Republic of the Philippines
HOUSE OF REPRESENTATIVES
QUEZON CITY

First Regular Session
FIFTEENTH CONGRESS

House Bill No.__3162

Introduced by: HON. GLORIA MACAPAGAL ARROYO

EXPLANATORY NOTE

Investments have always been regarded as a major pillar in the
development of the national economy. Past administrations have always worked
for an economy which fosters an environment conducive for investments. More
investments translate to more employment opportunities, and spur economic
activities. It is envisioned that investments in identified strategic economic areas
such as in Clark, Subic, Cagayan, Zamboanga, Aurora, Bataan will result in
greater economic activities and development throughout the country.

To attract investments, the government has continually pursued several
strategies such as streamlining of government processes as well as the granting
of fiscal and non-fiscal incentives. Fiscal incentives may take the form of tax
incentives such as income tax holidays, tax and duty exemptions on imported
capital equipment and raw materials, tax credit, exemption form local taxes,
among others. These are offered to investors under various incentive laws and in
some cases become redundant.

The fiscal costs to government of these incentives in the form of foregone
revenue amount to about P47B. This amount could substantially fund basic
social services in the form of more school buildings, more hospitals, or more
infrastructure facilities like more roads, bridges, ports, among others.

Since these incentives are provided under different laws with differing
provisions, there is an urgent need to rationalize and harmonize such incentives,
A balance must be formulated between the need to attract investment, thus,
offer attractive fiscal incentives on one hand and exercise prudence in granting
these incentives.

To address this problem of redundant incentives, there is a need to
legislate a law that will rationalize these fiscal incentives.

This proposed legislative measure seeks to: 1) promote exports equally
regardless of their location, whether outside or inside economic zones; 2)
promote countryside development by granting reduced income tax incentives to
investors investing in the 30 poorest provinces; 3) eliminate competition among
ecozone administrators on account of unequal tax incentives regimes by
eliminating existing redundant tax incentives found in all incentive laws and


replacing them with either a reduced income tax package or a gross income tax
package; and, (4) introduce institutional reforms by enhancing capacities and
dlarifying the mandates and roles of concerned agencies at the same time
strengthening the monitoring and reporting processes and mechanisms in the
implementation of these incentives.

This measure on rationalization of fiscal incentives has long been under
consideration by Congress. There is urgency in passing this measure as it will
save billions upon billions of revenue that would otherwise be lost.

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HON/GLORIA MACAPAGAL ARROYO


Republic of the Philippines
HOUSE OF REPRESENTATIVES
QUEZON CITY

First Regular Session
FIFTEENTH CONGRESS

House Bill Nod 162

Introduced by: HON. GLORIA MACAPAGAL ARROYO

AN ACT RATIONALIZING THE GRANT AND ADMINISTRATION OF
FISCAL AND NON-FISCAL INCENTIVES, AND FOR OTHER PURPOSES

PRELIMINARY TITLE
‘TITLE AND DECLARATION OF POLICY

SECTION 1, Title. - This Act shall be known as “The Consolidated
Investments Incentives Code of the Philippines”.

SEC. 2. Declaration of Policies. - The national economy shall be developed
to enhance its competitiveness in the global economy and encourage investments
that promote countrywide development, generate employment and foreign
exchange. Accordingly, the following are declared policies of the State:

(1) The state shall ensure that investment incentives shall promote
substantial social and economic spillovers, equitable development across income
classes and cross 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.

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

(@) 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.

(4) In the granting of fiscal incentives, the State will make efforts to
ascertain that the incentives are not redundant: that the investments they benefit
require and truly motivated by the incentives, as much as possible, are not given
to investors who would have made the investments even the absence of
incentives.


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TITLE
DEFINITION OF TERMS
SEC.3. Definition of terms ~ As used herein, the following shall mean:

“Investment Promotion Agencies (IPAs) “ shall include the Philippine
Economic Zone Authority (PEZA), Bases Conversion and
Development Authority (BCDA), Subic Bay Metropolitan Authority
(SBMA), Clark Development Corporation (CDC), John Hay
Management Corporation (HMC), Poro Point Management
Corporation (PPMC), Bataan Technology Park Inc. (BTPI), Cagayan
Economic Zone Authority (CEZA), Zamboanga City Special Economic
Zone Authority (ZCSEZA), PHIVIDEC Industrial Authority (PIA), and
Aurora Special Economic Zone Authority (ASEZA) and such other
ezonomic zones created by law.

