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Republic of the Philippines

House of Representatives

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SEVENTEENTH CONGRESS Le x
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HOUSE BILL No._7364__

Introduced by REP. SHARON S. GARIN, REP. RODEL M. BATOCABE

AN ACT RATIONALIZING THE GRANT AND ADMINISTRATION
OF FISCAL INCENTIVES

EXPLANATORY NOTE

The Philippines lags behind its regional neighbors in attracting foreign direct investments
(FDIs) due in part to gaps in infrastructure, energy, and government policies. For decades, fiscal
incentives were given to investors to fill in for these gaps. However, the poor design and
mismanagement of the country’s fiscal incentives regime has made it prone to systematic abuse
and caused major tax leakages. The government estimates that the current investment tax incentive
regime costs some P301 billion in foregone income tax, customs duties, and VAT. This is also tax
revenue that could have been better spent for the government's priority infrastructure and social
protection programs.

With fiscal policy and tax reform being a legislative priority of this administration, the time
has come to institute changes in the fiscal incentives regime that increase transparency and fairness
for all

Thus, this bill aims to streamline the design and administration of fiscal incentives to
reduce tax leakages and increase transparency and fairness. A secondary objective is to align the
role of the private sector with the country’s overall industrial development which will have an
impact on job generation and linkages in the value chain.

Specifically, this bill endeavors to address the following policy issues:

1 The current fiscal incentives regime is overbroad, poorly targeted, and not strategic.
The Department of Finance (DOF) listed 357 laws the allow for incentives in sectors
ranging from agriculture to the youth sector, often without clear or precise criteria.
Some incentives are granted in perpetuity, even if firms no longer need them. This
facilitates inefficiencies and redundancies. It also comes at the cost of not being able to
give the same incentives to other investors that need them. Fiscal incentives should
target sectors with greater positive externalities and multiplier effects — in the form of
technology transfer, linkage formation, employment generation, investment signaling
effects, and indirect tax generation, for the domestic economy.

2. ‘The administration of fiscal incentives is complex. Despite the many investment
promotion agencies (IPAs), there is a lack of coordination among them and the national
government. To simplify the administration of fiscal incentives, a coordinating entity
or review board is essential. Given the twin goals of managing fiscal instruments and
their deployment for industrial policy objectives, a multi-agency board that



incorporates the Department of Finance and the Department of Trade and Industry, at
the minimum, is needed.

3 The accountability mechanism is also weak: the manner of graduation from and
termination of incentives are not clear; reporting and transparency requirements are
limited; and there is no monitoring and evaluation for results and impact. It is essential
that the granting of fiscal incentives is based on eligibility and performance criteria and
substantively aligned with industrial policy objectives.

Thus, all new incentives must be time bound, performance based, targeted, and transparent.
The administration of incentives also needs to be modernized and well-coordinated to ensure
‘optimum allocation and fair distribution to investments that will truly develop the economy.

This bill does not seek to remove incentives or punish firms that enjoy existing incentives.
Rather, this bill is a rebalancing of the interests of the present with the needs of future generations
who will benefit from a sustainable fiscal policy that promotes investments and increases the
‘country’s competitiveness.

This reform package is consistent with the principles of the recently passed Tax Reform for
Acceleration and Inclusion (TRAIN) Act (RA 10963), whose ultimate goal is to reduce poverty
through proper tax administration, industry development, investment promotion, and job creation.

In view of the foregoing, urgent approval of this bill is earnestly so

ke
SHAR‘ ;ARIN . BATOCABE


Republic of the Philippines
HOUSE OF THE REPRESENTATIVES
Quezon City

SEVENTEENTH CONGRESS
‘Second Regular Session

HOUSE BILL No.7364 _

Introduced by REP. SHARON S. GARIN, REP. RODEL M. BATOCABE

AN ACT RATIONALIZING THE GRANT AND ADMINISTRATION
OF FISCAL INCENTIVES

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

CHAPTER 1
TITLE AND DECLARATION OF POLICY

SECTION 1. Title. This Act shall be known as the “Fiscal Incentives
Rationalization Act”

SECTION 2. Declaration of Policy. The national economy shall be developed
through policies that encourage investments, promote countrywide development,
generate employment, and enhance global competitiveness while maintaining fiscal
prudence and stability at all times. Consistent with this, tax incentives must be simple,
time-bound, performance-based, and aligned with the country’s industrial policy.
Accordingly, the following are the declared policies ofthe State:

1. The State shall pursue a market-responsive regime and to that end shall ensure
that the incentives promote substantial positive social and economic spillovers
and equitable development, are fiscally sustainable and economically
justifiable, and are consistent with international treaties. The State shall
provide the means for ascertaining that these objectives are being attained.

