) Within the framework and limitations of the Constitution and applicable provisions
of the Local Government Code, the Southern Leyte Ecozone shall be developed into and
operated as a decentralized, self-reliant and self-sustaining industrial, commerciaVtrading,
agroindustrial, tourist, banking, financial and investment center with suitable residential

areas;

(b) The Southern Leyte Ecozone shall be provided with transportation,
telecommunications and other facilities needed to attract legitimate and productive
investments, generate linkage industries and employment opportunities for the people of
the Province of Souther Leyte and its neighbouring towns and cities;

(c) The Southern Leyte Ecozone may establish mutually beneficial economic relations
with other entities or enterprises within the country or subject to the administrative guidance
or the Department or Foreign Affairs (DEA), the Philippine Economic Zone Authority
(PEA) andlor the Department of Trade and Industry (DTI) with foreign entities or
enterprises;


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(d) Foreign citizens and companies owned by non-Filipinos in whatever proportion may
set up enterprises in the Southern Leyte Ecozone, either by themselves or in Joint venture
with Filipinos in any sector of industry, international trade and commerce within the
Southern Leyte Ecozone;

(e) The Southern Leyte Ecozone shall be managed and operated as a separate
customs territory, thereby ensuring the free flow or movement of goods and capital within,
into and out or the Southern Leyte Ecozone, and shall likewise provide incentives such as
tax- and duty-free importations of raw materials and capital equipment to registered
enterprises located therein. However, exportation or removal of goods from the territory of
the Southern Leyte Ecozone to the other parts of the Philippine territory shall be subject to
customs duties and taxes under the Tariff and Customs Code or the Philippines, as
amended, and the National Internal Revenue Code (NIRC) Of 1997, as 1 5 amended.

(f) The areas comprising the Southern Leyte Ecozone may be expanded or reduced
when necessary. For this purpose, the SLEZFA, in consultation with the LGLis, shall have
the power to acquire either by purchase, negotiation condemnation proceedings, any private
land within or adjacent to the Southern Leyte Ecozone for the following purposes: (1)
consolidation of lands for Southern Leyte Ecozone development; (2) acquisition of right-or-
way to the Southern Leyte Ecozone; and (3) the protection of watershed areas and natural
assets valuable to the prosperity of the Southern Leyte Ecozone;

(g) Goods manufactured by a Southern Leyte Ecozone enterprise shall be made
available for retail sale In the domestic market, subject to the payment of corresponding
taxes on raw materials and other regulations that may be formulated by the SLEZFA,
together with the PEZA, the Bureau of Customs (BOC) and the DTI in accordance with the
NIRC of 1997, as amended, and the Tariff and Customs Code of the Philippines, as
amended. However, in order to protect domestic industries, a Negative List of industries
shall be drawn up and regularly updated by the PEZA. Enterprises engaged in industries
included in such Negative List shall not be allowed to sell their products locally; and

(h) The defense of the Southern Leyte Ecozone and the security of its perimeter fence
shall be the responsibility of the national government in coordination with the Southern Leyte


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Ecozone and the LGUs. For this purpose, a special defense team shall be organized to
define its power, duties and responsibilities.
CHAPTER Ill

GOVERNING STRUCTURES.

SECTION 5. Creation of the Southern Leyte Economic Zone and Freeport Authority. —
There is hereby created a body corporate to be known as the Southern Leyte Economic

Zone and Freeport Authority hereinafter referred to as the SLEZFA, which shall manage
and operate the Southern Leyte Ecozone in accordance with the provisions of this Act. This

corporate franchise shall expire in fifty (50) years counted from the first year after the
effectivity of this Act, unless otherwise extended by Congress. It shall be organized within
one hundred eighty (180) days after the effectivity of this Act

SECTION 6. Capitalization. — The SLEZFA shall have an authorized capital stock of
two billion (2,000,000,000) no-par shares with a minimum issue of Ten pesos(P10.00) each
The majority shares of which shall be subscribed and paid for by the national government
and the LGUs embracing the Southern Leyte Ecozone. The Board of Directors or the

SLEZFA may with the written concurrence of the Secretary of Finance, sell shares,

representing not more than forty per centum (40%) of the capital stock of the SLEZFA to the

general public under such policy as the Board and the Secretary or Finance may determine.

The national government and the LGUs shall in no case, own less than sixty per centum
(60%) of the total issued and outstanding capital of the SLEZFA.

The amount necessary to subscribe and pay for the shares of the national government
to the capital stock of the SLEZFA shall be included in the annual General Appropriations
Act. For LGUs, the funds shall be taken from their internal revenue allotment and other local

funds.

