Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila\

FIFTEENTH CONGRESS
First Regular Session

House Bill No.__ 4152

Introduced by Representative Feliciano Belmonte, Jr. and
Representative Neptali M. Gonzales I!

EXPLANATORY NOTE

In today's globalized and increasingly integrated markets, investments both
domestic and foreign, have always been regarded as major pillars in economic
development. Investments spur growth as more: investments translate to more
employment opportunities. It is therefore the policy of the State to ensure that
investments incentives shall promote substantial social and economic spillover and
equitable development across income classes and across provinces.

Past administrations have worked for an economy that fosters an environment
conducive for investments. It have been pursued several strategies which are provided
under various laws. A balance has been sought to be formulated between the need to
attract investments by offering fiscal incentives on one hand and the equally important
Need to exercise prudence in granting such incentives on the other. Hence, there is a
need to legislate a law that will consolidate and rationalize investment incentives.

This proposed legislative measure seeks to provide guidelines for: 1.) Tax
Incentive Provisions for all Investments Promotion Agencies (IPAs); 2.) Investments
Priorities Plan (IPP); 3.) Fiscal Incentives to Registered Export Enterprises; 4.) Fiscal
Incentives to Registered Domestic Enterprises; 5.) Incentives to Strategic Projects;
6.) Tax Incentives for Private Ecozone Developers; 7.) Sunset Provision for the Grant of
Income Tax Holiday; 8.) Entry and Exit of imported Articles in the Economic Zones and
Free Ports; and 9.) Streamlining the Institutional Structure governing Tax Incentives,
among others.

In light of the foregoing, approval of this Bill is earnestly sought.

hes ber .

FELICIANO BELMONTE, JR.

NEPTALI M. GONZALES II


FIFTEENTH CONGRESS OFTHE —)
REPUBLIC OF THE PHILIPPINES —)
First Regular Session )
HOUSE OF REPRESENTATIVES

HB. No, 4152

Introduced by Representative Feliciano R. Belmonte, Jr. and
Representative Neptali M. Gonzales Il

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

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

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

SECTION 2. Declaration of Policy. - in the grant and administration of fiscal
incentives for the promotion of investments and growth, the following are the declared
policies of the State:

a. The State shall ensure that investment incentives shall promote
substantial social and economic spillovers, equitable development across income
classes and across 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,

b. The State shall grant the necessary investment incentives that encourage
long-term and recurrent investment, are simple to administer, time-bound and whose
performance and outcomes are easily verifiable. The State shall also endeavor to
streamline the procedures in the grant of investment incentives.

c. _ 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 shali ensure that concerned government agencies are well-informed of these
developments.

d. In granting fiscal incentives, the State will ascertain that the incentives are
not redundant, ie., that the investments they benefit require and are truly motivated by
the incentives or that the incentives, as much as possible, are not given to investors
who would have made investments even in the absence of incentives.


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€. The State shall extend to all foreign and domestic investors the basic rights
and guarantees provided under the Constitution and existing laws for the protection of
investments.

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

SECTION 3. Definition of Terms. ~ As used herein,

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

b “Domestic enterprise” shall mean a registered enterprise located in any of
the LESS DEVELOPED AREAS, which produces goods for sale or renders services
exclusively to the domestic market or does not comply with the minimum export
requirement of an export enterprise.

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

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

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

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

ili, sales to @ nonresident buyer for delivery to a resident local export
enterprise of capital equipment, raw materials, production supplies, packaging
materials and other production requirements needed for the registered activity
of the export enterprise; or

iv. sales of goods to a nonresident buyer, except automobiles and non-
essential goods, manufactured or processed in. the Philippines, for delivery to
a resident in the Philippines.

Provided, That in the case of paragraph (ii) above, only sales to an export enterprise of
capital equipment, raw materials, production supplies, packaging materials, and other
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Production requirements needed for the registered activity of the export enterprise; and
Sales to intemational sea or air transport operations of goods, equipment, spare parts
and supplies, except fuel, to be used in the aircraft or sea craft and capital equipment

needed for the shipping or air transport operations, shall be entitled to incentives for
export enterprises under this Code.