2. The State shall grant the necessary incentives that encourage long-term and
recurrent investment, which are simple to administer, time-bound,
transparent, and whose performance and outcome are easily verifiable.

3. The State shall devote resources towards monitoring enterprises benefitting
from incentives, and shall vigorously prosecute abuses. The State shall 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.

4. The State shall make efforts to ascertain that the incentives are not redundant:
that the investments they benefit require and are truly motivated by the
incentives, and not given to investments that would be made even in absence
of incentives.

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


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SECTION 3. Definition of terms — As used herein, the following shall mean:

(a) ‘Investment Promotion Agencies (IPAs)' shall refer to government entities created
by law, executive order, or other issuance, in charge of promoting investment,
administering tax and non-tax incentives, and/or overseeing the operations of the
different economic zones and freeports in accordance with their respective
charters. These shall include the Board of Investments (BOD), Philippine Economic
Zone (PEZA), Bases Conversion and Development Authority (BCDA), Subic Bay
Metropolitan Authority (SBMA), Clark Development Corporation (CDC), John
Hay Management Corporation (JHMC), Poro Point Management Corporation
(PPMC), Bataan Technological Park Inc., (BTPI), Cagayan Economic Zone
Authority (CEZA), Zamboanga City Special Economic Zone Authority (ZCEZA),
PHIVIDEC Industrial Authority (PIA), Aurora Special Economic Zone Authority
(ASEZA), Aurora Pacific Economic Zone and Freeport Authority (APECO),
Authority of the Freeport Area of Bataan (AFAB), Tourism Infrastructure and
Enterprise Zone Authority (TIEZA), and all other similar authorities that may be
created by law.

() ‘Registered enterprise’ shall refer to any individual, partnership, corporation,
Philippine Branch of a foreign corporation, or other entity incorporated and/or
organized and existing under Philippine laws and registered with any of the IPAs,
whether established within or without a freeport or special economic zone, and
whose income shall be subject to taxes under the National Internal Revenue Code,
as amended; Provided, however, That the term “registered enterprise” in an
economic zone shall not include those entities engaged in activities such as, but not
limited to, customs brokerage; trucking or forwarding services; janitorial services;
security services; insurance and/or banking and other financial services;
consumers’ cooperatives; credit unions; consultancy services; retail business;
restaurants; and other similar services as may be determined by the Fiscal
Incentives Review Board (FIRB).

(c) The term ‘export enterprise’ shall refer to a registered enterprise which is a
manufacturer, processor, or service provider and whose export sale of its products
or services is at least seventy percent (70%) of its total annual production in the
preceding taxable year.

A registered enterprise engaged in the provision of information technology (IT)
services shall be considered as an export enterprise if at least seventy percent
(70%) of its services are paid for in freely convertible foreign currency.

Provided, however, that enterprises engaged in activities such as, but not limited
to, customs brokerage, trucking or forwarding services, parcel services, janitorial
services, security services, insurance and/or banking, or other financial services,
consumers’ cooperatives, credit unions, consultancy services, retail business,
restaurants, or such other services as may be determined by the board of the
concerned authority or the Fiscal Incentives Review Board (FIRB), within the
freeport and/or special economic zones, shall not be deemed as an export
enterprise.

(d)The term ‘domestic enterprise’ shall refer to a registered enterprise which
produces goods for sale or renders services exclusively for the domestic market or
which does not meet the minimum export requirement of an export enterprise.

(e) The term ‘capital equipment’ shall refer to machinery, equipment, major
components thereof, fittings and accompaniments, which form part of the direct
cost and are directly and reasonably needed in the registered activity of the
registered enterprise.


() The term ‘export sales of goods’ shall refer to the sales revenues of an export
enterprise 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:

1, The sale and actual shipment of goods from the Philippines to a foreign
country by an export enterprise;

2. Sales to diplomatic missions and institutions covered by international
treaty;

3. Sales of an export enterprise to an international sea or air transport
operations of goods, equipment, spare parts, and supplies, except: fuel,
forming part of direct costs and to be used in the aircraft or seacraft, and
capital equipment needed for the shipping or air transport operations;

(g) The term ‘export sales of services’ shall refer to the sales revenues and/or gross
receipts of an export enterprise, paid for in freely convertible foreign currency,
determined from contracts, invoices, vouchers, official receipts, or other
commercial documents of the following:

1. Services rendered to non-resident foreign clients by export enterprises;

2. Services rendered to diplomatic missions and institutions covered by
international treaty;

3. Services for the overhaul, repair, and maintenance of international
shipping, or air transport operations.

(h) The term ‘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, or tourist/recreational areas, whose metes and
bounds are fixed or delimited by presidential proclamations and are within a
specific geographical area. An ecozone may contain any or all of the following:
industrial estates (IEs), export processing zones (EPZs), information and
communications technology (ICT) parks and centers, and free trade zones;
Provided, however, that areas where mining extractions are undertaken shall not
be declared as ecozones. Provided further, that the ecozones should comply with
the minimum contiguous land area to be determined by the Fiscal Incentives
Review Board (FIRB).