SECTION 7. Principal Office of the SLEZFA. — The SLEZFA shall maintain its principal
office in the City of Maasin, Province of Southem Leyte but it may establish branches within
the Philippines as may be necessary for the proper conduct of its business.


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SECTION 8. Powers and Functions of the SLEZFA. — The SLEZFA shall have the
following functions:

(a) Operate, administer, manage and develop the Southern Leyte Ecozone according
to the principles and provisions set forth in this Act;

(b) Recommend to the President of the Philippines or the Govemor of the Province of
Southern Leyte the issuance of a proclamation to fix and delimit the site of the Southern
Leyte Ecozone;

(c) Register, regulate and supervise the enterprises in the Southern Leyte Ecozone
in an efficient and decentralized manner, subject to existing laws;

(d) Coordinate with LGUs and exercise general supervision over the development
plans, activities and operations of the Southem Leyte Ecozone;

(e) Authorize or undertake, on its own or through others, and regulate the
establishment, operation and maintenance of public utilities, services and infrastructure in
the Southern Leyte Ecozone such as shipping, barging, stevedoring, cargo handling,
hauling, warehousing, storage or cargo, port services or concessions, piers, wharves,
bulkheads, bulk terminals, mooring areas, storage areas, roads, bridges, terminals,
conveyors, water supply and storage, sewerage, drainage, airport operations in coordination
with the Civil Aeronautics Board, and such other services or concessions or infrastructure
necessary or incidental to the accomplishment of the objectives of this Act: Provided,
however, That the private investors in the Southem Leyte Ecozone shall begiven priority in
the awarding of contracts, franchises, licenses, permits for the establishment, operation

and maintenance of utilities, services and infrastructure in the Southem Leyte Ecozone;

(f) Regulate and undertake the establishment, operation and maintenance of utilities,
other services and infrastructure in the Southern Leyte Ecozone such as but not limited to,
heat, light and power, water supply, telecommunications, transport, toll roads and bridges,
port services, etc, and to fix just, reasonable and competitive rates, charges and prices
thereof,

(g) Construct, acquire, own, lease. operate and maintain, on its own or through
contracts, franchises, licenses, bulk purchases from the private sector or permits under any


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or the schemes allowed in Republic Act No. 6957 known as the Build- Operate-Transfer
Law as amended, or joint ventures. adequate facilities and infrastructure required or needed
for the operation and development of the Southern Leyte Ecozone in coordination with the
appropriate national and local government authorities and in conformity with applicable laws
thereon;

(h) Operate on its own, either directly or accredited license other entities, recreational
and sports facilities, other tourism-related activities and subject to a grant of franchise by
Congress, gaming activities such as horse racing, dog racing, gambling casinos, internet
and inter-active gaming and other games of chance; Provided, That registered locator
enterprises shall not operate gaming activities unless granted a franchise by Congress;

(i) Subject to the approval of the President of the Philippines or the Governor of the
Province of Southern Leyte and the Monetary Board of the Bangko Sentral ng Pilipinas
(BSP), upon the recommendation of the DOF to raise or borrow adequate and necessary
funds from local or foreign sources to finance its projects and programs under this Act and
for that purpose- to issue bonds, promissory notes and other forms of securities, and to
secure the same by a guarantee, pledge, mortgage, deed of trust or an assignment of all or
part of its property or assets;

(j) Provide security for the Southern Leyte Ecozone in coordination with the national
and local governments. Military forces sent by the national government for the purpose or
defense shall not interfere in the internal affairs or the Southern Leyte Ecozone and
‘expenditures for these military forces shall be borne by the national government. For this
purpose the SLEZFA may establish and maintain its security forces and firefighting
capability or hire others to provide the same:

(k) Protect, preserve, maintain and develop the virgin forests, beaches, coral and
coral reefs, and maintain ecological balance within the Southern Leyte Ecozone;

(1) Create, operate and/or contract operate such functional units or offices of the
SLEZFA as it may deem necessary;

(m) Adopt, alter and use a corporate seal; contract, lease, buy, acquire, own or

otherwise dispose personal and/or real property of whatever nature; sue and be sued; and
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(n) Issue certificates of origin for products manufactured or processed in the Southem
Leyte Ecozone in accordance with prevailing rules of origin and the pertinent regulations of
the PEZA, the DTI and/or the DOE;

(a) Issue working visas renewable every three (3) years to foreign executives and

foreign technicians with highly specialized skills which no Filipino possesses ascertified by
the Department or Labor and Employment (DOLE);

(p) Report to the Bureau of Immigration (61) the names of the foreigners who have
been granted permanent status and working visas within thirty (30) days after the issuance
such grant;

(q) Exercise such powers as may be essential, necessary or incidental to the powers
granted to it hereunder, as well as those that shall enable it to carry out, implement and
accomplish the purposes, objectives and policies of this Act; and

(F) Issue rules and regulations consistent with the provision or this Act as may be

necessary to accomplish and implement the purposes, objectives and policies provided
herein.

