13th CONGRESS OF THE REPUBLIC 
1 
OF THE PHILIPPINES 
1 
First Regular Session 
1 
SENATE 
S. BILL NO. __ 
Introduced by Senator Ralph G. Recto 
EXPLANATORY NOTE 
The increasing importance of the international economy for economic 
growth drives developing countries to actively pursue foreign direct investments. 
The grant of incentives ranked prominently among the strategies used to attract 
international capital and resource flows. Economies gain from investments in 
terms of foreign exchange earnings, job creation, technology transfer and 
industry linkages. 
A study of developing countries concludes that incentives continue to be 
essential for industries, albeit more so for those catering to the export market. 
One such incentive is the tax and duty free importation of capital equipment, 
Historically, Executive Order No. 226, otherwise known as, "The Omnibus 
Investments Code of 1987", provided for the incentive for a period of five (5) 
years from the effectivity of the Code. Thereafter, Republic Act Nos. 7369 and 
7918, were consecutively passed to grant the same incentive to new and 
expanding BOI-registered enterprises. However, enjoyment of the said incentive 
expired on 31 December 1999 except for enterprises located within the 
ecozones. 
The importation of capital equipment is one of the major cost burdens of 
business enterprises in their start-up operations. The progressive lowering down 
of tariffs has not entirely eased the dilemma with the rate of most capital 
equipment fixed at the maximum of 5%. Big-ticket projects, which are mostly 
capital-intensive, therefore, strongly clamor for the provision of the incentive. 
Further, income-based incentives are not substitutes for capital equipment 
incentive as the former only serve their purposes once the enterprise has gained 
profits from its operation. As a result, it impedes the expansion of the enterprise 
and acquisition of state-of-the-art technology thereby downgrading their 
competitiveness in the regional market. 
The Philippines competes for capital in a region that has long been 
typified by extensive recourse to fiscal incentives. The tax and duty free 
importation is universally available in the ASEAN countries, with the exception of 
only Singapore and the Philippines, for certain promoted industries. It is in this 
light that this bill proposes to amend certain provisions of the Omnibus 
Investments Code of 1987, in particular to restore the capital equipment 
incentives to export- and domestic-oriented enterprises, to further equip the 
Philippines with a competitive edge vis-a-vis our neighbor economies. 
Passage of this bill is earnestly sought. 
RGAhbZ7 I 1 .capequipi.doc 


13th CONGRESS OF THE REPUBLIC 
1 
OF THE PHILIPPINES 
1 
First Regular Session 
1 
Introduced by Senator Ralph G. Recto 
___.______.______._____________
AN ACT 
GRANTING TAX INCENTIVES ON CAPITAL EQUIPMENT, AMENDING FOR THE 
PURPOSE EXECUTIVE ORDER NO. 226, AS AMENDED, OTHERWISE KNOWN AS 
THE OMNIBUS INVESTMENTS CODE OF 1987. 
Be it enacted by the Senate and House of Representatives of the 
Philippines in Congress assembled: 
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“Art. 39. Incentives to Registered Enterprises. - All 
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registered enterprises shall be granted the following 
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incentives to the extent engaged in a preferred area of 
SECTION 1. Paragraphs (c) and (d), Article 39, Title 111 of Executive 
Order No. 226, as amended, is hereby further amended to read as follows: 
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investment: 
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“(a) xxx 
xxx 
xxx 
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“(b) xxx 
xxx 
xxx 
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“(c) Tax and Duty Exemption on Imported Capital 
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Equipment and its Accompanying Spare Parts BY REGISTERED 
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EXPORT-ORIENTED. - [New expanding/modernizing enterprises 
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which have been registered with the Board of Investments on 
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or before December 31, 1994 shall be exempt to the extent of 
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one hundred percent (100%) of national internal revenue 
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taxes and customs duties on importations of machinery, 
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equipment and accompanying spare parts within the 
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prescribed period under its law of registration or until 
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December 31, 1997 whichever comes first: 
Provided, 
however, That those enterprises located outside the National 
Capital Region (NCR) and registered on or before December 
31, 1994 may avail of the incentives herein provided until 
December 31, 1999: Provided, further, That the enterprise 
which shall register after December 31, 1994 shall be subject 
to the provisions of Republic Act. No. 771 6, and three percent 
(3%) customs duties up to December 31, 1997; Provided, 
finally, That the importation of machinery, equipment and 
accompanying spare parts shall comply with the following 
conditions: 
"(1) 
They are not manufactured domestically in 
sufficient quantity, or comparable quality, and at reasonable 
prices: 
" ( 2 )  They are reasonably needed and will be used 
exclusively by the registered activity, unless prior approval of 
the Board 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 
specific equipment and machinery being permanently used 
for non-registered activities; and 
"(3) The approval of the Board was obtained by the 
registered enterprise for the importation of such machinery, 
equipment and accompanying spare parts.] 
[In granting the approval of the importations under this 
paragraph, the Board may require international canvassing 
but if the total cost of the capital equipment or industrial plant 
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exceeds US$S,OOO,OOO, the Board shall apply or adopt the 
provisions of Presidential Decree No. 1764 on international 
competitive bidding.] 
[If the registered enterprise sells, transfers or disposes of 
these machinery, equipment and spare parts without prior 
approval of the Board within five (5) years from date of 
acquisition, the registered enterprise and vendee, transferee 
or assignee shall be solidarily liable to pay twice the amount 
of the tax exemptions given it. The Board shall allow and 
approve the sale, transfer or disposition of the said items until 
December 31, 1997 or December 31, 1999, as the case may 
be if made: 
"(aa) To another registered enterprise or registered 
domestic producer enjoying similar activities: 
"(bb) For reasons of proven technical obsolescence: or 
"(cc) For purpose of replacement to improve and/or 
expand the operations of the registered enterprise.] 
