SIXTEENTH CONGRESS OF THE 
REPUBLIC OF THE PHILIPPINES 
First Regular Session 
) 
) 
) 
'SENATE 
S.B. NO. ---20 4 B 
.iermtr 
Illfh;r of t~, ~N'l ,t.,~ 
'13 
DEC 18 P6 :41 
-------------------------------------------------------. 
Introduced by Senator Legarda 
EXPLANATORY NOTE 
There is wide agreement among economists and policymakers that the current system 
of granting and administering fiscal incentives in the country needs to be reformed. 
With an estimated 180 laws providing various duty and tax exemptions administered 
mainly by the Board of Investments (BOI) and the Philippine EconQmic Zone Authority 
(PEZA) but also by other investment promotion agencies such as the Bases Conversion 
Development Authority (BCDA), Subic Bay Metropolitan Authority (SBMA), the Clark 
Development Corporation (CDC), the Poro Point Management Corporation (PPMC), 
Bataan Technology Park, Inc. (BTPI),' Zamboanga City Special Economic Zone 
Authority (ZCSEZA), and the Tourism Infrastructure and Enterprise Zone Authority 
(TIEZA) among others, the existing incentives regime is found by the International 
Monetary Fund in their 2011 paper--"Philippines: Road Map for a Pro-Growth and 
Equitable Tax System", to be overgenerous and complicated. 
To illustrate, the Department of Finance estimated that foregone government revenues 
amounted to PhP 299.92 billion in 2004 which is almost 6% of the country's gross 
domestic product and is higher than the PhP 187.05 billion budget deficit for the same 
year. Making the situation worse and inherently unfair for the poor and middleclass 
taxpayers are the findings in a 2006 UP School of Economics study which found that 
most of these incentives are redundant in nature. Due to the nature of the business-
either market seeking ventures such as public utilities or resource-seeking firms like 
mining companies, these investments would have proceeded even without the tax 
exemption and only succeeded in raising the return on investment of these companies. , 
The same paper finds that 90% of the incentives granted by the BOI are redundant 
while for the PEZA it is only 10%. 
Understandably, business groups have expressed their opposition to the said measure 
noting how the current system makes the country competitive in attracting foreign 
direct investments. As noted by the IMF however in its 2011 paper, FDIs flowing into 
the Philippines dropped by 12.9% from 2005 to 2010 even as the stock of FDI in ASEAN 
economies rose by 14.4%. This indicates that other non-tax factors such as public 
T 
infrastructure quality, power prices and regulatory environment may be more 
significant factors for foreign investors. It is worth emphasizing that the same foregone 
revenues can be channeled into investments towards the country's infrastructure and 
public services. 
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This proposed measure seeks to simplify the provision and administration of fiscal 
incentives in the country thru the following provisions: 
• 
Removal of the provisions on investment incentives found in the respective 
Charters of PEZA and all other investment promotion agencies and the transfer 
of TIEZA's administration of investment incentives to the PEZA; 
• 
Provision of fiscal incentives only to registered export enterprises and stratregic 
enterprises; 
• 
Limitation of income tax-based incentive to three options-income tax holiday; 
gross income earned or reduced income tax. 
• 
Qualified small and medium enterprises as registered in the Bureau of the 
Internal Revenue are exempted from the payment income tax; 
• 
Limiting the availment of all tax incentives by a registered enterprise to a 
maximum of 25 years; 
• 
Membership of representatives from the National Economic and Development 
Authority, Department of Finance and the Department of Trade and Industry in 
the governing boards of existing investment promotion agencies; 
In view of the foregoing, the immediate passage of this bill is earnestly sought. 
---·----w~EG·ARDA 
,. 
Senator 


SIXTEENTH CONGRESS OF THE 
REPUBLIC OF THE PHILIPPINES 
First Regular Session 
) 
) 
) 
SENATE 
'13 Il£C 18 P.6:41 
• 
, 
S. B. NO. 2048 
RtX'EIV£U BY:_-t-
Introduced by Senator Loren Legarda 
AN ACT 
RATIONALIZING THE GRANT AND ADMINISTRATION OF FISCAL 
INCENTIVES FOR THE PROMOTION OF INVESTMENTS AND GROWTH, AND 
FOR OTHE:R PURPOSES 
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Be it enacted by the Senate and House of Representatives of the Philippines in Congress 
assembled: 
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SECTION 1. Title. - This Act shall be known as "The Consolidated Investments 
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Incentives Code of the Philippines Act of 2013." 
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SEC. 2. Declaration of Policy. - In the grant and administration of fiscal incentives for 
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the promotion of investments and growth, the 'following are the declared policies of the 
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State: 
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a. The State shall grant investment incentives that encourage long-term and 
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recurrent investment, are simple to administer, time-bound and whose performance 
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and outcomes are easily verifiable. 
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b. The State shall adopt a consolidated and integrated investment incentives 
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system and endeavor to rationalize ancCstreamline the procedures in the grant of 
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investment incentives. 
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c. 
The State shall ensure that the fiscal incentives that it grants are not 
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redundant, that is, the incentives are actmilly necessary to bring about the investments 
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to which they pertain. 
. 
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d, The State shall ensure that investment incentives shall promote substantial 
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social and economic spillovers, equitable development across income classes and across 
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provinces, are fiscally sustainable, financially and economically justifiable, and are 
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consistent with international treaties. The State shall therefore provide the means for 
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ascertaining that these objectives are being attained: 
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e. The State shall devote resources towards monitoring enterprises benefiting 
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from incentives, and shall vigorously prosecute abuses. The State shall also closely 
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monitor the level of tax expenditures arising from the provision of incentives and shall 
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ensure that concerned government agencies are well-informed of thE;se developments. 
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f. 
The State shall extend to all investors and registered enterprises the basic 
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rights and guarantees for the protection. of investments provided under the applicable 
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Philippine laws. 
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g. The State shall ensure that investments that are granted tax incentives shall be 
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conducted in a manner that respects all the laws of the land, including the protection of 
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the environment and natural resources, labor and good corporate governance 
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principles. 
