The Bureau of Internal Revenue (BIR) disclosed Thursday that the government is losing billions of pesos annually from diversion of wide range of goods manufactured inside the special economic zones to the local market.

BIR officials, who declined to be identified, said the smuggling racket has been going on for years now but could not be stopped by the Bureau of Customs and the BIR due to lack of manpower even as the number of economic zones continues to grow.

These economic zones were supposed to be set up near sea ports and airports so that finished products could easily be shipped out of the country, thus making it difficult for their diversion to the local market.

Records showed that the country has four major public economic zones located in Cebu, Cavite, Bataan and Baguio. It also has 188 special economic zones located in buildings in Metro Manila and elsewhere used mostly as call centers.

Under the present arrangement, businesses inside these economic zones are allowed, among others, free importation of raw materials on condition that all the finished products are re-exported including cigarettes, garments and furniture.

Otherwise, the same products will be required to pay the usual customs duties and business taxes if sold locally.

They said while these tax-free business centers generate investments and employment, they also cause the government to lose hundreds of billions of pesos in income and business taxes.

The latest tally showed that the BIR lost up to P112 billion in income taxes alone in 2007. The estimated revenue losses were culled from reports submitted by revenue district offices where these economic zones are located.