Republic of the Philippines
HOUSE OF REPRESENTATIVES f° ON
Quezon City ” RECEIV D

f 2 IVED 4\

05 St SEP 208 m3 ©

SIXTEENTH CONGRESS
First Regular Session

HOUSE BILL noe? €5

Introduced by Hon, GABRIEL LUIS R. QUISUMBING

EXPLANATORY NOTE

A primary concern in economic growth is the “ease of doing business” in the
Philippines. This measure proposes the rationalization and harmonization of the
fiscal incentive system that will enhance the competitiveness of the country as an
investment site and, at the same time, ensure that the tax incentives are cost
efficient and attuned to the fiscal sustainability thrust of the National
Government.

This proposed measure seeks to provide guidelines for: 1) governing tax
incentive provision for all authorities; 2) roles of PEZA and other authorities; 3)
fiscal incentives for registered export enterprise; 4) fiscal incentives for
registered strategic activities; 5) entitlement to fiscal incentives of registered
export enterprises and strategic activities; 6) fiscal incentives for micro and
small enterprise; 7) authority of the Bureau of Customs to examine the entry and
exit of imported articles in the economic zones and freeports; 8) Percentage of
income allowed from sources within the Customs territory or those derived from
local sales; and 9) administration, implementation and monitoring of incentives,
among others.

‘This measure is our answer to the challenge of this administration to raise
additional revenues for better government services without imposing new taxes.
Hence the passage of this bill is earnestly sought.

GABRIEL LUIS R. QUISUMBING


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

SIXTEENTH CONGRESS
First Regular Session

HOUSE BILL no.276 5

Introduced by Hon. GABRIEL LUIS R. QUISUMBING

AN ACT RATIONALIZING THE GRANT AND ADMINISTRATION OF
FISCAL INCENTIVES FOR THE PROMOTION OF INVESTMENTS AND
GROWTH, AND FOR OTHER PURPOSES

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

\CTION 1. Title, - This Act shall be known as “The Consolidated Investments
Incentives Code of the Philippine

SECTION. 2. Declaration of Policy. - In the grant and administration of fis
incentives for the promotion of investments and growth, the following are the
declared policies of the
a. The State shall grant investment incentives that encourage long-term and
recurrent investment, are simple to administer, time-bound and whose
performance and outcomes are easily verifiable.

b. The State shall adopt a consolidated and integrate estment incentives
system and endeavor to rationalize and streamline the procedures in the grant
of investment incentives.

‘The State shall ensure that the fiscal incentives that it grants are not redundant,
that is, the incentives are actually necessary to bring about the investments to
which they pertain,

d. The State shall ensure that investment incentives shall promote substantial
social and economic spillovers, equitable development across income cl
and actoss provinces, are fiscally sustainable, financially and economically
justifiable, and are consistent with international treaties. The State shall
therefore provide the means for ascertaining that these objectives are being
attained.

¢. The State shall devote resources towards monitoring enterprises benefiting
from incentives, and shall vigorously prosecute abuses. The State shall also
closely monitor the level of tax expenditures arising from the provision of
incentives and shall ensure that concerned government agencies are well-
informed of these developments.


f. The State shall extend to all investors and registered enterprises the basic
rights and guarantees for the protection of investments provided under the
applicable Philippine laws.

g. The State shall ensure that investments that are granted tax incentives shall be
conducted in a manner that respects all the laws of the land, including the
protection of the environment and natural resources, labor and good corporate
governance principles.

SECTION. 3. Defini

a.

ion of Terms. ~ As used herein,

“Authority/ies” shall refer to government entities created by law,
executive order, decree or other issuance, in charge of promoting
investments and administering the operations of the different
economic zones and freeports in accordance with their respective
charters. ‘These include the Board of Investments (BOI), Philippine
Economic Zone Authority (PEZA), Bases Conversion Development
Authority (BCDA), Subic Bay Metropolitan Authority (SBMA),
Clark Development Corporation (CDC), Poro Point Management
Corporation (PPMC), Bataan Technology Park, Inc. (BTPI),
Zamboanga City Special Economic Zone Authority (ZCSEZA),
Phividec Industrial Authority (PIA), Authority of the Freeport Area
of Bataan (AFAB), Tourism Infrastructure and Enterprise Zone
‘Authority (TIEZA), and all other authorities that may be created by
Jaw in the future.