SECTION 9. Applicability Clause. — the provisions of Sections 30 to 41 of Republic
Act No. 7916. (The Special Economic Zone Act of 1995) as amended, on leases of lands
and buildings, land conversion, shipping and shipping register, protection of environment,
termination of business, registration of business enterprises, one-stop shop center and on
industrial harmony in the ecozones shall apply to the SLEZFA.

SECTION 10. Zax Exemptions. — The SLEZFA is hereby declared exempt from the
payment of all taxes, duties, fees, imports, charges, costs and service fees in any court or
administrative proceedings entirely or partially lifted by the President of the Philippines upon
the recommendation of the Secretary of Finance, not earlier than five (5) years from the
effectivity of this Act, if the President shall find the SLEZFA be self-sustaining and financially
capable by then to pay such taxes, customs duties, fees and other charges after providing
for debt service requirements of SLEZFA and of its projected capital and operating
expenditures.


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Furthermore, all donations made by any person or entity in favor of the SLEZFA shall
be exempt from the payment of the donor's tax and the same shall be considered as
deductible from the gross income of the donor, pursuant to the NIRC of 1997, as amended.

SECTION 11. Administration, Implementation and Monitoring of Incentives. The
SLEZFA shall be responsible for the administration and implementation of the incentives
granted to its respective registered enterprises, provided, That any incentive administration
policy adopted by the BO! for incentives common to all registered enterprises shall be
uniformly applied by the SLEZFA.
The following are the duties and responsibilities of the SLEZFA in the administration
of incentives:

(a) Adopt consistent procedures of administering incentives in accordance with the
guidelines established by the BO! and to amend the same when necessary;

(b) Adopt and implement systems and procedures affecting trade and customs
policies in accordance with the reqwrements established by the DOF and the BOI and to
amend the same when necessary;

(c) Submit data and information to the DOF and the BOI as required by any of these
agencies to ascertain consistency or investment policies and incentives, including their
implementation as provided in (a) and to ensure proper implementation of systems and
procedures affecting trade and customs policies as provided in (b); and

(d) Perform all other duties and responsibilities as may be required by the

President or the Philippines.
For proper monitoring, the BO! shall create a single database of all incentives

provided by all incentives-granting agencies, including the SLEZFA and all information
thereto. Double-entry accounting shall be done by the BO! in recording all incentives granted

by the government for transparency purposes

SECTION 12 Board of Directors of the SLEZFA. — The powers of the SLEZFA shall
be vested in and exercised by a board of directors, hereinafter referred to as the Board,

which shall be composed of the following:


1 (a) The chairperson who shall, at the same time be the administrator of the
2 SLEZFA;

3 () A vice chairperson who shall come from among the members of the Board:

4 (c) The Members consisting of.

5 (1) The governor or the Province of Southern Leyte:

6 (2) The congressional representative of the district covering the site of the

7 Souther Leyte Ecozone:

8 (3) The mayor of any of the city or municipality covered by the Ecozone;
9 (4) One (1) representative from the domestic investors;

10 (5) One (I) representative front the foreign investors; and

4 (6) Two (2) representatives from labor from among the workers in the Southern
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“4 The governor, the congressional representative and the mayor of the City of Maasin

5 shall serve as ex officio members of the Board, whose terms in the Board correspond their
416 term as elected officials. The chairperson and the members of the Board, except the ex-

17 officio members, shall be appointed by the

B President of the Philippines or the Governor of Southern Leyte to serve for a term of six (6)
49 years unless sooner removed for cause or dies or resigns voluntarily. In case of death,
20 resignation or removal for cause, the replacement shall serve only the unexpired portion of
21 the term.
22 Except for the representatives of the business and labor sectors, no person shall be
23 appointed by the President or the Philippines as a member of the Board unless he is a
24 — Filipino citizen, of good moral character, of proven probity and integrity, and a degree holder
25 in any of the following fields: economics, business, public administration, law, management
26 or their equivalent, and with at least ten (10) years relevant working experience preferably
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The members of the Board shail each receive per diem at rates to be determined by
the Department of Budget and Management (DBM) in accordance with existing rules and
regulations: Provided, however, that the total per diem collected each month shall not
exceed the equivalent per diem for four (4) meetings. Unless and until the President of the
Philippines or the Governor of Southern Leyte has fixed a higher per diem for the members
of the Board, such per diem shall not be more than Ten thousand pesos (P10,000.00) for
every Board meeting.