Sales of locally manufactured or assembled goods for household and personal
use under the Internal Export Program and similar programs of the government shall be
deemed as “export sales.”

e “Export sales of services” shall mean the sales revenues, determined from
contracts, invoices, vouchers, official receipts, or other commercial documents of the
following:

i, services rendered for clients abroad by registered enterprises:

li, services rendered for an export enterprise registered in accordance with
this Code; to diplomatic missions and to other agencies or institutions with tax
and duty-free privileges;

ili, services rendered to intemational airlines or shipping lines, or foreign
military aircraft or sea craft; or information and communication technology
enterprises, even if rendered locally.

Provided, That in the case of paragraph (i) above, only services for an export enterprise
performed by subcontractors and/or contractors in the manufacture or processing of
goods; other services necessary for the registered activity of an export enterprise; and
in the case of paragraph (iii), only services for the overhaul, repair and maintenance for
international shipping or air transport operations, and foreign military aircraft or sea
craft, shall be entitled to incentives for export enterprises under this Code.

The foregoing notwithstanding, services rendered locally by registered
enterprises that are paid for in freely convertible foreign currency shall be considered as
“export sales”

f. “Export enterprise” shall mean a registered enterprise which is a
manufacturer, processor or service provider and whose export sale of its products or
services exceeds seventy percent (70%) of its total annual production of the preceding
taxable year.

An export trader that buys and sells for its own account products of micro and
small enterprises and earns one hundred percent (100%) of its annual sales from
exports of the same shalll be deemed to be an export enterprise.

A PRODUCER THAT SELLS MORE THAN 70% OF ITS ANNUAL OUTPUT TO
A DIRECT EXPORTER SHALL BE DEEMED AN INDIRECT EXPORTER.

9. “Freeport” is an isolated and policed. area adjacent to a port of entry as
defined by Section 3519 of the Tariff and Customs Code, which shall be operated and
managed as a separate customs territory to ensure free flow or movement of goods,
except those expressly prohibited by law, within, into and exported out in the freeport
zone where imported goods may be unloaded for immediate transshipment or stored,



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Tepacked, sorted, mixed, or otherwise manipulated without being subject to import
duties.

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

i. “Investment incentives or fiscal incentives or tax incentives" shall refer to
the preferential tax treatment of a registered enterprise in terms of a tax holiday, lower
tax, tax or duty exemption, tax or duty refund, double deduction of expense for purposes
of computing one’s income tax liability, accelerated depreciation, net loss carry-over,
among others.

i “Investments Priorities Plan or IPP” shall refer to the short, focused,
targeted list of priority economic activities, comprising of exports and of three (3)
industry sectors only, which will be eligible for tax. incentives under this Code, prepared
and determined in accordance with Section 5 of this Code.

k. “Investments Promotion Agencies (IPAs)" shall refer to government
entities that have been created by law to administer tax and non-tax incentives to their
registered enterprises or locators in:the case of economic zones and free ports. The
IPAs shall include the Board of Investments (BOl), Philippine Economic Zone Authority
(PEZA), Bases Conversion Development Authority (BCDA), Subic Bay Metropolitan
Authority (SBMA), Clark Development Corporation (CDC), John Hay Management
Corporation (JHMC), Poro Point Management Corporation (PPMC), Bataan Technology
Park Inc: (BTPI), Cagayan Economic Zone Authority (CEZA) , Zamboanga City Special
Economic Zone Authority (ZCSEZA)), PHMDEC Industrial Authority (PIA), 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 IPAs that may be created by law in the future.

|. ‘Less Developed Areas (LDAs) shall mean areas which are included in the
list prepared and determined by an inter-agency to be led by NEDA, taking into
consideration the following criteria: low per capita gross domestic product; low level of
investments; high rate of unemployment and/or underemployment; and low level of
infrastructure development including its accessibility to developed urban centers.

m. ‘Registered Enterprise” shall mean any individual, partnership,
corporation, Philippine branch of a foreign corporation or other entity incorporated
and/or organized and existing under Philippine laws and registered with an IPA, in
accordance with this Code: Provided, however, That the term “registered enterprise"
shall not include any of the following service enterprises such as, but not limited to,
those engaged in customs brokerage, trucking/forwarding services, parcel services,
janitorial services, security services, insurance and/or banking and other financial
services, consumers cooperatives, credit unions, consultancy. services, restaurants or
such other services, within the economic zones, as may be determined by the 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 1997 (NIRC), as amended.