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SEC. 3. Definition of Terms. - As used herein, 
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a. "Authority/ies" shall refer to government entities created by law, executive 
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order, decree or other issuance, in charge of promoting investments and administering 
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the operations of the different economic zones and freeports in accordance with their 
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respective charters. These include the Board of Investments (BOI), Philippine Economic 
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Zone Authority (PEZA), Bases Conversion Development Authority (BCDA), Subic Bay 
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Metropolitan Authority (SBMA), Clark Development Corporation (CDC), Pora Point 
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Management Corporation (PPMC), Bataan Technology Park, Inc. (BTPI), Zamboanga 
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City Special Economic Zone Authority (ZCSEZA), Phividec Industrial Authority (PIA), • 
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Authority of the Freeport Area of Bataan (AFAB), Tourism Infrastructure and 
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Enterprise Zone Authority (TIEZA), and all other authorities that may be created by law 
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in the future. 
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b. "Capital equipment" refers to machinery, equipment, major components thereof, 
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spare parts, accessories, tools, devices, apparatus, fixtures, fittings and accompaniments 
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which are directly and/ or reasonably needed in the registered activity of the enterprise 
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and those required for pollution abatement and control, cleaner production and water 
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reduction! conservation. 
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c. "Ecozone developer" shall refer to a business entity duly registered with PEZA to 
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develop, operate and maintain an ecozone that will put up the required infrastructure 
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facilities and utilities to include among others light and power system, water supply 
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and distribution system, sewerage and drainage system, pollution control devices, 
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communication facilities, paved road network, administration building, standard 
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factory buildings, and other facilities as may be required by enterprises registered with 
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PEZA. 
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d. "Export sales of goods" shall mean'the sales values and! or revenues paid for in 
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freely convertible foreign currency, deterpined from invoices, bills of lading, inward 
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letters of credit, landing certificates, or oth~r commercial documents, of the following: 
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i. the sale and actual shipment of goods from the Philippines to a foreign 
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country by a registered enterprise; 
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ii. sales of goods to an export enterprise registered in accordance with this 
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Act; to diplomatic missions and to agencies or institutions allowed to import 
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said goods tax and duty-free; to persons engaged in international shipping or 
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international air transport operations; and to fbreign m:mtary aircraft or sea 
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craft; 
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iii. sales to a nonresident buyer for delivery to a resident local export 
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enterprise of capital equipment, raw materials, production supplies, 
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packaging materials and other production requirements needed for the 
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registered activity of the export enterprise; or 
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Provided, That in the case of paragraph (ii~ above, only sales to an export enterprise of 
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capital equipment, raw materials, production supplies, packaging materials, and other 
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production requirements needed for the registered 'activity of the export enterprise; and 
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sales to international sea or air transport operations of goods, equipment, spare parts 
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and supplies, except fuel, to be used in the aircraft or sea craft and capital equipment 
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needed for the shipping or air transport operations, shall be entitled to incentives for 
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export enterprises under this Act. 
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e. "Export sales of services" . shall mean the sales revenues, determined fron: 
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contracts, invoices, vouchers, official receipts, or other commercial documents paid fot 
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in freely convertible foreign currency, of the following: 
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i. services rendered to non-resident foreign clients by registered enterprises; 
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ii. services rendered to an export enterprise registered in accordance with this 
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Act; 
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iii. services rendered to diplomatic missions and to other agencies or 
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institutions with tax and duty-free privileges; 
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iv. services rendered to persons engaged in international shipping or 
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international air transport operations, or foreign military aircraft or sea craft, 
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even if rendered locally. 
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Provided, That in the case of paragraph (ii) above, only services to an export enterprise 
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performed by subcontractors and/or contractors in the manufacture or processing of 
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goods; other services necessary for the registered activity of an export enterprise; and in 
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the case of paragraph (iii), only services for the overhaul, repair and maintenance for 
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international shipping or air transport operations, and foreign military aircraft or sea 
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craft, shall be entitled to incentives for export enterprises under this Act. 
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f. "Export enterprise" shall mean a registered enterprise which is a manufacturer, 
processor or service provider and whose export sale of its products or services exceeds 
seventy percent (70%) of its total annual production of the preceding taxable year. 
An export trader that buys and sells for its own account products of micro and 
small enterprises and earns one hundred percent (100%) of its annual sales from exports 
of the same shall be deemed to be an export enterprise. 
g. "Freeport" is an isolated and policed area adjacent to a port of entry as defined 
by Section 3519 of the Tariff and Customs Code, which shall be operated and managed 
as a separate customs territory to ensure free flow or movement of goods, except those 
expressly prohibited by law, within, into and exported out in the freeport zone where 
imported goods may be unloaded for immediate 'transshipment or stored, repacked, 
sorted, mixed, or otherwise manipulated without being subject to import duties. 
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h. "Gross Income Earned(GIE)" refers to gross sales or gross revenues derived 
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from the registered activity less sales returns, discounts and allowances and cost of 
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goods sold and/or cost of services rendered, as defined under Section 27(E)(4) of the 
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NIRC of 1997,as amended. 
. 
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i. "Investment incentive" or "fiscal incentives" or "tax incentives" shall refer to the 
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preferential tax treatment of a registered enterprise in terms of lower tax, exemption 
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from tax or duties, tax or duty refund, double deduction of expense for purposes of 
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computing one's income tax liability, accelerated depreciation, net loss carry-over, 
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among others. 
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j. "Qualified Micro and Small Enterprise (MSE)" shall mean, for purposes of the 
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grant of fiscal incentives herein, any individual, partnership, or cooperatives, organized 
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and existing under the laws of the Philippines, whose gross revenues does not exceed 
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Three Hundred Fifty Thousand (PhP350,OOO.OO) for service-oriented entities or Seven 
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Hundred Thousand Pesos (PhP700,OOO.OO) for trading or manufa~turing entities for a 
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taxable year: Provided, That every three (3)' years from the date of effectivity of this Act, 
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the amount stated herein shall be adjusted to reflect its value as of said date using the 
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Consumer Price Index, as published by the National Statistics Office (NSO). 