“Capital equipment” refers to machinery, equipment, major
components thereof, spare parts, accessories, tools, devices,
apparatus, fixtures, fittings and accompaniments which are directly
and/or reasonably needed in the registered activity of the enterprise
and those required for pollution abatement and control, cleaner
production and water reduction/conservation.

“Ecozone developer” shall refer to a business entity duly registered
with PEZA to develop, operate and maintain an ecozone that will put
up the required infrastructure facilities and utilities to include among
others light and power system, water supply and distribution system,
sewerage and drainage system, pollution control devices,
communication facilities, paved road network, administration
building, standard factory buildings, and other facilities as may be
required by enterprises registered with PEZA.

“Export sales of goods” shall mean the sales values and/or revenues
paid for in freely convertible foreign currency, determined from
invoices, bills of lading, inward letters of credit, landing certificates,
or other commercial documents, of the following:

i. _ the sale and actual shipment of goods from the Philippines to a
foreign country by a registered enterprise;

ii, _ sales of goods to an export enterprise registered in accordance
with this Act; to diplomatic missions and to agencies or
institutions allowed to import said goods tax and duty-free; to
persons engaged in international shipping or international air
transport operations; and to foreign military aircraft or sea craft;

iii, sales to a nonresident buyer for delivery to a resident local
export enterprise of capital equipment, raw materials, production



supplies, packaging materials and other production requirements
needed for the registered activity of the export enterpri

Provided, That in the case of paragraph (ii) above, only sales to an export
enterprise of capital equipment, raw materials, production supplies, packaging
materials, and other production requirements needed for the registered activity of
the export enterprise; and sales to international sea or air transport operations of
goods, equipment, spare parts and supplies, except fuel, to be used in the aireraft
or sea craft and capital equipment needed for the shipping or air transport
operations, shall be entitled to incentives for export enterprises under this Act.

‘port sales of services” shall mean the sales revenues, determined
from contracts, invoices, vouchers, official receipts, or other
commercial documents paid for in freely convertible foreign
currency, of the following:

i, services rendered to non-resident foreign clients by registered
enterprise

ii, services rendered to an export enterprise registered in accordance
with this Act;

iii, services rendered to diplomatic missions and to other agencies or
institutions with tax and duty-free privileges;

iv. services rendered to persons engaged in international shipping or
international air transport operations, or foreign military aircraft or
sea craft, even if rendered locally.

Provided, That in the case of paragraph (ii) above, only services to an export

enterprise performed by subcontractors and/or contractors in the manufacture or

processing of goods; other services necessary for the registered activity of an export
enterprise: and in the case of paragraph (ii), only services for the overhaul, repair and
maintenance for international shipping or air transport operations, and foreign military
aircraft or sea craft, shall be entitled to incentives for export enterprises under this

Act.

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.

h. “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.

“Gross Income Earned(GIE)” refers to gross sales or gross revenues
derived from the registered activity less sales returns, discounts and
allowances and cost of goods sold and/or cost of services rendered,
as defined under Section 27(E)(4) of the NIRC of 1997,as amended.

i. “Investment incentive” or “fiscal incentives” or “tax incentives” shall

refer to the preferential tax treatment of a registered enterprise in



terms of lower tax, exemption from tax or duties, tax or duty refund,
double deduction of expense for purposes of computing one’s
income tax liability, accelerated depreciation, net loss carry-over,
among others,