“Registered enterprise” is 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: Provided, however, That the term “registered
enterprise” in an economic zone shall not include any of the following
services 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 IPA Board, duly accredited and/or
licensed by any of the IPAs and whose income derived within the
‘economic zones shall be subject to taxes under the National Internal
Revenue Code of 1977 as amended.

“Gross income earned” is 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.

“Export sales” is the sales values and/or revenues paid for in freely
convertible foreign currency, determined from invoices, bills of
landing, inward letters of credit, landing certificates, or other
commercial documents, by a registered enterprises of its (1) products
shipped out of the country and sold in the territory of another country
or (2) services rendered to clients abroad such as but not limited to
information technology (IT) activities, application and/or installation
of technology and systems in the project sites, including but not
limited to the fields of engineering and construction design and other
similar activities which may be approved by the IPA Board, excluding
mere deployment of people or individual practice of profession
abroad; or (3) logistics, repair and maintenance, and other similar
services rendered to international airlines/shipping, lines/military
aircraft or sea craft even if rendered locally.


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“Tax refund” is any refund against taxes and/or duties equal to those
actually paid by a registered export enterprise and to be released by
DOF as provided for under Section 8 of this Act.

“Information Technology Activities” are activities which involve the
use of any IT software and/or system for value addition, IT, being
collective term for various technologies involved in processing and
transmitting information which include computing, multimedia,
telecommunications, microelectronics and their interdependencies,
including the convergence of various information-based, broadcast
and mass media communication technologies.

“Export Enterprise” is a registered 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 output.

“Domestic Enterprise” is a registered enterprise whose export is less
than seventy percent (70%) of its output, and is located in the thirty
(80) poorest provinces as determined by the Department of Finance
(DOF): Provided, that such domestic enterprise has a minimum
investment of five hundred million pesos (500,000,000)or can provide a
minimum employment of two hundred(200) jobs: Provided further, that
existing enterprises already located in the thirty (30) poorest as
determined by the Department of Finance (DOF) before the effectivity
of this Act and have satisfied the minimum investment of five
hundred million pesos (500,000,000)or can provide a minimum
employment of two hundred(200) jobs are qualified to register and
avail of the incentives provided in this Act.

“Capital Equipment” refers to machinery, spare parts, tools and dies,
or those required for pollution abatement and control, cleaner
production and water reduction.

“Source documents” are input materials and documents reasonably
needed by IT and IT-enabled industries such as, but not limited to,
books, directories, magazines, newspapers, brochures, pamphlets,
medical records/files, legal records/files, instruction materials,
drawings/blueprints/ outlines.

“Processing” is converting raw materials into marketable form through
physical, mechanical, chemical, electrical, biochemical, biological or
other means, or by a special treatment or a series of actions, such as
slaughtering, milling, pasteurizing, drying or desiccating, quick
freezing, that results in change in the nature or state of the products.
Mere packing or packaging shall not constitute processing.

“Industrial Estate (IE)” refers to a tract of land subdivided and
developed according to a comprehensive plan under a unified
continuous management and with provisions for basic infrastructure
and utilities, with without pre-built standard factory buildings and
community facilities for the use of a community of industries.


“Export Processing Zone (EPZ)" refers to a specialized industrial estate
and predominantly oriented to export production.

(n) “Special Economic Zones (SEZ)" hereinafter referred to as ecozones,
are selected areas with highly developed or which have the potential
to be developed into agro-industrial, industrial, information
technology, tourist/recreational centers. An ecozone may contain any
or all of the following: industrial estates (IEs), export processing zones
(EPZs), IT parks and centers, and tourism estates,

(0) “Tourism Estate” is a tract of land with defined boundaries, suitable
for development into an integrated resort complex, with prescribed
carrying capacities, of tourist facilities, and activities, such as, but not
limited to, sport and recreation centers, accommodations, corivention
and cultural facilities, food and beverage outlets, commercial
establishments and other special interest and _ attraction
activities/establishments, and provided with roads, water supply
facilities, power distribution facilities, drainage and sewage system.
And other necessary infrastructures and facilities. A tourism estate
shall be under unified and continuous management, and can either be
a component of an ecozone or the whole ecozone itself,

(p) “Freeport” is an isolated and policed area adjacent to a port of entry as
defined by 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. However, movement of these imported
goods from the free-trade area to a non-free-trade in the country shall
be subject to import duties and taxes.