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k. "Registered export enterpnse" shall mean any individual, partnership, 
corporation, Philippine branch of a foreign corporation or other entity incorporated 
and/ or organized and existing under Philippine laws, engaged in the export sales of 
goods or export sales of services that is, the enterprise has established presence and 
substantial operations and registered with an Authority as defined in this Act: Provided; 
however, That the term "registered enterprise" shall not include any of the following 
service enterprises such as, but not limited to, those engaged in customs brokerage, 
trucking/ forwarding services, parcel services, janitorial services, security services, 
insurance and/or banking and other financial services, consumers cooperatives, credit 
unions, consultancy services, restaurants or such other services, within the economic 
zones, as may be determined by the Board of the concerned authority, duly accredited 
and/ or licensed by any of the Authorities and whose income derived within the 
economic zones shall be subject to taxes under the National Internal Revenue Code of 
1997 (NIRC, as amended). 
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I. "Registered strategic activities" shall mean any ~omestic economic activity 
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identified every three (3) years and approved by the BOI Board entitled to the tax 
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incentives provided herein which shall 'in no case exceed the BOl's annual tax 
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expenditure budget. 
Provided, That a r strategic activity is an activity that will 
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significantly contribute to the country's economic development in terms of pouring in a 
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large amount of capital investment, generating sizeable employment, utilizing new and 
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internationally accepted high level of technology and creating high value added. 
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m. "Special economic zone" or "ecozone" shall refer to a selected area with highly 
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developed or which has the potential to be developed into agro-industrial, industrial, 
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information technology, tourist/recreational,. commercial, banking, investment and 
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financial centers whose metes and bounds are fixed or delimited by Presidential 
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Proclamations. An ecozone may contain any or all of the following: industrial estates 
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(lEs), export processing zones (EPZs), ICT parks and centers, free trade zones and 
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tourism estates; Provided, however, That areas where mining operations are undertaken 
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shall not be declared as ecozones. 
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n. "Source documents" shall refer to input materials and documents reasonably 
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needed by information technology (IT) and IT-enabled industries such as, but not 
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limited to, books, directories, magazines, newspapers, brochures, pamphlets, medical 
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records or files, legal records or files, instruction materials, drawings, blueprints, or 
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outlines. 
. 
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SEC. 4. Governing Tax Incentive Provision for All Authorities. - Notwithstanding the 
provisions of their respective charters, aU' existing and future Authorities shall offer 
only tax incentives granted under this Act: Provided, That the incentives granted under 
this Act to a registered enterprise shall be applicable to the extent of the registered 
activity or project only: Provided, further, that all tax incentives presently enjoyed by 
existing enterprises shall continue until the end of the period for which it is granted or 
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for a period of not more than four (4) years from the effectivity of this Act, whichever 
comes first. 
SEC. 5. Roles of PEZA and Other Authorities. - The respective Charters of PEZA anci 
all other Authorities shall continue to be in force, except that the provisions on 
investment incentives therein are hereby. repealed and replaced by this Act. Unless 
otherwise provided herein, the PEZA and other Authorities shall implement 
investment laws in accordance with their own Charters and this Act. 
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Notwithstanding the provisions of RA 7916, as amended, and RA 9593, the 
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PEZA shall be responsible for administering all investment incentives to registered 
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enterprises which are registered with TIEZA. . 
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SEC. 6. Fiscal Incentives to Registered Export Enterprises. - The Authorities shall 
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administer the following fiscal incentives to the registered export enterprises to the 
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extent of the latter's registered activity: 
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A. Income tax-based incentive - The registered enterprise may choose anyone 
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of the following options as its income tax-based incentive, subject to the 
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condition that its choice shall be final and cannot be changed during the 
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duration of its registration. 
Provided further that on availing of the 
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income tax-related incentives, the BIR shall require a registered export 
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enterprise to secure a Certificate of Eligibility from the appropriate 
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Authority and attach the saine to its Income Tax Return (ITR) or Annual 
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Information Return (AIR), whichever is applicable. Thereafter, the 
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registered export enterprise shall file its claim with the respective 
Authority for validation. Failure to attach the Certificate of Eligibility to 
the ITR or AIR, and/or file\the income tax-related availment shall cause' 
the forfeiture of the income tax-related availment for the taxable period. 
The respective Authority shall endorse the result of its validation to the 
BIR within forty five (45) days from the deadline for the filing of the ITR 
or AIR as the case maybe: 
Provided, that the endorsement may be 
extended for another forty-five (45) days subject to a certification that will 
be issued by the respective Authority. Failure of the respective Authority 
to endorse the said validation to the BIR shall cause the forfeiture of the 
income tax incentive of the registered enterprise for the taxable period. 
Option 1: Income Tax : Holiday (ITH). -
A registered ,export enterprise is 
entitled to an ITH not to exceed five (5) ,years from the start of its 
commercial operation. 
Option 2: Gross Income Earned (GIE). - A registered export enterprise may 
avail of the five percent (5%) tax on GIE in lieu of all national and local 
taxes, except Value Added Tax (VAT) and Real Property Tax on land 
owned by private developers. Within six (6) months from the effectivity cif 
this law, the BIR shall review its regulations on the computation of GIE to 
ensure that only direct costs, or cost of goods sold and/ or services 
, 
rendered, shall be deductible from gross revenues, and recommend 
stricter rules to the Secretary of Finance if warranted. In the allocation of 
the revenues from the 5% ta~ on GIE, three percent (3%) shall be remitted 
to the National Governmentand two percent (2%) shall be remitted to the 
treasurer's office of the IO~ill government unit/ s where the registered 
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export enterprise is located or in case of enterprises inside an ecozone or 
free port, where the ecozone or free port is located. 
Option 3: Reduced Income Tax (RIT). - A registered export enterprise may 
be entitled to a reduced. income tax rate of fifteen percent (15%) instead of 
the regular income tax rate provided for in the NIRC, as amended. 
In computing net taxable income, the enterprise may be entitled to deduct 
the following expenses, in addition to ordinary and necessary business • 
expenses allowed under the NIRC, as amended: 
i. 
Enhanced Net Operating Loss Carry-over (NOLCO) - The net 
operating loss of the registered activity during the first five (5) 
years from the shirt of commercial operation which had not 
been previously offset as deduction from gross income may be 
carried over as deduction from gross income for the next five (5) 
consecutive taxable years immediately following the year of 
such loss. 
ii. 
Accelerated Depreciation - Plant, machinery, and equipment that 
are reasonably needed and actually used for the production and 
transport of goods and services may be depreciated 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 regulatiohs prescribed by the Secretary of Finance and 
the provisions of the NIRC, as amended. 
iii. 