(i) The term freeport zones’ shall refer to an isolated and policed area adjacent to a
port of entry, 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. However,
movement of these imported goods from the free-trade area to a non-free trade
area in the country shall be subject to all applicable internal revenue taxes and
duties.

(i) ‘Gross Income Earned’ shall refer to the gross sales or gross revenues derived by
the registered enterprise from its registered business activity net of sales discounts,
sales returns and allowances minus cost of sales or direct costs but before any
deductions for administrative, marketing, selling, operating expenses or incidental
losses during a given taxable year.

() ‘Strategic Investments’ shall refer to the list of industries, services, and other
economic activities eligible for incentives under this Act, prepared and determined
as priority activities in accordance with the Strategic Investments Priority Plan
(SIPP).


CHAPTER 2
QUALIFIED ACTIVITIES

SECTION 4. ‘Strategic Investments Priority Plan’ (SIPP). - The Board of
Investments (BOI), after consultation with the Department of Finance (DOF),
Department of Trade and Industry (DTI), National Economic and Development
Authority (NEDA), the concerned IPAs, and other government agencies such as the
Department of Labor and Employment (DOLE) and Department of Agriculture (DA), and
the private sector, shall submit to the Office of the President for its approval a Strategic
Investments Priority Plan (SIP).

The SIPP shall be prepared once every three years and submitted to the President for his
approval through an Executive Order not later than December of the year immediately
preceding the three-year period to be covered by the SIPP. The SIPP shall be subject to
review and amendment as the need arises.

In the listing of the activities in the SIPP, the following requirements shall be complied
with:

a. The activity shall be covered by the Philippine Development Plan or its
equivalent;

b. The activity shall be covered by the National Comprehensive Industrial
Strategy or its equivalent: provided, that the activity shall be neutral in terms
of nationality and market, and that those intended for the domestic market
shall be import-substituting or import-competing products or activities;

c. The activity’s performance shall be measurable in terms of export sales, actual
investments, actual job creation, investments in lagging regions as defined in
the SIPP, investment and employment in research and development, linkages
creation, and spill-over effects, among others;

d. The activity in regions with shares of 1.5% of GDP or lower, or in the 30 poorest
provinces, shall be given preference;

e. The SIPP shall assess qualified activities based on the following indicators:

1) Substantial amount of investments;

2) Considerable generation of full time employment;

3) Adoption of inclusive business activities and value-added production by
micro, small, and, medium-size enterprises (MSMEs);

4) Use of cleaner, energy-saving, and other relevant new technology;

5) Installation of adequate environmental protection systems;

6) Addressing gaps in the supply/value chain and/or moving up the value
chain or product ladder;

7) Stimulation of forward and backward linkages or creation of value added
activities;

8) Commercialization of ideas and introduction of innovation activities
whether product, process, marketing, or new business model;

The threshold amount of investments and employment generation required for a specific
activity to be granted tax incentives and retain the tax incentive shall be subject to periodic
review every three (3) years, taking into consideration international standards and other
indicators.


The specific activity must also comply with the specific qualifications, requirements,
conditions and/or limitations for a particular sector or industry, as set and determined by
the BOI.

SECTION 5. Amendments to the SIPP. Subject to publication requirements and
the criteria for investment priority determination, and consistent with national economic
development goals, the BOI may, at any time, include additional areas in the plan, alter
any of the terms of the declaration of an investment area, and temporarily or permanently
suspend activities on the plan if it considers that such activity is no longer a priority. In
no case, however, shall any amendment of the SIPP impair the incentives conferred on a
registered enterprise under the previous SIPP. The IPA shall not accept applications in
an area of investment prior to the approval of the same as a preferred area, nor after
approval of its deletion as a preferred area of investment.

SECTION 6. Publication of SIPP. Upon approval of the SIP, or upon approval
ofan amendment thereof, the SIPP or the amendment, specifying and declaring the areas
of investment shall be published in at least one (1) newspaper of general circulation,
within fifteen (15) days from the approval or amendment thereof, and all such areas of
investment shall be open for application until the publication of an amendment or
deletion thereof.

SECTION 7. Qualifications for Export Activities. — Export activities are entitled
to fiscal incentives, provided, that said activities comply with the following:

a. The activity earns substantial foreign exchange;

b. The activity shows progressively increasing value-addition; and

c. The activity shows progressively increasing linkages to the domestic economy.