‘TITLE I
ADMINISTRATION OF FISCAL AND NON-FISCAL ENCENTIVES

SECA. Role of Department of Finance (DOF) ~ The DOF shall be the primary
agency in charge of formulating the tax and non-tax incentives policies in the
country. In doing so, it shall consult the National Economic and Development
Authority (NEDA), Department of Trade and Industry (DTI), Department of
Budget and Management (DBM), in so far as these incentives policies impact on
the country’s economic development plan, the investment strategies and national
government expenditure program.

The DOF shall be consulted on the implications on the fiscal program of
project applications which are to be granted tax incentives by the respective
IPAs.

The DOF shall monitor the implementation of tax and non-tax incentives
to registered enterprises by the different IPAs. Said IPA shall prepare and submit
quarterly reports of the tax and non-tax incentives granted and other relevant
data, and submit the same to the DOF, in accordance with Section 17 of this Act.


Over the medium-term, the DOF, in consultation with NEDA, DTI and
DBM, shall evaluate the adoption of a tax expenditure budget for fiscal
incentives, and when deemed necessary and advantageous to the government,
shall prose this as part of the annual General Appropriations Act

SECS. Role of the Board of Investments. - The Board of Investment (BON),
created under Executive Order No. 226 is hereby restructured to be the primary

agency in charge of investment promotions in the country. It shall be charged
with the following functions:

1) developing of an investment promotion strategy for the Philippines;
2) building effective partnership towards investment promotion;

3) targeting, anticipating and generating investment opportunities;

4) identifying effective marketing approaches; and

5) servicing investment clients’ needs.

The functions of the BOI under BO 226 in so far as registration of
enterprise and administration of fiscal and non-fiscal incentives thereto are
hereby transferred to the PEZA. The function of the BOI under EO 226 pertaining
to the formulation of the investment priorities plan is hereby abolished.

SEC6 Role of PEZA and other IPAs, - The PEZA and all other IPAs shall
implement investment laws in accordance with their respective charters except
the provisions therein on investment incentives which shall be replaced by the
investment incentives provided under this Act. Such incentives shall be
applicable prospectively to registered investors of these IPAs from the effective
Act.

‘The PEZA, notwithstanding the provisions of Republic Act 7916, as
amended, shall have the additional mandate of registering and administering
investment incentives to enterprises outside of the economic zones and free ports
that may qualify for tax and non-tax incentives under this Act.

TITLE IIL
FISCAL AND NON-FISCAL INCENTIVES
‘TO REGISTERED EXPORT AND DOMESTIC ENTERPRISES

SEC. Incentives to registered Export Enterprises.- The PEZA and other IPAs
may administer the following tax incentives to their respective registered export
enterprise:

(a) Income Tax Holiday - 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 the ITH shall be granted in a decelerating manner
as indicated in the following schedule until its complete phase-out after
three (3) years:


1) Three (3)- year ITH for export enterprises registering on the 1s year of
effectivity of the Act;

2) Two (2-year ITH for export enterprises registering on the 2! year of
effectivity of the Act; and

3) One (1)- year ITH for export enterprises registering on the 3rd__year of
effectivity of the Act.

Provided, further, that the period of ITH, the registered export enterprise may
apply for either the reduced income tax incentives package or the gross income-
based incentives packaged upon evaluation and approval by the concerned IPA.

(b) Reduced Income Tax Incentive Package. - The following tax incentives
package may be applied for by the registered export enterprise/s and
administered by the concerned IPAs: Provided, That for this purpose, the
export enterprise may either be a newly-registered enterprise under this
Act or a previously-registered enterprise with any of the IPAs whose
incentives under the charter of its respective IPA had lapsed prior to the
effectivity of this Act but which is expanding its export operations
through investment in accordance with rules and regulations of the
respective IPAs: Provided, however, That in the case of a previously-
registered and expanding enterprise, the incentive shall apply on the
expansion investment only.

1) Imposition of a preferential tax rate of twenty-five (25%) of taxable
income as defined under Section 31 of the National Internal Revenue
Code of 1977, as amended.

2) Double Deduction for Training - Expenses for training given to
employees by the registered export enterprise for the development of
skills, identified and approved as necessary by the appropriate
government agency/ies, shall be deductible from gross income tax
purposes to the extent of 200% on the year the said training expenses
were incurred.

3) Double Deduction for Research and Development - Expenses
incurred for research and development relating to the business activity
of the registered export enterprise, identified 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.

4) Net Operating Loss Carryover (NOLCO)- The net operating loss of
the registered export enterprise during the first five (5) years from
start of commercial operation which had not been previously offset
as deduction from gross income shall be carried over as a
deduction from gross income for the next five (5) years
immediately following the year of such loss: Provided, however,
‘That the operating resulting from availment of incentives provided
under this Act shall not entitled to NOLCO: Provided, finally, That
after the availment of NOLCO of registered export enterprises
under this provision, the pertinent provisions under the National
Internal revenue Code of 1997, as amended, shall apply.