“Qualified Micro and Small Enterprise (MSE)” shall mean, for
purposes of the grant of fiscal incentives herein, any individual,
partnership, or cooperatives, organized and existing under the laws
of the Philippines, whose gross revenues does not exceed Three
Hundred Fifty Thousand (PhP350,000.00) for service-oriented
entities or Seven Hundred Thousand Pesos (PhP700,000.00) for
trading or manufacturing entities for a taxable year: Provided, That
every three (3) years from the date of effectivity of this Act, the
amount stated herein shall be adjusted to reflect its value as of said
date using the Consumer Price Index, as published by the National
Statistics Office (NSO).

i, “Registered export enterprise” 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).

m. “Registered strategie activities” shall mean any domestic economic
activity identified every three (3) years and approved by the BOI
Board entitled to the tax incentives provided herein which shall in no
case exceed the BOI’s annual tax expenditure budget. Provided,
‘That a strategic activity is an activity that will significantly
contribute to the country’s economic development in terms of
pouring in a large amount of capital investment, generating sizeable
employment, utilizing new and internationally accepted high level of
technology and creating high value added.

n. “Special economic zone” or “ecozone” shall refer to a selected area
with highly developed or which has the potential to be developed
into agro-industrial, industrial, information technology,
tourist/recreational, commercial, banking, investment and financial
centers whose metes and bounds are fixed or delimited by
Presidential Proclamations. An ecozone may contain any or all of
the following: industrial estates (IEs), export processing zones
(EPZs), ICT parks and centers, free trade zones and tourism estates;
Provided, however, That areas where mining operations are
undertaken shall not be declared as ecozones.

oO. “Source documents” shall refer to input materials and documents
reasonably needed by information technology (IT) and IT-enabled



industries such as, but not limited to, books, directories, magazines,
newspapers, brochures, pamphlets, medical records or files, legal
records or files, instruction materials, drawings, blueprints, or
outlines.

SECTION. 4. Governing Tax Incentive Provision for All Authorities. —
Notwithstanding the provisions of their respective charters, all 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 for a period of not more than four (4) years from the
effectivity of this Act, whichever comes first.

SECTION. 5. Roles of PEZA and Other Authorities. - The respective
Charters of PEZA and 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.

Notwithstanding the provisions of RA 7916, as amended, and RA 9593, the
PEZA shall be responsible for administering all investment incentives to registered
enterprises which are registered with TIEZA, .

SECTION. 6. Fiscal Incentives to Registered Export Enterprises. ~The
Authorities shall administer the following fiscal incentives to the registered export
enterprises to the extent of the latter’s registered activity:

A. Income tax-based incentive ~ The registered enterprise may choose any
one of the following options as its income tax-based incentive, subject
to the condition that its choice shall be final and cannot be changed
during the duration of its registration. Provided further that on
availing of the income tax-related incentives, the BIR shall require a
registered export enterprise to secure a Certificate of Eligibility from
the appropriate Authority and attach the same to its Income Tax Return
(ITR) or Annual Information Return (ATR), whichever is applicable.
Thereafter, the 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 a
for the taxable period.

ailment

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 of 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
aross revenues, and recommend stricter rules to the Secretary of
inance if warranted. In the allocation of the revenues from the 5%
tax on GIE, three percent (3%) shall be remitted to the National
Government and two percent (2%) shall be remitted to the treasurer’s
office of the local government unit/s where the registered 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 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.

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 regulations
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 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.

B. Value-added Tax and Customs Duty Treatment of Imported Capital
Equipment and Raw Materials by Registered Export Enterprises

b.1, Located Inside an Economie 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 prior approval of the Authority i
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 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;

(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 than 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 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 exempted from the payment of customs
duties and tax

‘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 equipment 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 in the
preceding paragraphs for such disposition shall apply.