SECTION 13. Powers and Duties of the Chairperson-Administrator. Tne chairperson-

administrator shall have the following powers and duties:

(a) Direct and manage the affairs of the SLEZFA in accordance with the
policies of the Board;

(b) Establish the internal organization of the SLEZFA under such conditions that the
Board may prescribe;

(c) Submit an annual budget and necessary supplemental budget to the Board for
its approval:

(d) Submit within thirty (30) days after the close of each fiscal year an annual report
to the Board and such other reports as may be requited;

(e) Submit to the Board for its approval policies, systems, procedures, rules and
regulations that are essential to the operation of the Southern Leyte Ecozone:

(f) Create a mechanism in coordination with relevant agencies for the promotion of
industrial peace, the protection of the environment and the advancement or the quality of
life; and

(g) Perform such other duties as may be assigned to him/her by the Board or which
are necessary or incidental to his/her office.

SECTION 14. Organization and Personnel. — The Board of Directors of the
SLEZFA shall provide for an organization and staff of its officers and employees. Upon
recommendation of the chairperson administrator, the Board shall appoint and fix the
remuneration and other emoluments of its officers and employees in accordance with

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existing laws on compensation and position classification: Provided, that the Board shall
have exclusive and final authority to promote, transfer, assign or reassign officers of the
SLEZFA, any provision of existing law to the contrary notwithstanding: Provided. Further,
that the chairperson-administrator may carry out removal of such officers and employees.

The officers and employees of the SLEZFA, including all members of the Board, shall
not engage, directly or indirectly in partisan activities nor take part in any selection, except
to vote.

No officer or employee of the SLEZFA, subject to civil service laws and regulations,
shall be removed or suspended except for cause, as provided by law.

SECTION 15. General Manager. — The Board of Directors of the SLEZFA shall
appoint a full-time professional and competent administrator and chief executive officer for
the SLEZFA whose compensation shall be determined by its Board of Directors and shall
be in accordance with the revised compensation and position classification system. The
administrator as chief executive officer of the SLEZFA shall be responsible to the Board and
to the President of the Philippines and/or the Governor for the efficient management and
operation of the SLEZFA.

SECTION 16. Legal Counsel. - The SLEZFA shall have its own internal legal counsel
under the supervision of the Office or the Government Corporate Counsel(OGCC). When
the exigencies or its businesses and operations demand it, the SLEZFA may engage the
services of an outside counsel either on a case to case or on a fixed retainer basis.

CHAPTER IV
INCENTIVES TO ECOZONE ENTERPRISES/INVESTORS

SECTION 17. Incentives to Registered Enterprises. — The SLEZFA shall provide the
following incentives to the registered enterprises located therein to the extent of the
activity/project:


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(a) Income Tax Holiday (ITA) — Registered enterprises shall be entitled to an ITH from
the start of their commercial operations to the extent of their activity under the following
categories:

(1) Category A - Registered domestic enterprises producing/rendering new
products/services or having strong backward or forward linkages shall he entitled to a six
(6)-year ITH.

(2) Category B — Registered export enterprises shall be entitled to a six (6)-year ITH
Provided, the export enterprise shall be entitled to all eight (8)-year ITH if it complies with
the following

(i) Large capital investments or sizeable employment generation; or

(ii) Use of high level of technology.

Registered enterprises embarking on new investments that are listed in the current
Investment Priorities Plan (IPP) shall be entitled to incentives provided herein pertaining the
new investments and subject to such terms and conditions as the Board of Investments

(BO!) may determine.

Additional investments in the project shall be entitled the ITH corresponding to such
investments as may be determined by the BOI.

Additional ITH may be granted for as long as the investment is made on the same
project: Provided. That the project is listed in the IPP at the same time the additional
investment in the project is made: Provided further that the entitlement period additional
investments shall not exceed three (3) times the period provided under this subsection:
Provided, however, that the total ITH period an exportenterprise availing of an eight (8)-year
ITH shall not exceed twenty (20) years. Any unused incentives shall therefore be deemed
forfeited if not used during the incentive period.

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Enterprises registered with the SLEZFA are required to share in the special
development fund of the BO! for investment promotion projects of the government
equivalent to one percent of the ITH granted for every application.

The Bureau or Internal Revenue (BIR) shall require a registered enterprise availing of
the ITH or the net operating loss carryover (NOLCO) to secure a certificate of eligibility from
the SLEZFA before submitting its income tax return (ITR) with the SLEZFA for validation.