The required minimum levels of foreign exchange earnings and contribution to the
domestic economy necessary for a specific activity to be granted and to retain the tax
incentives under this Section shall be subject to periodic review every three (3) years,
taking into consideration international standards and other indicators.

CHAPTER 3
QUALIFIED REGISTERED ENTERPRISES

SECTION 8. Qualified Enterprises. ~The following may register with an IPA to avail
of the incentives provided in this Act:

a) Export enterprises, with special provisions applicable to the extractives industry;
and
b) Domestic enterprises under the Strategic Investments Priority Plan (SIPP).

SECTION 9. Qualifications of a registered enterprise for tax incentives. - a
registered enterprise must satisfy the following conditions for consideration in the review
and grant of tax incentives:

A. Itwill engage in an activity included in the SIPP;

B. If the applicant is engaged or proposes to engage in activities other than the
registered activity, it shall install an adequate accounting system that shall
identify the investments, revenues, costs and profits or losses of each registered
project undertaken by the enterprise separately from the aggregate
investments, revenues, costs and profits or losses of the whole enterprise, or
establish a separate corporation for each registered project if the IPAs should
so require;


C. Itshall satisfy the performance targets set forth in the SIPP in relation to export
sales, actual investments, actual job creation, investments in lagging regions as
defined in the SIPP, investment and employment in research and development,
and investment and employment in intermediate parts and components,
supplies, and raw materials, among others.

D, It shall regularly report and comply with the relevant reportorial requirements
under Republic Act No. 10708 or the TIMTA law, and under this Act.

Non-compliance with any of the above-mentioned conditions shall cause the revocation
of the tax incentives granted and the registered enterprise shall be liable to the penalties
under this Act.

CHAPTER 4
INCENTIVES

SECTION 10. General Provisions. All existing and future IPAs shall recommend
the grant of tax incentives provided in this title to the FIRB for its approval. The period
of availment of incentives shall be reckoned from the start of commercial operation of the
enterprise.

All existing and future export enterprises and strategic enterprises may only be granted
fiscal incentives under this Act: Provided, That the incentives granted under this Act shall
be applicable only to the extent of the registered activity or project only. Income derived
by the enterprise from non-registered activities or projects shall be subject to appropriate
taxes under the National Internal Revenue Code (NIRC), as amended.

Registered activities for which fiscal incentives have been granted and fully utilized by the
enterprise shall no longer be eligible for the incentives under this Act for the same
activities: Provided, 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
five (5) years from the effectivity of this Act, whichever comes first.

SECTION 11. Existing charters of IPAs. ~The IPAs shall maintain their functions
and powers as provided under the special laws governing them except to the extent
modified by the provisions of this Act, such as those pertaining to the review and grant of
tax incentives.

SECTION 12. Incentives to Registered Export Enterprises. ~ The following tax
and customs duty incentives may be granted to qualified registered enterprises, subject
to the review and approval of the FIRB.

(a) Income tax holiday (ITH). - An income tax holiday may be granted for three
(3) years following the effectivity of this Act to a newly-registered export
enterprise.

Provided, that after the period of ITH, one of the following incentives may be
applied for a period not exceeding five (5) years, which includes the period of
ITH.

1, Preferential Tax — Registered export enterprises shall have an
option between the preferential tax rate of fifteen percent (15%)
on taxable income as defined under Section 31 of the National
Internal Revenue Code, as amended; or

2, Five percent (5%) of the gross income earned in lieu of all
national and local taxes, except value-added tax (VAT) and real


property tax on land. The five percent (5%) of the gross income
earned by the registered export enterprises shall be paid and
remitted as follows:
i. Sixty percent (60%) to the National Government; and
ii, Forty percent (40%) to the treasurer’s office of the
municipality or city where the enterprise is located.

Once a registered export enterprise has made an option provided in this
subsection, such option shall be irrevocable for the duration of its registration.

(b) Double deduction for Research and Development. ~ Expenses incurred for
research and development relating to the business activity of the registered
export enterprise, identified and approved as such by the appropriate
government agency/ies, shall be deductible from gross income for income tax
purposes to the extent of 200% on the year the said research and development
expenses were incurred.

(c) Double deduction for Training. - expenses incurred for training given to
employees by the registered export enterprise for the development of skills of
its employees, identified and approved as necessary by the appropriate
government agency/ies shall be deductible from the gross income for income
tax purposes to the extent of two hundred percent (200%) on the year the said
training expense was incurred.

‘The same incentive under this subsection may be applied to expenses incurred
for mandatory internship or apprenticeship of senior high school, college or
technical and vocational students enrolled in public institutions administered
by the registered export enterprise. Provided, however, that in line with such
programs, the registered export enterprise shall closely coordinate with the
Department of Education (DepEd), Technical Education and Skills
Development Authority (TESDA), or Commission on Higher Education
(CHED), for the same.