5.2. 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 VAT 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 VAT and
customs duty paid on such importation. No claim for refund shall
be allowed on VAT and customs duty paid on raw 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 be
established in the Bureau of Treasury (BTr). All VAT and c
duty payments pertaining to the importation of registered export
enterprises of capital equipment, raw materials 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 Bureau of
Customs (BOC). However, the VAT refund shall only be granted
upon obtaining a favorable endorsement from the Bureau of
Internal Revenue (BIR).

stoms

A registered enterprise shall file a claim for VAT 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 shalll be
processed and acted upon within thirty (30) days after submission
of complete documents. ‘The refund shalll be in a form of
manager’ s/cashier’s check payable to the registered export
enterprise.

In cases of dispute under the VAT 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 export enterprise for a period of
10 years.

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 VAT —
registered enterprise to a registered export enterprise shall be

ject to zero percent (0%) VAT.

ii, ‘The sale of services performed by subcontractors and/or 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 VAT and duty incentives under this sub-section may be granted to the
registered enterprise for the duration of its registration with the pertinent
authority.

SECTION. 7. Fiscal Incentives to Registered Strategic Activities.
Registered strategic activities shall be entitled to the following fiscal incentives to be
administered by the BOI:

A. Income tax-based incentive ~ The registered strategic enterprise may
choose any one of the following options as its income tax-based
incentive, subject to the condition that its choice shall be final and
cannot be changed during the duration of its registration. Provided
further that on availing of the income tax-related incentives, the BIR
shall require a registered strategic enterprise to secure a Certificate of
Eligibility from the BOI and attach the same to its Income Tax Return
(TR) 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 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 BOI. 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 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 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.

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
regulations 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 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.

B. 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) 1fmade 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 than paragraph (i), the registered strategic
enterprise shall not pay the duties waived on such items: Provided
‘further, that if the registered strategic enterprise sells, transfers or
disposes the aforementioned imported items without prior approval
within five (5) years from the date of importation, the registered
strategic enterprise and the vendee, transferee, or assignee shall be
solidarily liable to pay twice the amount of the 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 strategic enterprise is
still liable to pay the 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 duties waived thereon.

|ON.8. Entitlement to Fiscal Incentives by Registered Export
Enterprises and Strategic Activities — Registered export enterprises and strategic
activities shall be entitled to the fiscal incentives under the preceding Sections to the
extent of the registered activity or projects involving only export sales of goods and
export sales of services and those strategic activities, as herein defined. Income
derived from non-registered activity or project shall, thus, be subject to appropriate
taxes under the NIRC, as amended.

SECTION.9. Fiscal Incentives To Micro and Small Enterprises (MSE)
The BIR shall register qualified MSEs as defined under this Act and shall be
EXEMPT from income tax.

SECTION.10. Tax Expenditure Fund (TEF) ~ Tax incentives for registered
enterprises, as may be determined by the Board of Investments (BOI) and the
Philippines Economic Zone Authority (PEZA), shall be drawn from a fund which
shall be created for purposes of this Act. This fund shall be automatically
appropriated as part of the General Appropriations Act approved by Congress.

SECTION.11. Authority of the Bureau of Customs (BOC) to Examine the
Entry and Exit of Imported Articles in the Economic Zones and Free Ports. ~ The
BOC shall have the authority to examine the entry and exit of imported articles into
the economic zones and free ports for the purpose of determining the quantity and
description of subject imported articles and to determine whether proper duties and
taxes, if any, had been paid thereon.

SECTION.12. Percentage of Income Allowable from Sources within the
Customs Territory or Sources from Local Sales. — Registered export enterprises
located in ecozones and free ports may generate income from sales to the customs
territory of up to thirty percent (30%) of their total income from all sources:

Provided, That should an enterprise’s income from sources within the customs
territory or from local sales exceed 30% of its total income from all sources, then, its
entire income, including income from within the customs territory or local sales, shall
be subject to the regular income tax provisions of the National Internal Revenue


Code, as amended. In other words, it foregoes its privilege of enjoying all tax
incentives for the pertinent period.

SECTION. 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, or assignee.