Failure to Secure certification and/or to file the ITH or the NOLCO availment for
validation by the SLEZFA within forty-five (45) days from the last day of statutory filing date
for tT R shall cause the forfeiture of the availment for the taxable period.

(b) Net Operating Loss Carryover (NOLCO) — net operating loss of the business or
enterprise during the first three (3) years from the start of commercial
operations which have not been previously offset as a deduction from the gross income
shall be carried over as a deduction from the gross income for the next five (5) consecutive
years immediately following the year of such loss: Provided, however, That operating loss
resulting from availment of incentives provided in this Code shall be entitled to the NOLCO.

Registered enterprises availing of the ITH as herein provided shall not be entitled to
avail of the NOLCO.

(c.) Imposition of a Tax Rate of Five Percent (5%) on Gross Income Earned(GIE) —
Except for real property tax on land, no local and national taxes as prescribed under
Republic Act No. 8424. also known as "the National Internal Revenue Code of 1997, As
, such as the income tax, the excise tax and the franchise taxes shall be imposed
on business establishments operating within the Southern Leyte Ecozone. In lieu thereof,
there shall be imposed a tax of five percent (5%) of the gross income earned by all the
business enterprises within the SLEZFA and remitted as follows:

Amendet

(1) Two per centum (2%) to the national government;

(2) Two per centum (2%) to the Province of Southern Leyte;

(3) One-half per centum (1/2%) to be shared by the municipalities affected by the
declaration of the SLEZFA in proportion 10 their income from business activities of the
zone; and


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(4) One-half per centum (1/2 %) to the SLEZFA

All persons and service establishments in the Southern Leyte Ecozone that are not
covered by Section 17 hereof shall be subject to national and local taxes under the NIRC
of 1997, as amended, and the Local Government Code.

(d) Accelerated Depreciation — Accelerated depreciation of plant, machinery and
equipment that are reasonably needed and actually used for the production and transport
of goods and services may be allowed using a rate not exceeding twice the rate which would
have been used had the annual allowance been computed in accordance with the rules and
regulations prescribed by the Secretary of Finance and the provisions or the NIRC of 1997,
as amended.

(e) Capital Equipment Incentives — Importations of capital equipment, spare parts,
tools and dye, or those required for pollution abatement and control, cleaner production and
waste reduction including consignment thereof by registered enterprises upon the effectivity
of this Act shall be exempted to the extent of one hundred percent (100%) or the taxes and
customs duties: Provided, That the importation thereof shall be used exclusively by the
registered enterprise in its registered activity within the Southern Leyte Ecozone: Provided
further. That the importation of machinery and equipment and accompanying parts shall
comply with the following conditions:

(1) These are not manufactured domestically in sufficient quantity, of comparable
quality and at reasonable prices:

(2) These are reasonably needed and will be used exclusively by the registered
enterprise in the manufacture of its products, unless prior approval of the SLEZFA is secured
for the part-time utilization of said equipment in a non-registered activity to maximize usage
thereof or the proportionate taxes and duties are paid on a specific equipment and
machinery being permanently used for non-registered activities: and

(3) Approval or the SLEZFA was obtained by the registered enterprise for the
importation of such machinery, equipment and spare parts.

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Approval of the SLEZFA must be secured before any sale, transfer or disposition of
the imported capital equipment, machinery or spare parts is made: Provided That if such
sale, transfer or disposition is made within the first five (5) years from, the date of
importation, any of the following conditions must be present:

(i) If made to another enterprise enjoying tax and duty exemption on imported capital
equipment;
(ii) If made to another enterprise not covered by part (i) hereof. Upon payment of the
taxes and duties on the net book value of the capital equipment to be sold:
(ili) Exportation of the capital equipment, machinery, spare parts or source documents
or those required for pollution abatement and control: and
(iv) For reasons of proven technical obsolescence.

When the aforementioned sale, transfer or disposition is made under any of the
conditions provided for in the foregoing paragraphs other than paragraph (ii), the registered
firm shall not pay the taxes and duties waived on such items: provided, further, That if the
registered enterprise sells, transfers or disposes the aforementioned imported items without
prior approval within five (5) years from the date of importation, the registered enterprise
and the vendee, transferee or assignee shall be solidarily liable to pay twice the amount of
the tax and duty exemption given it: Provided, finally, That even if the sale, transfer or

disposition of the capital equipment, machinery or spare parts is approved after five (5) years
from the date of importation, the registered enterprise is still liable to pay the taxes and
duties based on the net book value of the capital equipment, machinery or spare parts if it
has violated any of its registration terms and conditions. Otherwise, it shall no longer be
subject to the payment of the taxes and duties waived thereon.