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n. “Service enterprise” is an enterprise engaged or proposing to engage in
rendering technical, professional or other services listed in the IPP.

Service enterprise that eas more than seventy percent (70%) of its revenues in

foreign currency generated from non-resident clients shall be entitled to the incentives
provided to an “export” enterprise.

0. "Special Economic Zone or SEZ 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, touristirecreational, commercial, banking, investment
and financial centers whose metes and bounds are fixed or delimited by Presidential
Proclamations. An ecozone may contain any or all of the following: industrial estates
(Is), export processing zones (EPZs), ICT parks and centers, free trade zones and
tourism estates; Provided, however, That areas where mining operations are
undertaken shall not be declared as ecozones,

P. “Source documents’ shall refer to input materials and documents
reasonably needed by information technology (IT) and IT-enabled industries. such as,
but not limited to, books, directories, magazines, newspapers, brochures, pamphlets,
medical records or files, legal records or files, instruction materials, drawings, blueprints,
or outlines.

SECTION 4. Governing Tax Incentive Provision for All IPAs. —
Notwithstanding the provisions of their respective charters, all existing and future IPAs
vested with the power to confer and administer tax incentives shall offer only tax
incentives granted under this Code: Provided, That the incentives granted under this
Code to a registered enterprise shall be applicable to the extent of the registered activity
or project: Provided, however, that for the existing registered enterprises inside the
economic zones and free ports which are expanding their registered activity or project
within two years from the effectivity of this law, the IPAs shall administer tax incentives
as provided in their original respective charters: Provided, further, That the grant of the
income tax holiday incentive by all IPAs concermed shall be conditioned on the country
of domicile of the shareholder of the export enterprise or of the head office of the
enterprise engaged in business in the Philippines through a’ branch office exempting
such dividends paid to the shareholder or such profits remitted to the head office, or
allowing tax sparing credit on such dividends or profits under the relevant tax treaty with
the Philippines.

SECTION 5. Investments Priorities Plan (IPP). — The DTI, in coordination with
the NEDA and DOF, and upon consultation with concerned IPAs, other appropriate
government agencies, and representatives of the private sector, shall formulate the IPP
once every three (3) years and submit it to the President for approval. The 3-year IPP
shall be subject to annual review by the DTI upon consultation with the above-
mentioned agencies.

In the listing of the activity in the IPP, the following shall be complied with:

a. The activity shall be covered by the current Medium Term Philippine
Development Plan (MTPOP) and Medium Term Philippine Investment Plan
(MTPIP) or its equivatent;


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b. The activity must have significant value-added and must satisfy the following
conditions;

Substantial amount of investments;
Considerable generation of employment; and
iii, Installation of adequate environmental protection systems;

Further, the formulation of the IPP shall take into consideration measured
capacity or the

the estimated additional volume of production or service determined to be desirable in
each preferred area of investment in order to supply the needs of the economy at
reasonable prices, taking into account the export potential of the product, including
economies of scale which would render such product competitive in the world market.
Measured capacity shall not be less than the amount by which the measurable domestic
and country's potential export market demand exceeds the existing productive capacity
in said preferred areas. For export market industries, when warranted, measured
capacity shall be based on the availability of domestic raw materials after deducting the
needs of the domestic market therefrom: Provided, That measured capacities shall be
regularly estimated, reviewed and updated by the NEDA to reflect changes in market
supply and demand conditions: Provided, further, That measured capacity shall not
result in a monopoly in any preferred area of investment which would unduly restrict
‘trade and fair competition nor shall it be used to deny the entry of any enterprise in any
field of endeavor or activity.