SECTION.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.

SECTION.15. Administration, Implementation and Monitoring of
Incentives. - The Authorities shall be responsible for the administration and
implementation of incentives granted to the registered enterprises. For Qualified
MSEs, the BIR shall be responsible for the administration and implementation of
incentives granted thereto. The Authorities and the BIR shall submit to the DOF their
respective tax expenditures based on the computed cost in terms of revenue foregone
on the tax incentives granted to their registered enterprises, and other data related to
the grant of investment incentives, on a quarterly basis and to cover all their registered
enterprises including those whose incentives are provided by investment incentive
laws prior to the effectivity of this Act. For proper monitoring, the DOF, together with
the BIR and BOC, shall create a single database of all incentives provided by PEZA.
The DOF, BIR and BOC shall monitor and review the incentives granted and submit
an annual report to the President and to the Chairman of the Committee on Ways and
Means of both houses of Congress.

SECTION.16. Membership in Boards of All Authorities — To ensure that the
grant and administration of investment incentives are in accordance with the country’s
medium-term economic development plan, are fiscally-sustainable and contributes to
the growth and competitiveness of industries, the National Economic and
Development Authority (NEDA), Department of Finance (DOF), and the Department
of Trade and Investment (DTI) shall sit as members in the governing boards of all
‘Authorities as defined in this Act. These agencies shall be represented in the said
boards by officials with the rank of undersecretary of department or higher. For this
purpose, the pertinent provisions of special laws and executive orders creating these
Authorities are hereby amended accordingly.

SECTION.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,

Upon a finding of violation of registration terms and conditions, the Authority
may impose fines and penalties and/or cause the revocation of the incentives granted
to the erring registered enterprise.

In case of cancellation of the Certificate of Registration, the Authority may, in
appropriate cases, require the refund of incentives availed of in addition to imposing
fines and penalties.


Any enterprise which violates any provision of this Act, its implementing
rules and regulations, the terms and conditions of its registration, of the concerned
Authority, shall be subject to a fine not to exceed One Million Pesos (P1,000,000.00),
without prejudice to the disapproval of its application for registration or cancellation
of its registration: Provided, That any willful commission of fraudulent
misrepresentation in its application for registration or submission of reports or gross
violation of this Act and its Implementing Rules and Regulations, a fine of at least
One Million Pesos (P1,000,000.00) but not to exceed Ten Million Pesos
(P10,000,000.00) shall be imposed, in addition to other penalties that may be imposed
by the Authority.

The Authorities shall prepare a schedule of fines and penalties to be imposed
on erring registered enterprises depending on the violation incurred, which may be
reduced in exceptional cases.

Responsible officers of such enterprises, including duly appointed external
consultants-agents who knowingly commit, aid or abet the commission of any of the
acts mentioned above, shall be subject to a fine of not less than One Hundred
Thousand Pesos (100,000.00) but not more than Three Hundred ‘Thousand Pesos
(P300,000.00) without prejudice to disqualification from appearing or doing busines
with any Authority.

Government off and employees who participate directly or indirectly in
the commission of the foregoing acts shall likewise be liable to a fine of not less than
One Hundred Thousand Pesos (P100,000.00) but not more than Three Hundred
Thousand Pesos (P300,000.00), in addition to any criminal and administrative
penalties imposable under the Civil Service Law, Revised Penal Code, Republic Act
No. 3019, otherwise known as the “Anti-Graft And Corrupt Practices Act,” Republic
Act No. 6713, otherwise known as the “Code Of Conduct And Ethical Standards For
Public Officials,” and other applicable laws.

Ifthe offender is a foreign national, in addition to the imposable fines and
penalties above, the foregoing acts shall be grounds for his summary deportation.

SECTION.18. Joint Implementing Rules and Regulations (IRR). - The D1,
DOF, and NEDA, in consultation with the Authorities, the BIR, and the DBM, shall
jointly promulgate rules and regulations to implement the intent and provisions of this
‘Act within one hundred twenty (120) days from the effectivity of this Act.