5) 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 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 of 1997, as amended.

(©) Gross Income Tax Package.- Instead of the above Reduced Income Tax
Package, the registered export enterprise/s may choose and apply with
the concerned IPA for the five percent (5%) tax of the gross income earned
in liew of all national and local taxes, except real property tax on land.
Once the registered export enterprise/s has/have made the choice, such
choice shall be irrevocable for the duration of its registration.

The five percent (5%) tax on gross income earned by registered
export enterprises shall be paid, allocated and remitted in accordance with
existing provision of laws.

For the purpose of availing of this incentive, the registered export
enterprise may either be a newly-registered enterprise under this Act or a
previously-registered enterprise with any of the IPAs whose incentive
under the charter of its respective IPA had lapsed prior to the effectivity of
this Act but which is expanding its export operations through additional
investment in accordance with rules and regulations of the respective
IPAs: Provided, however, That in the case of a previously-registered and
expanding enterprise, the incentive shall apply on the expansion
investment only.

(@) Exemption from Wharfage Dues.- The provision of law to the contrary
notwithstanding, exports by registered export enterprise/s shall be
exempted from wharfage dues.

(e) Employment of Foreign Nationals - Subject to the provisions of Section 29
of Commonwealth Act. No. 613, as amended, a registered export
enterprise may employ foreign nationals in supervisory, technical or
advisory positions for a period not exceeding five (5) years from its
registration, extendible for limited periods at the discretion of the Board;
Provided, however, That when the majority of the capital stock of a
registered enterprise is owned by foreign investors, the position of
president, treasurer and general manager of their equivalents may be
retained by foreign nationals beyond the period set forth within

Foreign nationals under employment contract within the purview
of this incentive, their spouses and unmarried children under twenty-one
(21) years of age, who are not excluded by Section 29 of Commonwealth
Act. No. 613, as mended, shall be permitted to enter and reside in the
Philippines during the period of employment of such foreign nationals.

A registered export enterprise shall train Filipinos as understudies
of foreign nationals in administrative, supervisory and technical skills and
shall submit annual reports on such training to the Board: Provided, that
employment of foreign nationals hired by registered export enterprises in


a supervisory, technical or advisory capacity shall not exceed five percent
(6%) of its workforce without the express authorization of the Secretary of
DOLE.

SEC8.Value -Added Tax and Customs Duty Treatment of Improved
Capital Equipment and Raw Materials by Registered Export enterprises.

(@) Registered export enterprises registered with IPAs and located

inside the
ecozones or free ports shall be entitled to exemption from the
value-added tax (VAT) and customs duty imposed on their
imported capital equipment including consignment thereof, raw
materials used in the manufacturing, processing as defined in
Section 3 of this Act or production of their export products, and
importation of source documents by IT registered enterprises.
Provided, That the Vat and duty-free importation thereof shall be
used exclusive by the registered export enterprise in its registered
export activity. If the imported capital equipment or raw material
shall be used by the registered export enterprise other than for its
registered export activity, the availment of incentives under this
paragraph shall be subject to the rules and regulations to be
promulgated by the DOF.

(b) Registered export enterprise registered with PEZA and located
outside the —ecozones or free ports shall be subject to a Vat and
Customs Duty Refund Mechanism as provided in this Act.

In order to facilitate the immediate processing, clearance and release of
VAT and customs duty refund as provided in this Act, a Trust Liability
Account(TLA) is hereby authorized to be established in the Bureau of Treasury
(BIz). All Vat and customs 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 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
to the DOF-ONE STOP SHOP Tax Credit and Duty Drawback Center (DOF-OSS)
which, in turn, will process, approve and release the VAT and customs duty
refund.

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 the 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 not
longer intended to be used in the registered export activity.

A registered export enterprise shall file a claim for VAT and customs duty
refund within two (2) years after the payment was made. All amounts paid
but no longer allowed for refund shall immediately accrue to the general
fund of the National Government.


All applications for VAT and customs duty refund shall be processed and
acted upon within thirty (30) days after submission of complete documents.
‘The refund shall be in a form of cash or managers/cashiers check payable to
the registered export enterprise.

Incase of dispute under the VAT and customs duty refund mechanism
provided in this section, the pertinent provision of the National Internal
Revenue Code of 1997, as amended, and the Tariff and Customs Code of the
Philippines, as amended, shall apply.