SECTION 6. Fiscal Incentives to Registered Export Enterprises. — All IPAs
shall administer the following fiscal incentives to their respective registered export
enterprises to the extent of their registered activity:

2. Income tax-based incentive — The registered export enterprise may
choose any one of the following options as its income tax-based incentive,
subject to the condition that its choice shall be final and cannot be
changed during the duration of its registration

A.1. For a registered export enterprise inside an economic zone or free
port:

i. Option 1: Full Income Tax Holiday (ITH). - A registered export
enterprise may be entitled to a full income tax holiday or a 100%
exemption from income tax for a period of eight (8) years from the date
of start of its commercial operations.

ii, Option 2: Reduced Income Tax (RIT). ~ A registered export enterprise
may be entitled to a partial ITH equivalent to a 50% exemption from
income tax for twenty-five (25) years.

In computing net taxable income, the enterprise may be entitled to
deduct the following expenses, in addition to ordinary and necessary
business expenses allowed under the NIRC of 1997, as amended:

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iii,

a.Enhanced Net Operating Loss Cary-over (NOLCO) - The net
Operating loss of the registered activity during the first five (5) years
from the start of commercial operation which had not been previously
offset as deduction from gross income may be carried over as
deduction from gross income for the next five (5) consecutive taxable
years immediately following the year of such loss.

b.Accelerated Depreciation ~ Plant, machinery, and equipment that are
reasonably needed and actually used for the production and transport
of goods and services may be depreciated using a rate not exceeding
twice the rate which would have been used had the annual allowance
been computed in accordance with the rules and regulations
prescribed by the Secretary of Finance and the provisions of the NIRC
of 1997, as amended.

¢.Double Deduction for Training Expenses — Expenses incurred for
local training’ given to employees for the development of skills,
identified as necessary by the appropriate government agencies and
approved by the concemed IPA, may be claimed as deduction from
gross income to the extent of two hundred (200%) percent of the actual
amount of expenses incurred: Provided, that the training expense shall
be deductible on the taxable year the said training expenses were
incurred: Provided further, that the concemed IPA shall issue the
corresponding certificate of entitlement for its incentive upon filling of
an application, otherwise, the training incentive shall be deemed
waived.

d.. Double Deduction for Research and Development — Expenses
incurred for research and development conducted in the Philippines
relating to the business shall entitle the registered export enterprise to
a special deduction from taxable income equivalent to one hundred
percent (100%) of the total expenses over and above the allowable
ordinary and business deductions for said expenses under the NIRC of
1997, as amended: Provided, that the expenses for research and
development shall be deductible from gross income on the taxable
year the said research and development expenses were incurred:
Provided further, that the concerned IPA shall issue the corresponding
certificate of entitlement for this incentive upon filing of an application,
otherwise, the research and development incentive shall be deemed
waived.

Option 3: Five Percent (5%) Tax on Gross Income Eamed (GIE). - A
registered export enterprise may avail of a five percent (5%) tax on
gross income eamed in lieu of all national and local taxes, except
value-added tax (VAT) and real property tax (RPT) on land owned by
private developers, for a period of twenty-five (25) years from the date
of registration: Provided, however, that the registered export enterprise

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choosing this option cannot avail first of the full income tax holiday
under Option 1, If it desires the ITH-GIE sequential tax incentive
combination, it may choose Option 4.

In the allocation of the revenues from the 5% tax on GIE, three percent
(3%) shall be remitted to the National Government and two percent
(2%) shall be remitted to the treasurer's office of the municipality or city
where the registered export enterprise is located or in case of
enterprises inside an ecozone or free port, where the ecozone or free
port is located,

iv, Option 4: ITH-GIE Tax Incentive Combination, — A registered export
enterprise may avail of the full ITH for a period of five (5) years from
start of its commercial operation. After which, it may avail of the five
percent (5%) tax on GIE in lieu of all national and local taxes, except
(VAT) and the RPT on land owned by private developers, for a period
of twenty (20) years. The tax on GIE shall be remitted in the same
manner as provided in the 2™ paragraph of the preceding sub-section.