Double Deduction for Training Expenses - Expenses incurred for 
local training given to employees for the development of skills, 
identified as necessary by the appropriate government agencies, 
may be claimed as deduction from gross income to the extent of 
two hundred (200%) percent of the actual amount of expenses 
incurred: Provided, that the training expense shall be deductible 
on the taxable year the said training expenses were incurred: 
Provided further, that the respective Authority shall issue the 
corresponding certificate of entitlement for its incentive upon 
filling of an application, otherwise, the training incentive shall 
be deemed waived. 
iv. 
Double Deduction for Research and Development -
Expenses 
incurred for research and development conducted in the • 
Philippines relating to the business shall entitle the registered 
export enterprise to a special deduction from taxable income 
equivalent to one hundred percent (100%) of the total expenses 
over and above the 'allowable ordinary and business deductions 
for said expenses under the NIRC, as amended: Provided, that' 
the expenses for research and development shall be deductible 
from gross income on the taxable year the said research and 
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development expenses were incurred; Provided further, that the 
respective Authority shall issue the corresponding certificate of 
entitlement for this incentive upon filing of an application, 
otherwise, the research and development incentive shall be 
deemed waived. 
Value-added Tax and Customs Duty Treatment of Imported Capital Equipment 
and Raw Materials by Registered Export Enterprises. -
b.l. Located Inside an Economic Zone and/or Freeport Zone: VAT and 
Duty Exemption 
(a) Importation of capital equipment, including consignment thereof, 
by registered export enterprises may be exempted to the extent of 
one hundred percent (100%) of the taxes and customs duties; 
Provided, that the following conditions are complied: 
(i) The capital equipment is directly and/ or reasonably needed and 
will be used exclusively in the registered activity of the export 
enterprise unless prio!: approval of the Authority 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; They are not manufactured • 
domestically in sufficient quantity, of comparable quality and at 
reasonable prices; and, 
(ii) The approval of the Authority was obtained by the registered 
export enterprise for the importation of such machinery, equipment 
and spare parts. 
Approval of the Authority must be secured before any sale, transfer or 
disposition of the imported capital equipment is made: Provided, that it 
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: 
. 
, 
(i) If made to another enterprise enjoying tax and duty exemption 
on imported capital equipment; 
(ii) If made to another enterprise, upon payment of any taxes and 
duties due on the net book value of the capital equipment to be 
sold; 
(iii) Exportation of capital equipment, machinery, spare parts or 
source documents or those required for pollution abatement and 
control; or 
(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 
thaI). paragraph (ii), the registered export enterprise shall not pay the 
taxes and duties waived on such items: Provided further, that if the 
registered 
export enterprise 
sells, 
transfers 
or disposes 
the 
aforementioned imported items without prior approval within five (5) 
years from the date of importation, the registered export enterprise 
and the vendee, transferee, or assignee shall be solidarily liable to pay 
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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 is approved after five (5) years from the date of. 
importation, the registered export enterprise is still liable to pay the 
taxes and duties based on the net book value of the capital equipment 
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. 
(b) Importation of raw materials, supplies, spare parts and semi-
finished products exclusively used by registered export enterprises 
in the manufacture, processing or production of its export products 
may be exempt~d from the payment of customs, duties and taxes. 
The registered export enterprises availing "of the above incentives shall 
be subject to the follOWing: (a) that said importation will be used 
exclusively by the registered export enterprise in its registered activity; 
(b) that the capital equip1;nent where the raw materials, supplies, parts 
and semi-finished products were used would have qualified for tax 
and duty-free importation; and (c) that the approval of the Authority is 
obtained by the registered export enterprise. If the registered export 
enterprise sells, transfers or disposes of the imported· capital 
equipment, the provision ~n the preceding paragraphs for such 
disposition shall apply. 
b.2. Located outside Economic and! or Freeport Zones: VAT and Duty 
Refund 
Registered enterprises located outside the ecozones or free ports shall 
be subject to a VAT and Customs Duty Refund Mechanism as 
provided in this Act. 
The VAT and customs duty paid on imported capital equipment may 
be refunded provided that the capital equipment is being used by the 
registered export enterprise pursuant to its registered activity. 
The amount of V AT and customs duty refund on a particular shipment 
of raw materials shall be equivalent to the proportion of raw materials 
used in the production of'the exported goods to the total raw materials 
imported multiplied by the amount of V AT and customs duty paid on 
such importation. No claim for refund shall be allowed on VAT and 
customs duty paid on ~;;tW materials which are not or no longer 
intended to be used in the registered export activity. 
In order to facilitate the immediate processing, clearance and release of 
VAT and customs duty refunds as provided in this Act, a Trust 
Liability Account ~TLA) is hereby authorized to b'e established in the 
Bureau of Treasury (BTr). 
All VAT and customs duty payments 
pertaining to the importation of registered export enterprises of capital 
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equipment, raw materialil or source documents in the case of IT export 
enterprise shall be deposited in the TLA for the purpose of funding 
valid VAT and customs duty refund claims. The claims for VAT and 
customs duty refunds, shall be made by the registered export 
enterprise with the BUI!eau of Customs (BOC). However, the VAT 
refund shall only be granted upon obtaining a favorable endorsement 
from the Bureau of Internal Revenue (BIR). 
A registered enterprise shall file a claim for V AT and customs duty 
refund within one (1) year from the date of actual exportation. 
All 
amounts paid but no longer allowed for refund shall immediately 
accrue to the general fund of the National Government. 
All applications for VAT and customs duty refund shall be processed 
and acted upon within thirty (30) days after submission of complete 
documents. The refund shall be in a form of manager' sl cashier's 
check payable to the registered export enterprise. 
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In cases of dispute under the V AT and customs duty refund' 
mechanism provided in this section, the pertinent provisions of the 
NIRC, as amended, and the Tariff and Customs Code of the 
Philippines, as amended/shall apply. 
b.3. Tax and Duty Free Importation of Source Documents. - The importation 
of source documents by ICT-registered export enterprises inside the zone 
shall be eligible for tax and duty free importation. The tax incentive may be 
granted to the registered exportenterprise for a period of 10 years. 
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b.4. VAT Incentive on Local Sales to Registered Export Enterprises. -
i. 