The purchase of machinery, capital equipment, raw materials, supplies, parts and
semi-finished products used in the fabrication of machinery and capital equipment by a
registered export-oriented enterprise from a domestic manufacturer shall be subject to zero

percent (0%) value-added lax.

The registered export-oriented enterprise shall be granted a tax credit equivalent to
the amount of duties that would have been waived on the machinery, capital equipment, raw

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materials, supplies, parts and semi-finished products used in the fabrication of machinery
and capital equipment had these items been imported, upon its submission to the
Department of Finance (DOF) of the bill of materials evidencing the transaction value or
such and other pertinent documents, for verification and proper endorsement.
The registered export enterprise availing of the incentive provided under the

immediately preceding two (2) paragraphs shall be subject to the following: (i) that said
Capital equipment, machinery and spare parts will be used exclusively by the registered
enterprise in its registered activity; (ii) that the capital equipment or machinery where the
raw materials, supplies, parts and semi-finished products were used would have qualified
for tax- and duty-free importation; and (iii) that the approval or the SLEZFA is obtained by
the registered enterprise. If the registered enterprise sells, transfers or disposes of these
machineries, capital equipment and spare parts, the provision in the preceding paragraphs
for such disposition shall apply.

This incentive shall be deemed waived if application for tax credit under this subsection
was not filed within one (1) year from the date of delivery.
(f) Tax-and-Duty Free Importation-The importation of source documents by
information technology registered enterprises shall be eligible for tax- and duty-free
importation.

(g) Raw Materials Incentives — Every registered export-oriented enterprise shall enjoy
a tax credit equivalent to the internal revenue taxes and customs duties paid on the supplies,
raw materials and semi-manufactured products: Provided, That the same are not sufficient
in quantity, quality or are not competitively priced which are used in the manufacture,
processing or production of its export products forming part thereof, exported directly and
indirectly by the registered export-oriented enterprise based on the actual taxes and duties
paid for such materials/supplies/semi-manufactured products by the registered enterprise.
This incentive shall be deemed waived if application for tax credit under this subsection
was not filed within one (1) year from the date of exportation of the final product.
(h) Incentives on Breeding Stocks and Genetic Materials — Importation of breeding
stocks and genetic materials within ten (10) years from the date or registration of


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commercial operations of the enterprise shall be exempt from all taxes and duties: Provided,
That such breeding stocks and genetic materials are reasonably needed in the registered
activity and approved by the SLEZFA.

The availment or the incentives by a registered enterprise shall be subject to the
following: (1) that said breeding stocks and genetic materials would have been qualified for
tax- and duty-free importation under the preceding paragraph; (2) that the breeding stocks
and genetic materials are reasonably needed in the registered activity; (3) that approval of
the SLEZFA has been obtained by the registered enterprise; and (4) that the purchase is
made within ten ( 10) years from the date or registration of commercial operations of the
registered enterprise.

This incentive shall be deemed waived if application for tax credit under this subsection
is not filed within one (| ) year from the date of delivery.

(i) Exemption from Wharfage Dues- the provision of law to the contrary
notwithstanding, exports by a registered enterprise shall be exempted from wharfage dues.

(j) Deferred Imposition of the Minimum Corporate Income Tax — The minimum
corporate income tax (MCIT) of two percent (2%) of the gross income as of the end of the
taxable year shall be imposed when the MCIT is greater than the income tax computed
under the NIRC of 1997, as amended, for the taxable year: Provided, however, That said
MCIT shall be imposed only after the enterprise's entitlement period to the income lax-
based incentives.

(k) Tax Treatment of Goods and Services in the Southern Leyte Ecozone.

(a) Tax Treatment of Merchandise in the Southern Leyte Ecozone — The free
trade/free port zone shall be operated and managed as a separate customs territory
ensuring free flow or movement of goods within, into and exported out of the free trade/free
port zone. Importations of raw materials and capital equipment are tax- and duty free.
However, exportations or removal of goods the free trade/free port zones the other parts of
the Philippine territory shall be subject to customs and internal revenue regulations.

(i) Except as otherwise provided in this Act, foreign and domestic merchandise ,raw
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description, except those prohibited by law, brought into the zone to be sold, stored, broken
up, repacked, assembled, installed, sorted, cleaned, graded or otherwise processed,
manufactured, mixed with foreign or domestic merchandise, whether directly or indirectly
related in such activity, shall not be subject to customs and internal revenue laws and
regulations nor to local tax ordinances, any provision of law to the contrary notwithstanding.