IMPORTATION OF CAPITAL EQUIPMENT, SPARE PARTS, 
PRODUCTION CONSUMABLES, OR THOSE REQUIRED FOR 
POLLUTION 
ABATEMENT 
AND 
CONTROL 
INCLUDING 
CONSIGNMENT THEREOF, BY REGISTERED EXPORT-ORIENTED 
ENTERPRISES UPON THE EFFECTIVITY OF THIS LAW, SHALL BE 
EXEMPTED TO THE EXTENT OF ONE HUNDRED PERCENT (100%) 
OF THE TAXES AND CUSTOM DUTIES: PROVIDED, THAT THE 
IMPORTATION THEREOF SHALL BE USED EXCLUSIVELY BY THE 
REGISTERED 
ENTERPRISE 
IN 
ITS 
REGISTERED 
ACTIVITY: 
PROVIDED, 
FURTHER, 
THAT 
IMPORTATION OF 
SOURCE 
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DOCUMENTS BY ENTERPRISES ENGAGED IN INFORMATION 
TECHNOLOGY SHALL LIKEWISE BE FULLY EXEMPT FOR THE 
PERIOD STATED HEREIN. 
THE AFOREMENTIONED IMPORTATION OF REGISTERED 
DOMESTIC-ORIENTED ENTERPRISES SHALL BE SUBJECTED TO 
ONE PERCENT (1%) CUSTOM DUTIES AND THE PREVAILING 
VALUE-ADDED TAX-RATE. 
BOARD APPROVAL MUST BE SECURED BEFORE ANY SALE, 
TRANSFER OR DISPOSITION OF THE SAID ITEMS IS MADE: 
PROVIDED, THAT IF SUCH SALE, TRANSFER OR DISPOSITION IS 
MADE WITHIN THE FIRST FIVE (5) YEARS FROM DATE OF 
IMPORTATION, ANY OF THE FOLLOWING CONDITIONS MUST BE 
PRESENT: 
(1) IF MADE TO ANOTHER ENTERPRISE ENJOYING TAX 
AND DUTY EXEMPTION ON IMPORTED CAPITAL EQUIPMENT: 
(2) 
IF 
MADE TO 
ANOTHER 
ENTERPRISE, 
UPON 
PAYMENT OF ANY TAXES AND DUTIES DUE ON THE NET BOOK 
VALUE OF THE EQUIPMENT TO BE SOLD: 
(3) EXPORTATION OF THE EQUIPMENT, MACHINERY, 
SPARE PARTS OR SOURCE DOCUMENTS OR THOSE REQUIRED 
FOR POLLUTION ABATEMENT AND CONTROL; OR 
(4) 
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 (2), THE REGISTERED FIRM SHALL NOT PAY 
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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 BOARD APPROVAL WITHIN FIVE (5) YEARS 
FROM DATE OF IMPORTATION, THE REGISTERED ENTERPRISE 
AND THE VENDEE, TRANSFEREE, OR ASSIGNEE SHALL BE 
SOLlDARlLY LIABLE TO PAY TWICE THE AMOUNT OF THE TAX 
EXEMPTION GIVEN IT: PROVIDED, FINALLY, THAT EVEN IF THE 
BOARD APPROVED THE SALE, TRANSFER OR DISPOSITION OF 
THE EQUIPMENT AFTER 
FIVE (5) YEARS FROM DATE OF 
IMPORTATION, THE REGISTERED ENTERPRISE IS STILL LIABLE TO 
PAY THE TAXES AND DUTIES OF THE NET BOOK VALUE OF THE 
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. 
[(d) Tax Credit on Domestic Capital Equipment. - A 
tax credit equivalent to one hundred percent (100%) of the 
value of the national internal revenue taxes and customs 
duties that would have been waived on the machinery, 
equipment and spare parts, had these items been imported 
shall be given to the new and expanding enterprise 
registered with the Board of Investments as of December 31, 
1994 which purchases machinery, equipment and spare parts 
from a domestic manufacturer: 
Provided, (1) That the said 
equipment, machinery and spare pares are reasonably 
needed and will be used exclusively by the registered 
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enterprise in its registered activity, unless prior approval of the 
Board is secured for the part-time utilization of said equipment 
in a non-registered activity to maximize usage thereof: (2) 
That the equipment would have qualified for tax and duty 
exemption under paragraph ( c ) hereof; 
( 3 ) That the 
approval of the Board was obtained by the registered 
enterprises; and ( 4 ) That the purchase is made on or before 
December 31, 1997 or December 31, 1999 as the case may 
be. If the registered enterprise sells, transfers, or disposes of 
these machinery, equipment and spare parts, the provision in 
the preceding paragraph for such disposition shall apply.] 
x x x  
SEC. 2. Unless otherwise provided in this Act, the tax and duty 
exemptions and other privileges herein set forth shall be availed within a 
period of five (5) years from the date of effectivity of this Act. 
SEC. 3. All other provisions of Executive Order No. 226 and Republic 
Act No. 7918, otherwise known as “An Act Amending Article 39, Title Ill of 
Executive Order No. 226, also known as the Omnibus Investments Code of 
1987, as amended, and for Other Purposes”, not affected by the 
provisions of this Act shall remain in full force and effect. 
SEC. 4. 
Repealing Clause. All laws, decrees, orders, rules and 
regulations or parts thereof inconsistent with this Act, are hereby repealed 
or modified accordingly. 
SEC. 5. Effectivity. This Act shall take effect fifteen (1 5) days following 
its publication in the Official Gazette or in at least two (2) newspapers of 
general circulation. 
Approved, 
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