The sale of raw materials, packaging materials and capital equipment, 
directly used in the registered activity, by a V AT -
registered 
enterprise to a registered export enterprise shall be subject to zero 
percent (0%) VAT. 
ii. 
The sale of services performed by subcontractors andlor contractors in 
processing, converting or manufacturing goods for a registered export 
enterprise shall be subject to zero percent (0%) VAT, in accordance 
with the provisions of the NIRC of 1977, as amended. 
The V AT and duty incentives under this sub-section may be granted to the 
registered enterprise for the duration of its registration with the pertinent 
authOrity. 
42 
SEC. 7. 
Fiscal Incentives to Registered Strategic Activities. - Registered strategic 
43 
activities shall be entitled to the following fiscal incentives to be administered by the 
44 
BOI: 
. 
45 
46 
A. Income tax-based incentive - The registered strategic enterprise may choose 
47 
anyone of the following options as its income tax-based incentive, subject 
48 
to the condition that its choice shall be final and cannot be changed during 
49 
the duration of its registration. 
Provided further that on availing of the 
50 
income tax-related incentives, the BIR shall require a registered strategic 
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enterprise to secure a Certificate of Eligibility from the BOI and attach the 
same to its Income Tax Return (ITR) or Annual Information Return (AIR), 
whichever is applicable. Thereafter,' the registered strategic enterprise 
shall file its claim with the' BOI for validation. 
Failure to attach the 
Certificate of Eligibility to the ITR or AIR, and! or file the income tax-
related availment shall cause the forfeiture of the income tax-related 
availment for the taxable period. 
The BOI shall endorse the r~sult of its validation to the BIR within forty 
five (45) days from the deadline for the filing of the ITR or AIR as the case 
maybe. Provided, that the endorsement may be extended for another forty-
five (45) days subject to a certification that will be issued by the Bar. 
Failure of the BOI to endorse the said validation to the BIR shall cause the 
forfeiture of the income tax incentive of the registered enterprise for the 
taxable period. 
Option 1: Income Tax Holiday (ITH). -
A registered strategic enterprise is 
entitled to an ITH not to exceed five (5) years from the start of its 
commercial operation. 
Option 2: Reduced Income Tax (RIT). - A registered strategic enterprise may 
be entitled to a reduced income tax rate of fifteen percent (15%) instead of 
the regular income tax rate p~ovided for in the NIRC, as amended. 
In computing net taxable income, the enterprise may be entitled to deduct 
the following expenses, in <!:pdition to ordmary and necessary business 
expenses allowed under the NIRC, as amended: 
i. 
ii. 
iii. 
Enhanced Net Operating Loss Carry-over (NOLCO) - The net 
operating loss of ~he registered activity during the first five (5) 
years from the start of commercial operation which had not 
been previously offset as deduction from gross income may be 
carried over as deduction from gross income for the next five 
(5) consecutive taxable years immediately following the year of 
such loss. 
Accelerated Depreciation - Plant, machinery, and equipment that 
are reasonably needed and actually used for the production 
and transport of goods and services may be depreciated 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 of the NIRC, as ~mended. 
Double Deduction for Training Expenses - Expenses incurred for 
local training given to employees for the development of skills, 
identified as necessary by the appropriate government 
agencies, may be. claimed as deduction from gross income to 
the extent of two hundred (200%) percent of the actual amount 
of expenses incurred: Provided, that the training expense shall 
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be deductible on the taxable year the said training expenses 
were incurred: Provided further, that the respective Authority 
shall issue the corresponding certificate of entitlement for its 
incentive upon filling of an application, otherwise, the training 
incentive shall be deemed waived. 
iv. 
Double Deduction for Research and Development -
Expenses 
incurred for. res,,(arch and development conducted in the 
Philippines relating to the business shall entitle the registered 
export enterprise to a special deduction from taxable income 
equivalent to one hundred percent (100%) of the total expenses 
over and above the' allowable ordinary and business • 
deductions for said expenses under the NIRC, as amended: 
Provided, that the expenses for research and development shall 
be deductible from gross income on the taxable year the said 
research and development expenses were .incurred; Provided 
further, 
that the respective 
Authority shall issue the 
corresponding certificate of entitlement for this incentive upon 
filing of an application, otherwise, the research and 
development incentive shall be deemed waived. 
Duty-free importation of capital equipment - Importation of capital equipment 
by registered strategic enterprises may be exempted to the extent of one 
hundred percent (100%) of customs duties; Provided, that the following 
conditions are complied: 
" 
(i) The capital equipment is directly and/ or reasonably needed and 
will be used exclusively in the registered strategic activity of the 
enterprise unless prior approval of the BOI 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; They are not manufactured 
domestically in sufficient quantity, of comparable quality and at 
reasonable prices; and, 
(ii) The approval of the BOI was obtained by the registered strategic 
enterprise for the importation of such machinery, equipment and 
spare parts. 
Approval of the BOI must be secured before any sale, transfer or 
disposition of the imported capital equipment 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: 
(i) If made to another enterprise enjoying tax and duty exemption 
on imported capital equipment; 
• 
(ii) If made to another enterprise, upon payment of any taxes and 
duties due on the net book value of the capital equipment to be 
sold; 
11 


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5 
(iii) Exportation of capital equipment, machinery, spare parts or 
source documents or those required for pollution abatement and 
control; or 
(iv) For reasons' of proven technical obsolescenc~. 
6 
When the aforementioned sale, transfer or disposition is made under 
7 
any of the conditions provided for in the foregoing paragraphs other 
8 
than paragraph (ii), the registered strategic enterprise shall not pay the 
9 
duties waived on such items: Provided further, that if the registered 
10 
strategic enterprise sells,. transfers or disposes the aforementioned 
II 
imported items without prior approval within five (5) years from the 
12 
date of importation, the registered strategic enterprise and the vendee, 
13 
transferee, or assignee shall be solidarily liable to pay twice the 
14 
amount of the duty exemption given it: Provided finally, that even if the 
15 
sale, transfer or disposition of the capital equipment is approved after 
16 
five (5) years from the date of importation, the registered strategic 
17 
enterprise is still liable to pay the duties based on the net book value of 
18 
the capital equipment if it has violated any of its registration terms and 
19 
conditions. Otherwise, it shall no longer be subject to the payment of 
20 
the duties waived thereon. 