() Additional deduction for labor expense. — a registered export enterprise may be
allowed an additional deduction from its taxable income of fifty percent (50%)
of the wages corresponding to the increment in the number of its direct labor
generated per year.

(e) Accelerated Depreciation. — accelerated depreciation of plant, machinery, and
equipment that are reasonably needed and actually used for the production and
transport of goods and services by the registered export enterprise 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 provision of the
National Internal Revenue Code, as amended.

(£) Customs duty incentives. — registered export enterprises qualified for incentives
may be exempted to the extent of one hundred percent (100%) of the customs
duty, allowed for a maximum of five (5) years, on imported capital equipment,
machinery, and spare parts exclusively used for capital equipment and
machinery, all including consignment thereof, raw materials used in the
manufacture, processing of products, and importation of source documents by
the registered enterprise. Provided, that the duty-free importation shall be used
exclusively for the registered export activity of the enterprise. Provided further,
that expansion of registered activities may be granted duty exemption on capital
equipment only, subject to the following conditions:


1, The activity is still covered by the Strategic Investments Priority
Plan (SIPP);

2. Customs duty exemption will only apply on the incremental
portion of the activity; and

3. The customs duty exemption extension shall not exceed five (5)
years.

Provided, further, that:

i. The capital equipment and/or spare parts is directly aud
reasonably needed and will be used exclusively in and as part of the
direct cost of the registered activity of the registered enterprise,
and are not manufactured domestically i in sufficient quantity, of
comparable quality and at reasonable prices. Prior approval of the
FIRB may be secured for the part time utilization of said
equipment in a non-registered activity to maximize usage thereof,
provided the proportionate taxes and duties are paid on a specific
equipment and machinery in proportion to its utilization for non-
registered activities. In the event that it shall be used for non-
registered activity of the registered enterprise at anytime within
the first five (5) years from date of importation, the registered
enterprise shall first seek prior approval of the FIRB, and pay the
taxes and customs duties that were not paid upon its importation;
and

ii, ‘The approval ot the FIRB was obtained by the registered enterprise
prior to the importation of such capital equipment and/or spare
parts.

Provided further, that: Approval of the FIRB must be secured before any sale,
transfer or disposition of the capital equipment and/or spare parts which was
granted tax and customs duty exemption hereunder is made, and it shall be
allowed only under the following circumstances: (A) If made to another
enterprise enjoying customs duty exemption on imported capital equipment
and/or spare parts; (B) If made to another enterprise not duty exemption on
imported capital eipment and/or spare parts, upon payment of any taxes @
and duties due on the net book value of the capital equipment and/or spare
parts to be sold; (C) Exportation of capital equipment, machinery, spare parts
or source documents, or those required for pollution abatement and control;
or (D) For reasons of proven technical obsolescence.

Provided, that if the registered enterprise sells, transfers or disposes the
aforementioned imported items without prior approval, the registered
enterprise and the vendee, transferee, or assignee shall be solidarily liable to
pay twice the amount of the duty exemption that should have been paid during
its importation. Provided further, that even if the sale, transfer or disposition
of the capital equipment was made after five (5) years ftom date of importation
with the approval of the FIRB, the registered 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.

Duty exemption on raw materials.- importation of raw materials, supplies, and
semi-finished products by export enterprises inside or outside the ecozone or
freeports may be exempted to the extent of one hundred percent (100%) of the
duty, provided, that the raw materials, supplies, and semi-finished products
imported are exclusively used by an export enterprise in the manufacture,
processing or production of the export products covered by its registered activity
and it actually forms part of the product exported.


SECTION 14. Special provision on extractives industry. Enterprises in the
extractives industry or entities engaged in the exploration, extraction, development or
disposition of oil, gas and mining resources, registered as export enterprises or
qualifying under the SIPP, are entitled to receive the incentives, provided, that said
enterprises are engaged in the intermediate processing, or the upgrading of the mined
minerals into concentrates and/or transforming them into intermediate products, of
100% of their output.

CHAPTER 5
ADMINISTRATION OF TAX INCENTIVES

SECTION 15. Scope and coverage. This title shall cover all existing investment
promotion agencies (IPAs) as defined in this code or related laws, and all other IPAs and
other similar authorities that may be created by law.