SECTION. 19, Separability Clause. - The provisions of this Act are hereby
declared to be separable and, in the event any of such provisions is declared
unconstitutional, the other provisions which are not affected thereby shall remain in
force and effect.

SECTION. 20. Repealing Clause. ~

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;"


ii.

iii.

iv.

vi.

vii.

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)”;

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

Economie Zone, and Directing all Heads of Departments, Bureaus,
Offices, Agencies and Instrumentalities of Government to Support the
Program” (Clark Development Corporation);

Section 6 of FO 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,”

Section 9 of RA No. 7903 entitled “An Act Creating Special
conomie 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)”;

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

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 Therefor (The
Tourism Act of 2009)”;

The provisions on tax incentives that are hereby repealed accordingly
include the following:

i.

ii.

Title IL, Article 39 (a), (b), (©). (4), (©), (g), (i), @). (®), (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

Sections 23 and 24 of RA No. 7916 entitled “An Act Providing For
The Legal Framework And Mechanisms For The Creation, Operation,


vi.

vii.

viii.

xi.

Administration, And Coordination Of Special Economic Zones In The
Philippines, Creating For The Purpose The Philippine Economic Zone
Authority (PEZA), And For Other Purposes (The Special Economic
Zone Act of 1995)”;

Section 4 of RA No. 8748 entitled “An Act Amending Republic Act
No. 7916, Otherwise Known As The Special Economic Zone Act Of
1995”;

Section 17 (1) to (8) and Section 18 (a), (b), (c) and (1) of PD No. 66
entitled “Creating The Export Processing Zone Authority And
Revising Republic Act No. 5490;”

PD No. 529 (Restored y FIRB Resolution 19-87) entitled “Granting,
To Petroleum Exploration Concessionaires 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;”

Sections 8, 9 and 2"! Sentence of the 1* Paragraph and 2” Paragraph
of Section 10 of PD No. 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;"

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);”

Section 16 (a), (b) and (c) and Section 17 (a) to (¢) of PD 972
entitled “Promulgating an Act to Promote an Accelerated
Exploration, Development, Exploitation, Production And Utilization
Of Coal (The Coal Development Act of 1976):”

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;”

Section 10 (1) to (6) of RA No. 7156 entitled “An Act Granting
Incentives to Mini-Hydro Electric Power Developers and For Other
Purposes” (Mini-Hydroelectric Incentive Act);”

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);”

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.

xv.

xvii.

xviii

XX.

xxii.

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);

. 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):”

Chapter Il, 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):”

i. Sections 1 and 2 and Section 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 BOL-registered new and expanding Enterprises”;

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);

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 Development Act Of 1982, and for other Purposes;”

Section 1 of EO No. 619 entitled “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”;

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)”;

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 (FAB) Act of 2009)”;

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


xxiii

xxiv,

XXV.

xxvii.

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)”;

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)";

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)";

Section 7 of RA No. 9178 entitled “An Act to Promote the
stablishment of Barangay Micro Business Enterprises (BMBEs),
Providing Incentives and Benefits Therefor, and for other Purposes
(Barangay Micro Business Enterprises (BMBEs) Act of 2002”;

entitled “An Act
ippines to be Known as

Chapter V, Art, 60 and 61 of RA No. 9520
Amending the Cooperative Code of the Phi
the Philippine Cooperative Code of 2008”.

c. The provisions on Investment Priority Plan (IPP) under Executive Order
No. 226 namely Art. 26, Chapter I and Chapter II, are hereby repealed,

d, All other laws, acts, decrees orders and issuan¢

's or provisions thereof,

inconsistent with any of the provisions of this act are hereby repealed or
modified accordingly.

SECTION.21. Effectivity. - This Act shall take effect fifteen (15) days
following its publication in a newspaper of general circulation in the Philippines.

Approved,