21 
22 
SEC.S. Entitlement to Fiscal Incentives by Registered Export Enterprises and Strategic 
23 
Activities - Registered export enterprises and strategic activities shall be entitled to the 
24 
fiscal incentives under the preceding Sections to the extent of the registered activity or 
25 
projects involving only export sales' of goods and export sales of services and those 
26 
strategic activities, as herein defined. Income derived from non-registered activity or 
27 
project shall, thus, be subject to appropriate taxes under the NIRC, as amended. 
28 
29 
SEC.9. Fiscal Incentives To Micro and Small Enterprises (MSE) - The BIR shall register • 
30 
qualified MSEs as defined under this Act and shall be EXEMPT from income tax. 
. 
31 
, 
32 
SEC.lO. Tax Expenditure Fund (TEF) - Tax incentives for registered enterprises, as may 
33 
be determined by the Board of Investments (BOI) and the Philippines Economic Zone 
34 
Authority (PEZA), shall be drawn from a fund which shall be created for purposes of 
35 
this Act. This fund shall be automatically appropriated as part of the General 
36 
Appropriations Act approved by Congress. 
37 
38 
SEC.ll. Authority of the Bureau of Customs (BOC) to Examine the Entry and Exit of 
39 
Imported Articles in the Economic Zones and Free Ports. - The )30C shall have the 
40 
authority to examine the entry and exit of imported articles into the economic zones and 
41 
free ports for the purpose of determining the quantity' and description of subject 
42 
imported articles and to determine whether proper duties and taxes, if any, had been 
43 
paid thereon. 
44 
45 
SEC.l2. Percentage of Income Allowable from Sources within the Customs Territory or 
46 
Sources from Local Sales. - Registered export enterprises located in ecozones and free 
47 
ports may generate income from sales to the customs territory of up to thirty percent 
48 
(30%) of their total income from all sources: Provided, That should an enterprise's 
49 
income from sources within the customs territory or from local sales exceed 30% of its 
50 
total income from all sources, then, its entire i~come, including income from within the 
51 
customs territory or local sales, shall be subject to the regular income tax provisions of 
52 
the National Internal Revenue Code, as amended. 
In other words, it foregoes its 
53 
privilege of enjoying all tax incentives for the pertinent period. 
12 


SEC. 13. No Double Registration of Enterprises. - Export or strategic enterprises shall 
not be allowed to register their export or domestic activity in more than one Authority. 
In the event that an enterprise shall transfer to another Authority, only the remaining 
unutilized incentives shall be granted to the enterprise or the transferee, vendee, ot 
assignee. 
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SEC.14. Period of Availment of Incentives - The total period of availment of all tax 
" 
. 
incentives enjoyed by a registered enterprise provided herein shall in no case exceed 
twenty five (25) years. 
12 
SEC.15. Administration, Implementation and Monitoring of Incentives. - The 
13 
Authorities shall be responsible for the administration and implementation of 
14 
incentives granted to the registered enterp"rises. For Qualified MSEs, the BIR shall be 
15 
responsible for the administration and implementation of incentives granted thereto. 
16 
The Authorities and the BIR shall submit to the DOF their respective tax expenditures 
17 
based on the computed cost in terms of re'venue foregone on the tax incentives granted 
18 
to their registered enterprises, and other data related to the grant of investment 
19 
incentives, on a quarterly basis and to cover all their registered enterprises induding 
20 
those whose incentives are provided by investment incentive laws prior to the 
21 
effectivity of this Act. For proper monitoring, the DOF, together with the BIR and BOC, 
22 
shall create a single database of all incentives provided by PEZA. The DOF, BIR and 
23 
BOC shall monitor and review the incentives granted and submit an annual report to 
24 
the President and to the Chairman of the Committee on Ways and Means of both 
25 
houses of Congress. 
26 
27 
SEC.16. Membership in Boards of All Authorities - To ensure that the grant and 
28 
administration of investment incentives are in accordance with the country's medium-
29 
term economic development plan, are fiscally-sustainable and contributes to the growth 
30 
and competitiveness of industries, the National Economic and Development Authority 
31 
(NEDA), Department of Finance (DOF), and the Department of Trade and Investment 
32 
(DTI) shall sit as members in the goverdrig boards of all Authorities as defined in this 
33 
Act. These agencies shall be represented in the said boards by officials with the rank of 
34 
undersecretary of department or higher. For this purpose, the pertinent provisions of 
35 
special laws and executive orders creating these Authorities are hereby amended 
36 
accordingly. 
37 
38 
39 
40 
41 
42 
43 
44 
FINAL PROVISIONS 
SEC.17. Suspension and Forfeiture of Incentives of Registered Enterprises, Refund and 
Penalties. - When there is probable cause to believe that the registered enterprise has 
violated its registration terms and conditions, the Authority may cause the suspension 
of the incentives being enjoyed by the enterprise by issuing a notice of violation and 
recommendation of suspension of incentives addressed to Authority. 
• 
45 
• 
46 
Upon a finding of violation of registration terms and conditions, the Authority 
47 
may impose fines and penalties and/ or cause the revocation of the incentives granted to 
48 
the erring registered enterprise. 
49 
50 
In case of cancellation of the Certificate of Registration, the Authority may, in 
51 
appropriate cases, require the refund of incentives availed of in addition to imposing 
52 
fines and penalties. 
53 
'\3 


Any enterprise which violates any provision of this Act, its implementing rules 
2 
and regulations, the terms and conditions of its registration, of the concerned Authority, 
3 
shall be subject to a fine not to exceed One Million Pesos (Pl,OOO,OOO.OO), without 
4 
prejudice to the disapproval of its application for registration or cancellation of its 
5 
registration: Provided, That any willful commission of fraudulent misrepresentation in 
6 
its application for registration or submission of reports or gross violation of this Act and 
7 
its Implementing Rules and Regulations, a fine of at least One Million Pesos 
8 
(Pl,OOO,OOO.OO) but not to exceed Ten Million Pesos (PI0,000,000.00) shall be imposed, in 
9 
addition to other penalties that may be imposed by the Authority. 
10 
11 
The Authorities shall prepare a schedule of fines and penalties to be imposed on 
12 
erring registered enterprises depending on the violation incurred, which may be 
13 
reduced in exceptional cases. 