The existing IPAs are the Board of Investments (BOD), Philippine Economic Zone (PEZA),
Bases Conversion and Development Authority (BCDA), Subic Bay Metropolitan Authority
(SBMA), Clark Development Corporation (CDC), John Hay Management Corporation
(JHMO), Poro Point Management Corporation (PPMC), Bataan Technological Park Inc.,
(BPD), Cagayan Economic Zone Authority (CEZA), Zamboanga City Special Economic
Zone Authority (ZCEZA), PHIVIDEC Industrial Authority (PIA), and Aurora Special
Economic Zone Authority (ASEZA), Aurora Pacific Economic Zone and Freeport
Authority (APECO), Authority of the Freeport Area of Bataan (AFAB), Tourism
Infrastructure and Enterprise Zone Authority (TIEZA).

IPAs shall maintain their functions as provided for in their respective Charters except to
the extent modified by the provisions of this Act.

SECTION 16. Duties and responsibilities of IPAs. The following are the duties
and responsibilities of IPAs:

a) Use their resources to attract the types of investments qualified under the
Strategic Investment Priority Plan (SIPP), which is then aligned with the
Philippine Inclusive Innovation Industrial Strategy, or the country’s
comprehensive national industrial strategy;

b) Adopt uniform and consistent procedures of administering incentives,
monitoring the recipients, and to coordinate efforts in this regard;

©) Adopt and implement systems and procedures affecting trade and customs
policies in accordance with the requirements jointly set by the Fiscal Incentives
Review Board;

d) Submit data and information to the Fiscal Incentives Review Board to
ascertain consistency of investments policies and incentives, including their
implementation, and to ensure the proper implementation of systems and
procedures affecting trade and customs policies;

e) Perform all other duties as may be required in relation to the foregoing.

SECTION 17. Application for Incentives with the IPAs. Based on the application
for incentives received from a registered enterprise, the IPAs shall recommend the
incentives that may be granted to the respective registered enterprises under their
jurisdiction. The IPAs shall transmit the said recommendation to the Fiscal Incentives
Review Board (FIRB) within a period of thirty (30) days from the IPA’s finalization of its
recommendation. The IPAs shall also be responsible in collecting, consolidating and
processing data in relation to the respective tax expenditures based on the computed cost


Provided, that registered activities prior to the effectivity of this act relocating from Metro
Manila and selected areas of Regions III and IV-A to other areas of the country may be
allowed a one-year income tax incentive as relocation incentive.

Unless o

therwise provided under this Section, a registered export enterprise may avail of

the foregoing incentives for the entire duration of registration of the enterprise, provided

that the

registered export enterprise complies with the requirements applicable to the

same under this Act.

SECTION 13. Incentives to Registered Non-Export Enterprises in the Strategic
Investments Priority Plan. The following tax and customs duty incentives may be granted
for qualified registered domestic enterprises, subject to the review and approval of the
FIRB.

a) Preferential Tax Rate — Registered domestic enterprises shall be provided

with a preferential tax rate of fifteen percent (15%) on taxable income as
defined under Section 31 of the National Internal Revenue Code, as amended.

b) Double deduction for Research and Development. — Expenses incurred for
research

and development relating to the business activity of the registered
domestic enterprise, identified and approved as such by the appropriate
government agency/ies, shall be deductible from gross income for income tax
purposes to the extent of 200% on the year the said research and development
expenses were incurred.

©) Double deduction for Training. - expenses incurred for training given to

employees by the registered enterprise for the development of skills, identified
and approved as necessary by the appropriate government agency/ies, shall be
deductible from the gross income for income tax purposes to the extent of two
hundred percent (200%) on the year the said training expense was incurred.

‘The same incentive under this subsection may be applied to expenses incurred
for mandatory internship or apprenticeship of senior high school, college or
technical and vocational students enrolled in public institutions administered
by the registered export enterprise. Provided, however, that in line with such
programs, the registered export enterprise shall closely coordinate with the
Department of Education (DepEd), Technical Education and Skills
Development Authority (TESDA), or Commission on Higher Education
(CHED), for the same.

4) Additional deduction for labor expense. — a registered domestic enterprise

8)

may be allowed an additional deduction from its taxable income of fifty percent
(50%) of the wages corresponding to the increment in the number of its direct
labor generated per year.

Accelerated Depreciation — accelerated depreciation of plant, machinery, and
equipment that are reasonably needed and actually used for the production
and transport of goods and services by the registered domestic enterprise 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 provision of the
National Internal Revenue Code, as amended.

Provided, that registered activities prior to the effectivity of this act relocating from Metro
Manila and selected areas of Regions III and IVA to other areas of the country may be
allowed a one-year income tax incentive as relocation incentive.


in terms of revenue foregone on the tax incentives granted to their respective enterprises,
and other data related to the grant of investment incentives, on a quarterly basis. Such
data collection and processing shall cover all the registered enterprises under the IPA’s
jurisdiction including those whose incentives are provided for by investment incentive
laws prior to the effectivity of this Act.