‘On availing of the income tax-related incentives, the BIR shall require a

~ registered export enterprise to secure a Certificate of Eligibility from the

appropriate IPA and attach the same to its Income Tax Return (ITR) or
‘Annual Information Return (AIR), whichever is applicable, Thereafter, the
registered export enterprise shall file its claim with the appropriate IPA for
validation. The IPA shall endorse the result of its validation to the BIR
after one year from the filing of a claim for ITH by the registered
enterprise,

Failure to secure and attach the certification to the ITR or AIR, and/or file
the ITH availment for validation by the appropriate IPA shall cause the
forfeiture of the ITH availment for the taxable period.

Within six (6) months from the effectivity of this law, the BIR shall review
its regulations on the computation of GIE to ensure that only direct costs,
or cost of goods sold and/or services rendered, shall be deductible from
gross revenues, and recommend stricter rules to the Secretary of Finance
if warranted.

A.2. For @ Registered Export Enterprise outside an economic zone or free
port

i. Option 1: Full Income Tax Holiday (ITH). — A registered export enterprise
may be entitled to a full income tax holiday or a 100% exemption from
income tax for a period of eight (8) years from the date of start of its
commercial operations.

ii. Option 2; Reduced Income Tax - Reduced Income Tax (RIT). ~ A
registered export enterprise may be entitled to a partial ITH equivalent to a
50% exemption from income tax for twenty-five (25) years.


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In computing net taxable income, the enterprise may be entitled to deduct
the following expenses, in addition to ordinary and necessary business
expenses allowed under the NIRC of 1997, as amended:

a.Enhanced Net Operating Loss Camy-over (NOLCO) - The net
operating loss of the registered activity during the first five (5) years
from the start of commercial operation which had not been previously
offset as deduction from gross income may be carried over as
deduction from gross income for the next five (5) consecutive taxable
years immediately following the year of such loss

b Accelerated Depreciation — Plant, machinery, and equipment that are
reasonably needed and actually used for the production and transport
of goods and services may be depreciated using a rate not exceeding
twice the rate which would have been used had the annual allowance
been computed in accordance with the rules and regulations
prescribed by the Secretary of Finance and the provisions of the NIRC
of 1997, as amended.

¢.Double Deduction for Training Expenses — Expenses incurred for
local training given to employees for the development of skills,
identified as necessary by the appropriate government agencies and
approved by the concerned IPA, may be claimed as deduction from
gross income to the extent of two hundred (200%) percent of the actual
amount of expenses incurred: Provided, that the training expense shall
be deductible on the taxable year the said training expenses were
incurred: Provided further, that the concemed IPA shall issue the
corresponding certificate of entitlement for its incentive upon filling of
an application, otherwise, the training incentive shall be deemed
waived,

d.. Double Deduction for Research and Development — Expenses
incurred for research and development conducted in the Philippines
relating to the business shall entitle the registered export enterprise to
a special deduction from taxable income equivalent to one hundred
percent (100%) of the total expenses over and above the allowable
ordinary and business deductions for said expenses under the NIRC of
1997, as amended: Provided, that the expenses for research and
development shall be deductible from gross income on the taxable
year the said research and development expenses were incurred:
Provided further, that the concerned IPA shall issue the corresponding
certificate of entitlement for this incentive upon filing of an application,
otherwise, the research and development incentive shall be deemed
waived.

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


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6.1. Located Inside an Economic Zone and/or Freeport Zone: VAT and

Duty Exemption

(a) Importation of capital equipment, including consignment thereof, by
registered export enterprises may be exempted to the extent of one
hundred percent (100%) of the taxes and customs duties; Provided,
that the following conditions are complied:

() The capital equipment is directly and/or reasonably needed and
will be used exclusively in the registered activity of the export
enterprise unless prior approval of the IPA is secured for the part
time utilization of said equipment in a non-registered activity to
maximize usage thereof or the proportionate taxes and duties are
paid on a specific equipment and machinery being permanently
used for non-registered activities; They are not manufactured

domestically in sufficient quantity, of comparable quality and at
reasonable prices; and,

(i) The approval of the IPA was obtained by the registered export
enterprise for the importation of such machinery, equipment and
spare parts.