(ii) Merchandise purchased by a registered Southern Leyte Ecozone enterprise from
the Customs territory and subsequently brought into the export processing zone, shall be
considered as export sales and exportation thereof shall be entitled to the benefits allowed
by law for such transaction.

(iii) Domestic merchandise sent from the Southern Leyte Ecozone to the customs
territory shall whether or not combined with or made part of other articles likewise of local
origin or manufactured in the Philippines while in the export processing zone be subject to
internal revenue laws or the Philippines as domestic goods sold transferred or disposed of
for local consumption.

(iv) Merchandise sent from the Southern Leyte Ecozone to the customs territory shall,
whether or not combined with or made part of other articles while in the zone, be subject to

rules and regulations governing imported merchandise. The duties and taxes shall he based
on the value of said imported materials (except when the final product is exempt).

(v) Domestic merchandise on which all internal revenue taxes have been paid, if
subject thereto. and foreign merchandise previously imposed on which taxes have been
paid, or which have been admitted free of duty and tax, may be taken into the Southem
Leyte Ecozone from the customs territory of the Philippines and be brought back thereto
free of quotas, duty or tax.

(vi) Subject to such regulations respecting identity and safeguarding of revenue as the
SLEZFA may deem necessary, when the identity of an article entered into the export
processing zone under the immediately preceding paragraph has been lost, such article
when removed from the zone and taken to the customs territory shall be treated as foreign
merchandise entering the country for the first time under the provisions of the Tariff and
Customs Code of the Philippines, as amended.

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(vii) Articles produced or manufactured in the Southern Leyte Ecozone and exported
therefrom shall on subsequent importation into the customs territory, be subject to the import
laws applicable to like articles manufactured in a foreign country.

(viii) Unless the contrary is shown. merchandise taken out of the export processing
zone shall be considered for tax purposes to have been sent to customs territory.

(b) Tax Treatment of Services - (i) Sale of service by an entity from the customs
territory to a registered ecozone or free trade enterprise, or by a registered ecozone or
freeport enterprise to another ecozone or freeport enterprise shall be treated as indirect
export and hence, entitled to the benefits allowed by law for such transaction; and (ii) Sale
or service by a registered ecozone or Freeport enterprise to the customs territory shall be
subject to applicable internal revenue laws, and regulations.

(1) Bonded Warehousing System- Registered export-oriented enterprise shall have
access to the utilization of the bonded warehousing system in accordance with the rules
and regulations of the BOC.

(m) Employment of Foreign Nationals — Subject to the provisions of Section 29
of Commonwealth Act No. 613. otherwise known as "The Philippine Immigration Act of
1940", as amended, a registered enterprise may employ foreign nationals in supervisory or
technical positions for a period not exceeding ten (10) years from its registration: Provided,
That when the majority of the capital stock or a registered enterprise is owned by foreign
investors, the positions of the president, treasurer and general manager or their equivalents
may be retained by foreign nationals beyond the period set forth herein and such officer is
the owner or a stockholder owning at least ten percent (10%) of the outstanding capital
stock of the registered enterprise and he/she remains the owner or maintains his/her
stockholdings therein.

Foreign nationals under employment contract within the purview of this incentive, their
spouses and unmarried children under twenty-one (21) years or age, who are not excluded
by Section 29 or Commonwealth Act No, 613, as amended. shall be permitted to enter and
reside in the Philippines during the period of employment of such foreign nationals. They
shall be issued multiple-entry visas, renewable every two


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(2) years, and shall be allowed to enter and leave the Philippines without further
documentary requirements other than valid passports or other travel documents in the
nature of passports.

The foreign nationals admitted herein as well as their respective spouses and
dependents shall be exempt from (1) obtaining alien certificates of registration and
‘emigration clearance certificates; and (2) securing alien employment permits (AEP) and all
types of clearances, permits, licenses or their equivalents required by any government
department or agency.

SECTION 18. Extension of Period Availment. — The availment period of the incentives
provided herein may be extended by the SLEZFA in the event that the registered enterprise
suffers operational force majeure or any event equivalent thereto, impairing its viability.

SECTION 19. Duration of Incentives. — Enterprises registered with the SLEZFA may
enjoy ITH or NOLCO granted by the latter prior to the availment of the five percent (5%)
Gross Income Earned (GIE).

Fiscal incentives under this Act shall be terminated after a cumulative period of twenty
(20) years from the date of registration or the start of commercial operations, whichever is
applicable, except that it could be extended with regard to industries deemed indispensable
to national development as determined by the SLEZFA.

The industries exempted from this provision shall be recommended by the BO! or the
Governor of the Province of Southern Leyte with the concurrence of the secretary of the
DOF.