14 
15 
Responsible officers of such enterprises, including duly' appointed external 
16 
consultants-agents who knowingly commit, aid or abet the commission of any of the 
17 
acts mentioned above, shall be subject to a fine of not less than One Hundred Thousand 
18 
Pesos (PlOO,OOO.OO) but not more than Three Hundred Thousand Pesos (P300,000.00) 
19 
without prejudice to disqualification from appearing or doing business with any 
20 
Authority. 
. 
21 
22 
Government officers and employeef; who participate directly or indirectly in the 
23 
commission of the foregoing acts shall likewise be liable to a fine of not less than One 
24 
Hundred Thousand Pesos (PlOO,OOO.OO) But not more than Three Hundred Thousand • 
25 
Pesos (P300,000.00), in addition to any criminal and administrative penalties imposable 
26 
under the Civil Service Law, Revised Penal Code, Republic Act No. 3019, otherwise 
27 
known as the" Anti-Graft And Corrupt Practices Act," Republic Act No. 6713, otherwise 
28 
known as the "Code Of Conduct And Ethical Stanqards For Public Officials," and other 
29 
applicable laws. 
30 
31 
If the offender is a foreign national, in addition to the imposable fines and 
32 
penalties above, the foregoing acts shall be grounds for his summary deportation. 
33 
34 
SEC.1S. Joint Implementing Rules (jnd Regulations (IRR). - The DT,I, DOF, and NED A, 
35 
in consultation with the Authorities, the BIR, and the DBM, shall jointly promulgate 
36 
rules and regulations to implement the intent and provisions of this Act within one 
37 
hundred twenty (120) days from the effectivity of this Act. 
38 
39 
SEC. 19. Separability Clause. - The provisions of this Act are hereby declared to be 
40 
separable and, in the event any of such' provisions is declared unconstitutional, the 
41 
other provisions which are not affected thereby shall remain in force and effect. 
42 
43 
SEC. 20. Repealing Clause. -
44 
45 
46 
47 
48 
49 
50 
51 
a. To ensure that the NEDA, DOF, and DTI are represented in the governing 
boards of all Authorities, pursuant to Section of this Act, the following 
provisions, among others, are amended accordingly: 
i. Article 4 of EO 226, as amended, or the "Omnibus Investment Code of 
1987;" 
14 
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b. 
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ii. Sections 9 and 13 (c) of RA 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 (Bases Conversion and 
Development Act of 1992)"; 
iii. Section 3 of EO 80 entitled ';'Authorizing the Establishment of the Clark 
Development Corporation as the Implementing Arm of the Bases 
Conversion and Development Authority for the Clark Special Economic 
Zone, and Directing all Heads of Departments, Bureaus, Offices, Agencies 
and Instrumentalities of Government to Support the Program" (Clark 
Development Corporation); 
iv. Section 6 of EO 132 entitled" Authorizing the' Creation of the Poro Point 
Management Corporation as the Implementing Arm of the Bases 
Conversion Development Authority over the Poro Point Special Economic 
, 
and Freeport Zone and renaming the John Hay Poro Point Development 
Corporation as the John Hay Management Corporation;" 
v. Section 9 of RA No. 7903 entitled" An Act Creating Special Economic 
Zone And Free Port in the City Of Zamboang;1 and Establishing for this 
Purpose the ZamboangaCity Special Economic Zone Authority, 
Appropriating Funds Therefor, and for other Purposes (Zamboanga City 
Special Economic Zone Act of 1995)"; 
vi. Section 14 of RA No. 9728, entitled, "An Act Converting the Bataan 
Economic Zone Located in the Municipality of Mariveles, Province of 
. 
. 
Bataan, into the Freeport Area of Bataan (FAB), creating for this purpose 
the Authority of the Freeport Area of Bataan (AFAB), Appropriating 
Funds Therefor and for Other Purposes or the "Freeport Area of Bataan 
Act of 2009"; and 
vii. Section 65 of RA No. 9593 entitled" An Act Declaring a National Policy 
for Tourism as an Engine of Investment, Employment, Growth and 
National Development, and Strengthening the Department of Tourism 
and its Attached Agencies to Effectively Efficiently Implement that Policy, • 
and Appropriating Funds Th~refor (The Tourism Act of 2009)"; 
The provisions on tax incentives that are hereby repealed accordingly include 
the following: 
i. Title III, Article 39 (a), (b), (c), (d), (e), (g), (i), 0), (k), (m) and (n); Title IV, 
and Book VI, Articles 77 and 78 of Executive Order No. 226, Series of 1987 
entitled "The Omnibus Investments Code Of 1987"; 
ii. 
Sections 23 and 24 of RA No. 7916 entitled" An Act Providing For The 
Legal Framework And Mechanisms For The Cl'eation, Operation, 
Administration, And Coordination Of Spec~al Economic Zones In The 
Philippines, Creating For The Purpose The Philippine Economic Zone 
15 
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53 
Authority (PEZA), And For Other Purposes (The Special Economic Zone 
Act of 1995)"; 
iii. 
Section 4 of RA No. 8748 entitled" An Act Amending Republic Act No. 
7916, Otherwise Known AsThe Special Economic Zone Act Of 1995"; 
iv. 
Section 17 (1) to (8) and Section 18 (a), (b), (c) and (f) of PD No. 66 
entitled "Creating The Export Processing Zone Authority And Revising 
Republic Act No. 5490;" 
v. 
PD No. 529 (Restored y FIRB Resolution 19-87) entitled "Granting To 
Petroleum Exploration Concessionaire.s Under The Petroleum Act Of 
1949 Exemption From Customs Duty And Compensating Tax On 
Importations Of Machinery And Equipment, Spare Parts And Materials 
Required For Their Exploration Operations;" 
vi. 
Sections 8, 9 and 2nd Sentence of the 1st Paragraph and 2 nd Paragraph of 
Section 10 of PD Np. 538 entitled "Creating And Establishing The 
Phividec Industrial Authority And Making It A Subsidiary Agency Of 
The Philippine Veterans Development Corporation, Defining Its Powers, 
Functions And Responsibilities, And For Other Purposes;" 
vii. Sections 36 (e) and (f) of PD No. 705 entitled "Revising PD No. 389, • 
otherwise known as The Forestry Reform Code of The Philippines 
(Revised Forestry Code of the Philippines);" 
viii. Section 16 (a), (b) and (c) and Section 17 (a) to (e) of PD 972 entitled 
"Promulgating an Act to Promote an Accelerated Exploration, 
Development, Exploitation) Produotion And Utilization Of Coal (The 
Coal Development Act of 1976);" 
ix. 