Approval of the IPA must be secured before any sale, transfer or
disposition of the imported capital equipment is made: Provided, That if
such sale, transfer or disposition is made within the first five (5) years
from date of importation, any of the following conditions must be
present:

(i) If made to another enterprise enjoying tax and duty exemption
on imported capital equipment;

(ii) If made to another enterprise, upon payment of any taxes and
duties due on the net book value of the capital equipment to be
sold;

(iil) Exportation of capital equipment, machinery, spare parts or
source documents or those required for pollution abatement and
control; or

(iv) For reasons of proven technical obsolescence.

When the aforementioned-sale, transfer or disposition is made under
any of the conditions provided for in the foregoing paragraphs other
than paragraph (ii), the registered export enterprise shall not pay the
taxes and duties waived on such items: Provided further, That if the
registered export enterprise sells, transfers or disposes the
aforementioned imported items without prior approval within five (5)
years from the date of importation, the registered export enterprise and
the vendee, transferee, or assignee shall be solidarily liable to pay
twice the amount of the tax and duty exemption given it: Provided
finally, That even if the sale, transfer or disposition of the capital
equipment is approved after five (5) years from the date of importation,

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the registered export enterprise is stil iable to pay the taxes and duties
based on the net book value of the capital equipment if it has violated
any of its registration terms and conditions. Otherwise, it shall no
longer be subject to the payment of the taxes and duties waived
thereon.

(0) Importation of raw materials, supplies, [spare parts] and semi-
finished products exclusively used by registered export enterprises
in the manufacture, processing or production of its export products
may be exempted from the payment of customs duties and taxes.

The registered export enterprises availing of the above incentives shall
be subject to the following: (a) that said importation will be used
exclusively by the registered export enterprise in its registered activity;
(0) that the capital equipment where the raw materials, supplies, parts
and semi-finished products were used would have qualified for tax and
duty-free importation; and (c) that the approval of the concerned IPA is
obtained by the registered export enterprise, If the registered export
enterprise sells, transfers or disposes of the imported capital
equipment, the provision in the preceding paragraphs for such
disposition shall apply.

6.2, Located outside Economic and/or Freeport Zones: VAT and Duty

Refund

Registered export enterprises located outside the ecozones or free
ports shall be subject to a VAT and Customs Duty Refund Mechanism
as provided in this Act.

‘The VAT and customs duty paid on imported capital equipment may be
refunded provided that the capital equipment is being used by the
registered export enterprise pursuant to its registered activity.

The amount of VAT and customs duty refund on a particular shipment
of raw materials shall be equivalent to the proportion of raw materials
used in the production of the exported goods to the total raw materials
imported multiplied by the amount of VAT and customs duty paid on
such importation. No claim for refund shall be allowed on VAT and
customs duty paid on raw materials which are not or no longer
intended to be used in the registered export activity.

In order to facilitate the immediate processing, clearance and release
of VAT and customs duty refunds as provided in this Act, a Trust
Liability Account (TLA) is hereby authorized to be established in the
Bureau of Treasury (BTr). All VAT and 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 the TLA for the purpose of funding
valid VAT and customs duty refund claims, The claims for VAT and
customs duty refunds shall be made by the registered export

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enterprise to the DOF — One Stop Shop Tax Credit and Duty Drawback
Center (DOF-OSS) which, in tum, will process, approve and release
the VAT and customs duty refund.

A registered export enterprise shall file a claim for VAT and customs
duty refund within one (1) year from the date of actual exportation, All
amounts paid but no longer allowed for refund shall immediately
accrue to the general fund of the National Government.

All applications for VAT and customs duty refund 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.

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

b.3. Tax and Duty Free Importation of Source Documents. — The importation
of source documents by ICT-registered export enterprises inside the zone
shall be eligible for tax and duty free importation. The tax incentive may be
granted to the registered export enterprise for a period of 10 years

b.4. VAT Incentive on Local Sales to Registered Export Enterprises. —

i. The sale of raw materials, packaging materials and capital equipment,
directly used in the registered activity, by a VAT — registered
enterprise to a registered export enterprise shall be subject to zero
percent (0%) VAT.

ji. The sale of services performed by subcontractors and/or contractors in
processing, converting or manufacturing goods for a registered export
enterprise shall be subject to zero percent (0%) VAT, in accordance
with the provisions of the NIRC of 1977, as amended.