SE

. Tax Incentive to Registered Domestic Enterprises.

(@) Imposition of a preferential tax rate of twenty-five (25%) of taxable income
as defined under Section 31 of National Internal Revenue Code of 1997, as
amended.

(b) Double Deduction for Training - Expenses for training given to employees
by the registered export enterprise for the development of skills, identified
and approved as necessary by the appropriate government agency/ies,
shall be deductible from gross income from income tax purpose to the
extent of 200% on the year the said training expenses were incurred.

(©) Double Deduction for Research and Development - Expenses incurred
for research and development relating to the registered 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 purpose to the extent of 200% on the year the said
research and development expenses were incurred.

(d) Net Operating Loss Carryover (NOLCO) - The net operating loss of the
registered domestic, enterprise during the first five (5) years from start of
commercial operation which had not been previously offset as deduction
from gross income shall be carried over as a deduction from gross income
for the next five (5) years immediately following the year of such loss:
Provided, that after the availment of NOLCO of registered domestic
enterprise under this provision, the pertinent provisions under the
National Internal Revenue Code of 1997, as amended, shall apply.

(©) 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 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 National Internal Revenue Code of 1997, as amended.


‘SEC. 10. Entitlement to Investor's Visa by a Foreign National. -

{a) A foreign national who invest an amount of at least US$150,000 either in
cash and/or equipment, in a registered enterprise shall be entitled to an
Investor's Visa: Provided, that:

1) He is at least eighteen (18) years of age;

2) He has not been convicted of a crime involving moral turpitude;

3) He is not afflicted with any loathsome, dangerous or contagious
disease;

4) He has not been institutionalized for any mental disorder or
disabilit

Provided, further, That as a holder of the Investor's Visa, an alien shall be entitled
to reside in the Philippines while his investment subsists. For this purpose, he
should submit an annual report, in the form duly prescribed by the Board for the
Purpose, to prove that he has maintained his investment in the country. Should
said alien withdraw his investments from the Philippines, then the Investor's
Visa issued to him shall automatically expire.

(b) Foreign persons receiving dividends, interest and royalties from BOI-
registered enterprise subject to reduced income tax rates under existing
income tax treaties be entitled to the reduced rates until the expiration of
the enterprises’ registration certificates with the BOI and after such
enterprises registered with PEZA: Provided, That a favorable ruling is
secured from the BIR for this purpose.

TITLEIV
REGISTRATION OF ENETERPRISES

SEC.11. Qualification of a Registered Enterprise. - An applicant export or
domestic enterprise must satisfy the qualifications specified under Section 3 (h)
and (i), respectively, of this Act, in addition to the conditions for qualification as
determined by the concerned IPA and as far as these do not conflict with the
provisions of this Act.

Further, if the applicant is engaged or proposes to engage in undertakings
or activities other than the registered activities, it shall install an accounting
system adequate to identify the investments, revenues, costs, and profits or
losses of each registered activity undertaken by the enterprise separately from
the aggregate investment, revenues, costs and profits or losses of the whole
enterprise, or to establish a separate corporation for each registered activity if the
concemed IPA should so require to facilitate proper implementation of this Act.

SEC.12. Criteria for Eoaluation of Application.-- The following criteria shall be
employed by the concerned IPA in the evaluation and approval of applications
for registration:

(a) Impact of the activity on the overall economy and fiscal sustainability;
(b) Overall viability of the activity;

(©) Extent to which investment incentives are redundant;

(d) The extent of employment, skills and foreign generation;


(©) The extent to which technological advances are implied and adapted to
local conditions;

(6 Extent to which the output of the applicant supports national export
objectives;

(g) Extent to which incentives contribute to the reduction of poverty and
inequality; and

(h) The extent to which incentives promote investment that help improve
the quality of the environment.

SEC.13. No Double Registration of Enterprises. - Export or domestic
enterprises shall not be allowed to register their export or domestic business
activity in more than one IPA.

SEC.14. Period of Validity of Incentives. - The incentives provided in Sec. 7
(b) and (©), and Sec. 9 herein shall be valid for a period of twenty (20) years from
the start of commercial operation in the case of a registered export enterprise and
ten (10) years from the start of commercial operation in the case of a registered
domestic 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
respective IPA.