Section 4 (a) and (d) of Presidential Decree No. 1442 - restored by FIRB 
Resolution 19-87, entitled, "An Act to Promote the Exploration And 
Development Of Geothermal Resources;" 
x. 
Section 10 (1) to (6) of RA No. 7156 entitled" An Act Granting Incentives 
to Mini-Hydro Electric Ppwer Developers and For Other Purposes" 
(Mini-Hydroelectric Incentive Act);" 
xi. 
Sections 16 and 17 of RA No. 7844 entitled" An Act to Develop Exports 
as a Key towards the Achievement of the National Goals towards the 
Year 2000 (Export Development Act Of 1994);" 
xii. Chapter XV, Section 83; Chapter XVI, Sections 90, 91, 92, 93 of RA No. 
7942 entitled" An Act Instituting a New System of Mineral Resources 
Exploration, Development, Utilization, and Conservation (Philippine 
Mining Act Of 1995);" 
xiii. Section 9 of RA No. 8479 entitled" An Act Deregulating the Downstream 
Oil Industry, and for Other . Purposes (Downstream Oil Industry 
Deregulation Act Of 1998);" 
xiv. Section 3 (a) to (d) and (h). of RA No. 8502 entitled" An Act to Promote 
the Development of the Jewelry Manufacturing Industry, Providing 
Incentives Therefor and for other Purposes (Jewelry Industry 
Development Act of 1998);" 
xv. Chapter II, Article II, Sec. 35 (b), (c) and (d) of RA No. 8550, entitled" An 
Act Providing for the Development, Management and Conservation of 
the Fisheries and Aquatic Resources, Integrating All Laws Pertinent 
Thereto, and for other Purposes (The Philippine Fisheries Code Of 
1998);" 
xvi. Sections 1 and 2 and ?ection 6 of EO No. 528, Series of 2006, Amending 
EO No. 313, Series of 2004 - "Reducing the Rates of Duty on Capital 
Equipment, Spare Parts and Accessories Imported by BOI-registered 
new and expanding Enterprises"; 
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xvii. Section 4 (e) and (f) of RA No. 7903 entitled" An Act Creating Special 
Economic Zone And Free Port in the City Of Zamboanga and 
Establishing for this Purpose the Zamboanga City Special Economic 
Zone Authority, Appropriating Funds Therefor, and for other Purposes 
(Zamboanga City Special Economic Zone Act of 1995);" 
xviii Section 1 and Sections 2, 3;4, 5 and 7 of RA No. 9400 entitled" An Act 
Amending RA 7227, as amended, otherwise known as The Bases 
Conversion and Developme;nt Act Of 1982, and for other Purposes;" 
xix. 
Section 1 of EO No. 61gentitled "Creating and Designating Special 
Economic Zones Pursuant to RA No. 7916, as Amended by RA No. 
8784, in Relation to RA No. 7227, as Amended by RA No. 9400, Inside 
The Clark Freeport Zone" ; 
xx. 
Chapter II, Section 4 and Chapter VIII, Section 19 of RA No. 9295 
entitled, " An Act Promoting the Development of Philippine Domestic 
Shipping, Shipbuilding, Ship Repair and Ship Breaking, Ordaining 
Reforms in Government Policies Towards Shipping in The Philippines 
and For Other Purposes (Domestic Shipping Development. Act of 
2004)"; 
. 
xxi. 
Sections 5, 6 and 10 of RA No. 9728 entitled" An Act Converting the 
Bataan Economic Zone Located in the Municipality of Mariveles; 
Province of Bataan, Into the Freeport Area of Bataan (FAB), Creating 
for this Purpose the Authority of the Freeport Area of Bataan (AFAB), 
Appropriating Funds Therefor and for other Purposes (Freeport Area 
of Bataan (F AB) Act of 2009)"; 
xxii. 
Subchapter V-A, Section 86 and Section 88 of RA No. 9593 entitled" An 
Act Declaring a National Policy for Tourism as an Engine of 
Investment, Employment, Growth and National Development, and 
Strengthening the Department of Tourism and Its Attached Agencies 
to 
Effectively 
and 
Efficiently 
Implement 
that 
Policy, 
and 
Appropriating Funds Therefor (The Tourism Act of 2009),,; 
xxiii. Chapter VII, Sections 15,19, 21, 22 and 23 of RA No. 9513 entitled" An 
Act Promoting the Development, Utilization and Commercialization of 
Renewable Energy Resources and for other Purposes (Renewable 
Energy Act of 2008)"; 
xxiv. Section 20 (d), Article V of RA No. 7279 entitled" An Act to Provide for 
a Comprehensive and Continuing Urban Development and Housing 
Program, Establish the Mechanism for its Implementation, and for 
other Purposes (Urban Development and Housing Act of 1992)"; 
xxv. 
Section 7 of RA No. .9178 entitled "An Act to Promote the 
Establishment of Barangay Micro Business Enterprises (BMBEs), 
Providing Incentives and Benefits Therefor, and for other Purposes 
(Barangay Micro Business Enterprises (BMBEs) Act of 2002"; 
xxvi. Chapter V, Art. 60 and 61 of RA No. 9520 entitled" An Act Amending 
the Cooperative Code of the Philippines to be Knoi"n as the Philippine 
Cooperative Code of 2008" . 
47 
c. 
The provisions on Investment Priority Plan (IPP) under Executive Order No. 226 
48 
namely Art. 26, Chapter I and Chapter II, are hereby repealed. 
49 
d. All other laws, acts, decrees orders and issuances or provisions thereof inconsistent 
50 
with any of the provisions of this act are hereby repealed or modified accordingly. 
51 
52 
SEC.21. Effectivity. - This Act shall take effect fifteen (15) days following its publication 
53 
in a newspaper of general circulation in the Philippines. 
,:17 
• 
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2 
Approved, 
• 
• 
• 
IS