The VAT and duty incentives under this sub-section may be granted to the
registered export enterprise for the duration of its registration with its
respective IPA.

SECTION 7. Fiscal Incentives To Registered Domestic Enterprises -
Registered domestic enterprises, which invest in activities listed in the IPP, shall enjoy
tax incentives only by locating in any of the less developed areas (LDAs). They may
choose one of the two options but their choice shall be final and cannot be changed for
the duration of their registration.

i. Option 1: Full Income Tax Holiday (ITH). — A registered export enterprise
may be entitled to a full income tax holiday or a 100% exemption from income
tax for a period of four (4) years from the date of start of its commercial
operations.

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i, Option 2: Reduced Income Tax - Reduced Income Tax (RIT). — A
fegistered export enterprise may be entitled to a partial ITH equivalent to a
50% exemption from income tax for six (6) years.

In computing net taxable income, the enterprise may be entitled to deduct the
foliowing expenses, in addition to ordinary and necessary business expenses
allowed under the NIRC of 1997, as amended:

a.Enhanced Net Operating Loss Carry-over (NOLCO) - The net operating
loss of the registered activity during the first five (5) years from the start of
commercial operation which had not been previously offset as deduction from
gross income may be carried over as deduction from gross income for the
next five (5) consecutive taxable years immediately following the year of such
loss.

b.Accelerated Depreciation ~ Plant, machinery, and equipment that are
reasonably needed and actually used for the production and transport of
goods and services may be depreciated using a rate not exceeding twice the
rate which would have been used had the annual allowance been computed
in accordance with the rules and regulations prescribed by the Secretary of
Finance and the provisions of the NIRC of 1997, as amended.

e.Double Deduction for Training Expenses - Expenses incurred for local
training given to employees for the development of skills, identified as
necessary by the appropriate government agencies and approved by the
concerned IPA, may be claimed as deduction from gross income to the extent
of two hundred (200%) percent of the actual amount of expenses incurred:
Provided, that the training expense shall be deductible on the taxable year the
said training expenses were incurred: Provided further, that the concemed
IPA shall issue the corresponding certificate of entitlement for its incentive
upon filling of an application, otherwise, the training incentive shall be
deemed waived.

d., Double Deduction for Research and Development — Expenses incurred for
research and development conducted in the Philippines relating to the
business shall entitle the registered export enterprise to a special deduction
from taxable income equivalent to one hundred percent (100%) of the total
expenses over and above the allowable ordinary and business deductions for
said expenses under the NIRC of 1997, as amended: Provided, that the
expenses for research and development shall be deductible from gross
income on the taxable year the said research and development expenses
were incurred: Provided further, that the concemed IPA shall issue the
corresponding certificate of entitlement for this incentive upon filing of an
application, otherwise, the research and development incentive shall be
deemed waived

SECTION 8. Strategic Projects. - The President upon the joint

recommendation of the Secretary of Finance, Secretary of Trade and Industry and
Director-General for Economic Planning, may allow the registration of, and the grant of
tax incentives to, a strategic project that will undertake an activity that is not listed in the

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IPP either as an export-oriented or domestic-oriented enterprise: Provided, That a
strategic project is a project that will significantly contribute to the country’s economic
development in terms of pouring in a large amount of capital investment of at least US $
500 Million, generating sizeable employment of at least 200, utilizing new and
internationally accepted high level of technology and creating high value added:
Provided, further, That the strategic project is locating in the country as a result of stiff
competition with other countries: Provided, however, that a Public-Private Partnership
(PPP) project approved by the PPP Center shall be considered a strategic project and
eligible for tax incentives: Provided, finally, That a strategic project registered as a
domestic enterprise may locate anywhere in the country.

SECTION 9. Tax Incentive for Private Ecozone Developers.-
Notwithstanding the’ provisions of RA 7916, as amended, PEZA may confer upon
private developers of PEZA ecozones the 5% tax on gross income earned in lieu of all
national and local taxes except the value-added tax and real property tax.