TITLE V
BASIC RIGHTS AND GUARANTEES OF REGISTERED ENTERPRISES

SEC.15. Protection of Investments All investors and registered enterprises
are entitled to the basic rights and guarantees provided in the Constitution.
Among other rights recognized by the Government of the Philippines are the
following:

(@) Repatriation of Investments.- In the case foreign investments, the right
to repatriate the entire proceeds of the liquidation of the investment in
the currency in which the investment was originally made and at the
exchange rate prevailing at the time of repatriation, subject to the
provisions of Section 74 of Republic Act. No.265, as amended. For
investments made pursuant to Executive Order No. 32, series of 1986
and its implementing rules and regulations, remittability shall be as
provided therein;

(b) Remittance of Earnings.- In the case of foreign investments, the right to
remit earnings from the investment in the currency in which the
investment was originally made and at the exchange rate prevailing at
the time of remittance, subject to the provisions of Section 74 of
Republic Act. No. 265, as amended;

(©) Foreign Loans and Contracts.- ‘The right to remit at the exchange rate
prevailing at the time of remittance such sums as may be necessary to
meet the payments of interest and principal on foreign loans and
foreign obligations arising from technological assistance contracts,
subject to the provisions of Section 74 of Republic Act No. 265, as
amended;


(d) Freedom from Expropriation. - There shall be no expropriation by the
government of the property represented by investments or of the
Property of the enterprise except for public use or in the interest of
national welfare or defense and upon payment of just compensation.
In such cases, foreign investors or enterprise shall have the right to
remit sums received as compensation for the expropriated property in
the currency in which the investment was originally made and at the
exchange rate at the time of remittance, subject to the provisions of
Section 74 of Republic Act. No. 265, as amended; and

(©) Requisition of the Investment.- There shall be no requisition of the
property represented by the investment or of the property of
enterprises, except in the event of war or national emergency and only
for the duration thereof. Just compensation shall be determined and
paid either at the time of requisition or immediately after cessation of
the state of war or national emergency. Payments received as
compensation for the requisitioned property may be remitted in the
currency in which the investment was originally made and at the
exchange rate prevailing at the time of remittance, subject to the
provisions of section 74 Republic Act. No. 265, as amended.

TITLE VI
ADMINISTRATION OF INCENTIVES

SEC. 16. Duties and Responsibilities of PEZA and the Other IPAs. - The
following are the duties and responsibilities of the PEZA and other IPAs under
this Act:

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

(b) Adopt and implement systems and procedures affecting trade and
customs policies in accordance with the requirements established by
the DOE;

() Submit data and information to the DOF as required by Sec. 17 to
ascertain consistency of investments policies and incentives, including
their implementation as provided in paragraph (a), and to ensure the
proper implementation of systems and procedures affecting trade and
customs policies as provided in paragraph (b); and

(@) Perform all others duties and responsibilities as may be required by
the President.

SEC.17. Administration, Implementation and Monitoring of Incentives.-
The PEZA and other IPAs shall be responsible for the administration and
implementation of the incentives granted to their respective registered
enterprises. They 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 shall create a
single database of all incentives provided by all IPAs. The DOF shall monitor
and review the incentives granted and submit an annual report to the President.


TITLE VI
FINAL PROVISIONS

SEC-18. 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 respective Board
of the concerned IPA may suspend its availment of incentives after due notice
and hearing. The Board may impose fines and penalties and/or forfeit the
incentives granted to the registered enterprise whenever there are violations of
the registration terms and conditions by the latter, without prejudice to the
cancellation of the registration of said enterprise: Provided, however, That the
Board may cancel or abate only the imposition of fines. In case of cancellation of
the certificate of registration granted under this Act, the Board may, in
appropriate cases, require the refund of incentives availed of and impose
corresponding fines and penalties.

Any enterprises which violates any provision of this act, its implementing
rules and regulations, the terms and condition of its registration or any lawful
directive of the concerned IPA, or in the availment of incentives, including. all
official reports required to be submitted to the DOF, shall be subject to a fine not
to exceed 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 Board.

The IPAs 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 aboye, shall be subject to fine of not
less than One hundred thousand pesos(P100,000) but not more than Three
hundred thousand pesos (P300,000). Government officers and employees who
participate directly in the commission of the foregoing acts shall likewise be
liable to a fine of not less than One hundred thousand pesos(P100,000) but not
more than Three hundred thousand pesos (P300,000), in addition to any criminal
and administrative penalties imposable under the Civil Service Law, Revised
Penal Code, Republic Act. No. 3019 (Anti-Graft And Corrupt Practices Act),
Republic Act. No. 6713 (Code of Conduct And Ethical Standards For Public
Officials) and other applicable laws. If the offender is a foreign national, the
foregoing acts shall be grounds for his summary deportation in addition to the
imposable fines and penalties above.

