City Position on VOIP Inspection

24 March 2006

Ms. Jocelyn D. Collins

Department Manager

Department of Telecommunications

Common Carriers Authorization Division

Bldg. 244, Waterfront Road

Subic Bay Freeport Zone

Dear Ms. Collins:

This has reference to your letter dated March 8, 2006 for question or comments regarding a National Telecommunications Commission (NTC) memorandum on VOIP regulation implementation.

As with our previous telephone conversations, let me reiterate the City’s comments on the said NTC memorandum. While the City recognizes the need to regulate Internet entities and the proliferation of VOIP services by unauthorized providers, we find the said NTC memorandum vague, even as we suggest that a law on VOIP must be enacted to address the same.

Further, it was mentioned in your letter that as per your Memorandum of Agreement with NTC and by virtue of Republic Act No. 7227, you are to regulate public and private telecommunications facilities, networks, system, and services operating within the Freeport Zone, City of Olongapo and the Municipality of Subic. To comment on the import of said letter, may we bring to your attention the then President Fidel Ramos’ Executive Order Nos. 97 and 97-A delineating the metes and bounds of the Freeport, and so stating therein that tax and duty incentives only apply in the fenced or secured area, thus –

“Section 1. On Import Taxes and Duties -- Tax and duty-free importations shall apply only to raw materials, capital goods and equipment brought in by business enterprises into the SSEZ. Except for these items, importations of other goods into the SSEZ, whether by business enterprises or resident individuals, are subject to taxes and duties under relevant Philippine laws.

“The exportation or removal of tax and duty-free goods from the territory of the SSEZ to other parts of the Philippine territory shall be subject to duties and taxes under relevant Philippine laws.

“Section 2. On All Other Taxes. -- In lieu of all local and national taxes (except import taxes and duties), all business enterprises in the SSEZ shall be required to pay the tax specified in Section 12(c) of R.A. No. 7227.” (EO 97)

EO 97-A further specifies the area within which the tax-and-duty-free privilege is operative, viz.:

“Section 1.1. The Secured Area consisting of the presently fenced-in former Subic Naval Base shall be the only completely tax and duty-free area in the SSEFPZ [Subic Special Economic and Free Port Zone]. Business enterprises and individuals (Filipinos and foreigners) residing within the Secured Area are free to import raw materials, capital goods, equipment, and consumer items tax and duty-free. Consumption items, however, must be consumed within the Secured Area. Removal of raw materials, capital goods, equipment and consumer items out of the Secured Area for sale to non-SSEFPZ registered enterprises shall be subject to the usual taxes and duties, except as may be provided herein”

This has been upheld in the case of Tiu vs .Court of Appeals [GR No. 127410], to wit --

From the above provisions of the law, it can easily be deduced that the real concern of RA 7227 is to convert the lands formerly occupied by the US military bases into economic or industrial areas. In furtherance of such objective, Congress deemed it necessary to extend economic incentives to attract and encourage investors, both local and foreign. Among such enticements are:^[i][11] (1) a separate customs territory within the zone, (2) tax-and-duty-free importations, (3) restructured income tax rates on business enterprises within the zone, (4) no foreign exchange control, (5) liberalized regulations on banking and finance, and (6) the grant of resident status to certain investors and of working visas to certain foreign executives and workers.

On the said MOA between SBMA and NTC, suffice it to state that the City is not bound by it being not privy or a non-party to the agreement.

The City commends you for your effort to enforce strictly regulating measures pertaining to the matter. However, the City invokes its right to regulate all business or establishment within its territorial jurisdiction. It is only imperative that we protect the City’s and its investors’ best interests. This does not include, however, protection from illegal acts and/ or fraudulent business set-ups.

With this, we move that you refrain from implementing the VOIP regulation in the City of Olongapo until all legal impediments are addressed and properly threshed out.

Thank you very much.

Very truly yours,

EDWIN J. PIANO

City Councilor

Chairman, Olongapo City Telecom Board

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