SECTION 20. Incentive to Investors. — Any foreign national covered under subsection
(m) or Section 17 of this Act, who invests an amount of One hundred fifty thousand US
Dollars (US$150,000.00) either in cash and/or equipment in a registered enterprise shall be
entitled to an investor's visa: provided, that:

(a) He is at least eighteen (18) years of age;
(b) He has not been convicted of a crime involving moral turpitude;

28 (c) He is not afflicted with any loathsome, dangerous or contagious disease: and
29 (d) He has not been institutionalized for any mental disorder or disability:

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Provided, further, that in securing the investor's visa, the alien applicant shall be
entitled to the same privileges provided for under Section 17, last paragraph

As a holder of an investor's visa, an alien shall be entitled to reside in the Philippines
while his investment subsists. For this purpose, he shall submit an annual report, in the form
duly prescribed for the purpose to prove that he has maintained his investment in the
country. Should said alien withdraw his investments from the Philippines, then the investor's
visa issued to him shall automatically expire.

SECTION 21. Banking Rules and Regulations. — Existing banking laws and
rules/regulations of the Banko Sentral ng Pilipinas (BSP) shall apply to banks and financial
institutions to be established in the Southern Leyte Ecozone, such as those governing
foreign exchange and other current account transactions (trade and nontrade), local and
foreign borrowings, foreign investments, establishment and operation of local and foreign
banks, foreign currency deposit units, offshore banking units and other financial institutions
under the supervision of the BSP.

SECTION 22. Remittance of Eamings. — |n the case of foreign investments, are
gistered enterprise in the SLEZFA shall have the right to remit earnings from the investment
in the currency in which the investment was originally made and at the exchange rate
prevailing at the time of remittance, subject to the provisions of Section 74 of Republic Act

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CHAPTER V
NATIONAL GOVERNMENT AND OTHER ENTITIES

SECTION 23. Interpretation/Construction. — The powers, authorities and functions
that are vested in the SLEZFA are intended to decentralize governmental functions and
authority and promote an efficient and effective working relationship among the Southem
Leyte Ecozone, the national government and the LGUs.

SECTION 24. Supervision and Coordination of Development Plans. — For purposes
of policy direction and coordination, the Southern Leyte Ecozone shall be under the direct

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control and supervision of the Office of the President thru the Governor of the Province of
Southern Leyte.

SECTION 28. Authority of the Bureau Customs (BOC) Examine the Entry and Exit of
Imported Articles in the SLEZFA. — The BOC, in coordination with the appropriate
government agencies such as, but not limited to, the Departments of Trade and Industry,
Agriculture, Transportation and Communications, and Health shall have the authority to
examine the entry and exit of imported articles in the SLEZFA for the 1 purpose of
determining: (a) the quantity and description of imported articles; and (b) compliance with
the sanitary and agricultural requirements.

SECTION 26. Relationship with the Regional Development Council- The SLEZFA

shall determine the development goals for the Southern Leyte Ecozone within the framework

of national development plans, policies and goals. The administrator shall, upon approval
by the Board, submit the Southern Leyte Ecozone plans, programs and projects to the
Regional Development Council inclusion and inputs to the overall regional development
plan

SECTION 27. Relationship with LGUs. — Except as herein provided, the LGUs
comprising the Southern Leyte Ecozone shall retain their basic autonomy and identity.

TheCity of Maasin, Municipality of Bontoc, San Francisco, Hinundayan, Southern Leyte shall

operate and function in accordance with the Local Government Code of 1991. In case of
any conflict among the SLEZFA and City of Maasin, Municipality of Bontoc, San Francisco,
Hinundayan, Province of Southem Leyte on matters affecting the Southern Leyte Ecozone
other than defense and security matters, the decision of the SLEZFA shall prevail

SECTION 28. Auditing. — The Commission on Audit shall appoint a representative
who shall be a full-time auditor of the SLEZFA and assign such number of personnel as
may be necessary to assist said representative in the performance of his/her duties. The
salaries and emoluments of the assigned auditor and personnel shall be in accordance
with pertinent laws, rules and regulations.

CHAPTER VI

MISCELLANEOUS

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SECTION 29. Separability Clause. — If any provision of this Act shall be held
unconstitutional or invalid, the other provisions not otherwise affected shall remain in full

force and effect.

SECTION 30. Repealing Clause. — All laws, executive orders or issuances or any
part thereof which are inconsistent herewith are hereby repealed or amended accordingly.

SECTION 31. Effectivity Clause. — This Act shall take effect fifteen (15) days after its
publication in at least two (2) national newspapers of general circulation.

Approved,

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