SEC.19. Implementing Rules and Regulations (IRR) The DOE, in
consultation with NEDA, DTI, DBM, BIR, BOC, BOL, PEZA and other IPAs, shall
promulgate the implementing rules and regulations (IRR) within two (2) months
from the effectivity of this Act.

SEC.20. Transitory Provisions- The incentives already granted to
enterprises registered with BOI, PEZA and other IPAs under existing investment
laws shall continue to be legally binding in accordance with the terms and


conditions stated in their respective registration contracts. Existing registered
with BOL, PEZA and other IPAs may opt to be governed by the provisions of
this Act prior to the expiration of their existing contracts and subject to the
provisions of this Act, For activities or entities, whether government or private,
whose tax and/ or duty exemptions or preferential treatment under special laws
are withdrawn or replaced by this Act, the pertinent provision of the National
Internal Revenue Code of 1997, as amended; the Tariff and Customs Code, as
amended; and the Local Government Code of 1991, shall apply.

In addition, dividends, ‘interest and royalties subject to reduced income
tax rates under existing income tax treaties paid by BOI- registered enterprises to
foreign persons shall be subject to the reduced rates until the expiration of the
enterprises’ registration certificates with the BOI and after such enterprises
registered with PEZA: Provided, That a favorable ruling is secured from the BIR
for this purpose.

SEC.21. Revenue Gains or Savings from the Rationalization of Fiscal Incentives.
Revenue gains or savings from the implementation of this Act shall be utilized
exclusively for the following purpose: fifty percent (50%) for infrastructure and
fifty percent (50%) for education purposes.

Such allocations shall be segregated as separate trust funds by the
National Treasury and shall be over and above the annual appropriations for
similar purposes.

SEC.22 Separability Claw ¥y provision of this Act is declared invalid
and unconstitutional, the other provisions which are not affected thereby shall
remain in force and effect.

SEC. 23. Repealing Clause - The following laws or provisions of laws are
hereby repealed.

(1) Title IV, (1) and (2); Book III, Chapter II, Articles 61 And 62;
Book Ill, Chapter Il, Articles 63, 64, 65, 66 and 67; Book IV,
Articles 69 and 70; and, Book VI, Article 78 of Executive Order
No. 226, series of 1987 - “ The Omnibus Investment Code of
1987",

(2) Republic Act No. 7888 - “An Act to Amend Section 1, Article 7
(13) of Executive Order No. 226", Otherwise Known as the
Omnibus Investment Code of 1987;

(3) Section 23 and 24 of Republic Act. No. 7916 - “Special Economic
Zone Act of 1995”,

(4) Section 4 of Republic Act. No. 8748 - “An Act Amending,
Republic Act No.7916",

(©) Section 17 and Section 18 (a), (b), (c), and (f) of Presidential
Decree No.66- “Creating the Export Processing Zone Authority
and Revising Act. No. 5490",


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(10)

(1)

(12)

(13)

ay

(15)

(16)

a7

(18)

4 Paragraph of Presidential Decree No. 529 - “Granting to
Petroleum Exploration Concessionaries under the Petroleum
Act of 1949 Exemption from Customs Duty and Compensating
Tax Importations of Machinery and Equipment, Spare Parts and
Materials Required for Their Exploration Operations”,

Section 8, 9 and 10 of Presidential Decree No. 538 - “ Creating
Establishing the PHIVIDEC Industrial Authority and Making its
Subsidiary Agency of the Philippine Veterans Investment
Development Corporation Defining its Powers, Functions and
Responsibilities, and Other Purposes”,

Section 36 (f) of PD 705 - “Revised Forestry Code of the
Philippines;

Section 16 (a) ,(b) and (c) and Section 17 (a) ,(b), (c), (a) and (e)
of Presidential Decree No. 972, as amended, “Promulgating an
Act to Promote an Accelerated Exploration, Development,
Exploitation, Development, Exploitation, Production and
Utilization of Coal”,

Section 3, amending Section 10 Presidential Decree No. 972, as
amended by Presidential Decree No. 1174, - “Amending
Presidential Decree No. 972, Otherwise Known as the Coal
Development Act of 1976",

Section 4 (a) and (A) of Presidential Decree No. 1442 - “An Act
‘To Promote the Exploration and Development of Geothermal
Resources”,

Section 10 (1), (2), (3), (4), (5) and (6) of Republic Act No. 7156, -
“An Act Granting Incentives to Mini-Hydro Electric Power
Developers and for Other Purposes”,