Application for incentives shall be filed with the IPA, and evaluated based on the
following:
a) Impact of the project on the overall economy and fiscal sustainability
b) Overall viability of the project or activity
c) Extent of employment and skills generation
d) Extent to which technological advances are applied and adopted to local
conditions
) The extent to which supply linkages would be formed with domestic enterprises
f) Extent to which the output supports national export objectives
Extent to which incentives contribute to the reduction of poverty and inequality
h) Extent to which incentives promote investments that help improve the quality
of the environment

All registered enterprises are required to file all their tax returns using the
electronic/online facilities of the Bureau of Internal Revenue (BIR). In availing of the
income tax-based incentives, the registered enterprise shall be required to secure a
certificate of entitlement issued by the FIRB and attach the same to Its Income Tax Return
(ITR) or Annual Information Return (AIR), whichever is applicable. Thereafter, the
registered enterprise shall file its claim with the BIR.

Failure to secure and attach the certification to the ITR or AIR, and/or file the incentive
availment application shall cause the forfeiture of the incentive for that taxable period.

SECTION 18. Certificate of Registration. A registered enterprise that qualified as
a tax incentive beneficiary shall be issued a certificate of registration under the seal of the
corresponding IPA with the signature of its Director-General and/or such other officer or
employee of that IPA as may be authorized, and of a duly authorized representative of the
FIRB. The certificate shall be in such form and style as the Board may determine and shall
state, among others, the following informati
a) The name of the registered enterprise;
b) The area of investment in which the registered enterprise is proposing to
engage;
©) The type of the activity the registered enterprise is undertaking or proposing to
undertake; and
d) The other terms and conditions to be observed by the registered enterprise by
virtue of the registration.

SECTION 19. Validity of Registration. The certificate of registration issued under
this Act shall be valid fora period of ten (10) years from the start of commercial operations
of the registered enterprise.

The validity period is non-extendible except in the event that the registered enterprise has
suffered operational force majeure that has impaired its viability, equivalent for the
period thereto, and subject to the approval of the FIRB.

CHAPTER 6
THE FISCAL INCENTIVES REVIEW BOARD

SECTION 20. The Fiscal Incentives Review Board. The Fiscal Incentives Review
Board (FIRB) created under Presidential Decree No. 776, as amended by PD 1931 and PD
1955, and Office of the President Memorandum Order No. 23 series of 1986, and


Executive Order No. 93 series of 1986, is hereby granted sole authority to approve all
applications for tax incentives recommended by the administering Investment Promotion
Agency (IPA) as defined under this Act. Provided, however, That applications for
incentives shall be acted upon by the FIRB within sixty (60) days upon submission by the
IPA of its recommendation together with the complete attachments for application
required from the applicant. Failure to act within the aforementioned period shall mean
that the application for incentives by the concerned enterprise is considered
recommended.

The FIRB shall be reorganized and shall be composed of representatives from the
following government agencies:

a) Department of Finance (Chair);

b) Department of Trade and Industry;

¢) National Economic Development Authority;

d) Department of Budget and Management

e) Department of Labor and Employment;

In carrying out the tasks of the FIRB, the member government agencies shall consult
pertinent agencies such as the Department of Science and Technology, Department of
Environment and Natural Resources and the Department of Agriculture, as may be
necessary.

The Fiscal Incentives Review Board (FIRB) shall have the following functions and powers:

a) To review all incentives applications being endorsed by IPAs based on the
standards provided in this Act;

b) To monitor, review, and coordinate decisions of all IPAs in relation to the
endorsement and availment of tax incentives;

©) To review and endorse, for approval of the Secretary of Finance, the grant of
investment tax incentives as recommended by the IPAs;

@) Tocreate a single database of all incentives provided by all IPAs, containing the
names of the registered enterprises or beneficiaries of tax incentives with
approved estimated amount of the corresponding incentives. The Fiscal
Incentives Review Board shall monitor and review the incentives granted to the
registered enterprises, and publish an annual report available to the public in
relation to the TIMTA law and this Act. Such annual report shall contain
indicators such as actual investments, employment generation, production and
exports, to demonstrate the effect of the approved fiscal incentives;

e) To approve, deny, suspend, revoke applications for registration with IPAs,
impose terms and conditions as it may deem necessary to promote the purposes
of this Act, including the refund and forfeiture of incentives when appropriate,
restrict availment of incentives not needed by the enterprise as determined by
the FIRB, and require payment of application, registration, publication, and
other fees when warranted.

f) Cancel the registration or suspend the incentives of a registered enterprise
and/or require refund as well as impose interest and monetary penalties. The
FIRB shall recommend to the appropriate agency to levy the properties of the
registered enterprise for grave failure to comply with the substantive terms and
conditions of its registration; provided, however, that the registration of an
enterprise whose project timetable for implementation, as approved by the
FIRB, is delayed by one year shall be automatically considered cancelled, unless
otherwise reinstated as a registered enterprise by the FIRB.