Section 16 (a) ,(b), (c), (d) and (¢), and Section 17 Republic Act.
No. 7844 - Export Development Act. of 1994”,

Section 83, 90, 91, 92 and 93 of Republic Act. No. 7942 -
“Philippine Mining Act of 1995”,

Section 9 of Republic Act. No. 8479 - “Downstream Oil
Deregulation Act of 1998",

Section 3 (a), (b), (), (a) and (h) of Republic Act. No. 8502, “An
‘Act to Promote the Development of the Jewelry Manufacturing,
Industry, Providing Incentives Therefor and for Other
Purposes”,

Section 35 (b),(c) and of Republic Act No.8550 - “Philippine
Fisheries Code of 1998”,

Section of the Republic Act No. 9281 - “An Act to Strengthen


Agriculture and Fisheries Modernization in the Philippines by
Extending the Effectivity of Tax Incentive and Its Mandated
Support, Amending for the Purpose Section 109 and 112 of
Republic Act. No. 8435”,

(19) Section 3 (a), (b) and (d) of Republic Act No. 9290 - “An Act
Promoting the Development of the Footwear, Leather Goods
and Tannery Industries, Providing Incentives Therefor and for
Other Purposes”,

(20) Section 5 of Proclamation No. 216, Series of 1993- “Creating the
Poro Point Special Economic Zone Pursuant to Republic Act.
| No. 7227",

21) Section 6 of Proclamation No. 984, series of 1997-“ Creating the
Morong Special economic Zone Pursuant to Republic Act. No.
Tor

(22) Section 1 and Section 2 (a) and (b) of Executive Order No. 528,

| Series of 2006, Amending Executive Order No.313, Series of

| 2004-Modifying the Rates of Duty on Capital Equipment, Spare
Parts and Accessories Imported by BOI-Registered New and
Expanding Enterprises”,

(23) Section 4 (c) and (f) of Republic Act No. 7903 - “Creating a
Special Economic Zone and Free Port in the City of Zamboanga,
Creating For this Purpose the Zamboanga City Special
Heonaike Zone Anthaity, Appropriating Funds Thereof, and
for other Purposes”,

(24) Section 4 (b) and (c) of Republic Act. No. 7922 - “Creating a
Special Economic Zone and Fre¢ Port in the Municipality of Sta.
‘Ana and the Neighboring Islands in the Municipality of Aparri,
Province of Cagayan, Providing Funds Therefor, and for other
Purposes", F

(25) Section 12 (b) and (c) of Republic Act. No. 7227 - “Accelerating
the Conversion of Military Reservation into Other Productive
Uses, Creating the Bases Conversion and Development
Authority for this Purpose, Providing Funds Therefor and for

| other Purposes”,

(26) Section 1 (b) and (0), Sections 2, 3, 4, 5, 6 and 7 of Republic Act
No. 9400 “Amending RA 7227 as amended, Otherwise Known
as the Bases Conversion and Development Act of 1982, and
t Other Purposes”,

(27) Section 1 of Executive Order No. 619 - “Creating and
Designating Special Economic Zones Pursuant to RA 7916, as
Amended by RA 8784, in Relation to RA 7227, as Amended by
RA 9400, Inside the Clark Free Port Zone”,


(28) Section 5 (A), (B), (Q), (P), (2), ®), (G), ), @, 0), (), (L), (M)

and (N) and Section 6 and 9 of Republic Act. No. 9490 —

“Establishing the Aurora Special Economic in the Province of

H Aurora, Creating for the Purpose the Aurora Special Economic

| Zone Authority, Appropriating Funds Therefor and for Other
| Purposes”,

(29) Section 8 (©) (1), 2) and @), and (d), Sections 7 and 8 of
| Republic Act No. 7103 ~ “Strengthening the Iron and Steel
Industry and Promoting the Philippine Industrialization and

for Other Purposes”,

| (80) Section 6 (a) and () and Section 7 of Republic Act. No. 7471 ~
“Promoting the Development of Philippine Overseas shipping
(Philippine Overseas Shipping Development Act)”,

| (81) Chapter Il, Section 4 (a), (b) (c) and (a) and Chapter VIN,
| Section 19 (a), (b) and () of RA 9295 - “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”,

All other laws, acts, decrees, orders and issuances or provisions
thereof inconsistently with any of the provision of this Act are
hereby repealed or modified accordingly.

SEC.24. Effectivity.- This Act shall take effect fifteen (15) days following its
publication in a newspaper of general circulation in the Philippines.

Approved,