g) Monitor and evaluate the development and requirements of registered
enterprises and recommend to relevant authorities the appropriate incentives
required or to be made available for said enterprises.

h) Decide controversies arising from the implementation of this Act that may arise,
within thirty (30) days after the controversy has been submitted for decision;
Provided, that the enterprise may appeal the decision by the FIRB within thirty
(30) days from receipt thereof to the Office of the President. The Board shall
have the power to subpoena witnesses, administer oaths, and compel the
production of books, papers and other evidence and cite for contempt any
person/organization that fails to comply with the aforestated processes;
provided further, that the Board may grant immunity from prosecution to any
person whose testimony or document or other evidence is necessary to the case.

Provided further, that the Secretary of Finance shall automatically be the co-chair of all
the existing and future IPAs.

Provided finally, that the National Economic and Development Authority (NEDA) shall
bea member of all IPAs, both existing and future.

CHAPTER 7
FISCAL INCENTIVES REPORTING AND MONITORING

SECTION 21. Reporting of fiscal incentives. -The IPAs shall submit a report,
specifically containing the names of the registered enterprises or beneficiaries of tax
incentives with approved amount of the corresponding incentives, to the Philippine
Statistical Authority, Congress and to the FIRB, within sixty (60) days from the statutory
deadline for filing of the relevant tax returns as mandated by the Bureau of Internal
Revenue.

SECTION 22. Monitoring of results. — Data related to performance criteria and
outcomes set forth in Section 4 of this Act, such as data on export sales, actual
investments, actual number of jobs generated, investments in lagging regions as defined
in the SIPP, investment in research and development, linkages creation, introduction of
new technology and other spill-over effects brought about by the registered enterprise,
shall be monitored and properly collected on a yearly basis by the Philippine Statistical
Authority in coordination with the FIRB. Said data shall be a basis by the FIRB for its
regular review and monitoring of fiscal incentives to be granted under this Act.

SECTION 23. Publication of information on fiscal incentives and their results. —
‘The FIRB and the PSA shall annually publish and make available to the public the data
collected and processed under Sections 21 and 22 of this Act.

CHAPTER 8
FINAL PROVISIONS

SECTION 24. No double registration of enterprises. — registered enterprises
shall not be allowed to register their activities in more than one (1) IPA. In the event that
an enterprise shall transfer to another IPA, only the remaining unutilized incentives may
be granted to the enterprise or the transfer, vendee, or assignee.

SECTION 25. Investments prior to the effectivity of this Act. — Existing
registered enterprises granted the income tax holiday shall be allowed to
continue with the availment of the said incentive for the remaining period of
the ITH or for a period of five (5) years only, whichever is shorter.


SECTION 26. Suspension and forfeiture of tax incentives of registered
enterprises, refund and penalties; waiver and condonation. — Any enterprise which
violates any provision of this Act, its implementing rules and regulations, the terms and
conditions of its registration or any lawful directive of the FIRB or of the concerned IPA,
or in the availment of the incentives, including all official reports to be submitted to the
FIRB, shall be subject to a fine not exceeding One Million Pesos (P1,000,000) but without
prejudice to the 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) but not to exceed Ten million pesos (P10,000,000) shall
be imposed, in addition to other penalties that may be imposed by the FIRB.

When there is probable cause to believe that the registered enterprise has violated its
registration terms and conditions, the IPA or the FIRB may suspend its availment of
incentives, unless proven otherwise, after due notice and hearing.

In case of cancellation of the certificate of registration granted under this act, the BIR, in
coordination with the FIRB, will require the payment of incentives assessed to have been
granted to the said enterprise for its registered activity and impose corresponding fines
and penalties.

SECTION 27. Effectivity of Implementing Rules and Regulations. The
Department of Trade and Industry (DTI), Department of Finance (DOF), National
Economic Development Authority (NEDA), in consultation with the IPAs, the BIR, and
the BOC, and other concerned government agencies, shall promulgate the rules and
regulations to implement the intent and provisions of this Act.

SECTION 28. Repealing Clause. — All other laws, acts, presidential decrees,
executive orders, issuances, presidential proclamations, rules and regulations or parts
thereof which are contrary to or inconsistent with any provision of this Act are hereby
repealed, amended or modified accordingly.

SECTION 29. Separability Clause. — If any provision of this Act is declared
invalid and unconstitutional, the other provisions which are not affected thereby shall
remain in force and effect.

SECTION 30. Effectivity. This Act shall take effect on January 1, 2019 or fifteen
(15) days following its publication in the Official Gazette or in a newspaper of general
circulation, whichever is earlier.

Approved.

Approved,