SECTION 10. Sunset Provision for the Grant of Income Tax Holiday. - When
any of the following benchmarks is attained, the grant of the full ITH shall be withdrawn:
Provided, that in the case of the ITH-GIE sequential tax incentive option, the ITH shall
be replaced by the RIT.

a. Ratio of National Government infrastructure budget to Gross Domestic
Product (GDP) equivalent to five percent (5%);

b. Per capita GDP equivalent to USS 10,000; or
¢. Regular corporate income tax rate equivalent to twenty percent (20%).

SECTION 11. Authority of the Bureau of Customs (BOC) to Examine the
Entry and Exit of Imported Articles in the Economic Zones and Free Ports. ~ The
BOC shall have the authority to examine the entry and exit of imported articles into the
economic zones and free ports for the purpose of determining the quantity and
description of subject imported articles.

SECTION 12. Percentage of Income Allowable from Sources within the
Customs Territory or Sources from Local Sales. — Registered export enterprises
located in ecozones and free ports may generate income from sales to the customs
territory of up to thirty percent (30%) of their total income from all sources: Provided,
That should an enterprise's income from sources within the customs territory or from
local sales exceed 30% of its total income from all sources, then, its entire income
including income from within the customs territory or local sales shall be subject to the
regular income tax provisions of the national internal revenue code as amended, In
other words, it foregoes its privilege of enjoying’ all tax incentives for the pertinent
period.

SECTION 13. No Double Registration of Enterprises. - Export or domestic
enterprises shall not be allowed to register their export or domestic activity in more than
one IPA. In the event that an enterprise shall transfer to another PA, only the remaining
unutilized incentives shall be granted to the enterprise or the transferee, vendee or
assignee.

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SECTION 14. Governance Rules. - The DTI, through the different IPAs, shall
encourage the public listing of at least twelve (12) registered enterprises .in the
Philippine Stock Exchange or directly offer a portion of their capital stock to the public
and/or their employees.

Further, accounting rules shall be refined so that incomes will be appropriately
accounted for and expense allocations to the Philippine unit will not be abused.

SECTION 15. Extension of Period of Availment of Incentives. - The
availment period of the incentives provided herein may be extended by the concerned
IPA, with the concurrence of the DOF, in the event that the registered enterprise has

suffered operational force majeure that has impaired the viability of the registered
activity

SECTION 16. Administration, Implementation and Monitoring of Incentives,
- The BOI, PEZA and the other IPAs shall be responsible for the administration and
implementation of 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 fax incentives granted to their registered
enterprises, and other data related to the grant of investment incentives, on a quarterly
basis and to cover alll their registered enterprises including those whose incentives are
provided by investment incentive laws prior to the effectivity of this Act. For proper
monitoring, the DOF, together with the BIR and BOC, shall create a single database of
all incentives provided by all IPAs. The DOF, BIR and BOC shall monitor and review the
incentives granted and submit an annual report to the President and to the Chairman of
the Committee on Ways and Means of both houses of Congress.

SECTION 17. Membership in Boards of All IPAs. — To ensure that the grant
and administration of investment incentives are in accordance with the country’s
medium-term economic development plan, are fiscally-sustainable and contributes to
the growth and competitiveness of industries, the National Economic and Development
Authority (NEDA), Department of Finance (DOF) and the Department of Trade and
Investment (DTI) shall sit as members in the governing boards of all IPAs: Provided,
That the pertinent provisions of special laws and executive orders creating these IPAs
are hereby amended accordingly.

TITLE IV
FINAL PROVISIONS

SECTION 18. Vested Right. - Notwithstanding any provision of law to the
contrary, incentives granted to existing registered enterprises pursuant to contracts or
agreements entered into with government instrumentalities/corporations shall continue
to be legally binding in accordance with the terms and conditions stated in their
respective contracts or agreements, as provided under existing laws.

SECTION 19. Streamlining the Institutional Structure in Tax Incentive
Policy Formulation, Promotion and Administration. — Within one (1) year from the
effectivity of this Act, the Executive Department shall propose to Congress a measure
that will streamline the institutional structure governing investment incentives with the
general thrusts of separating the policy-making and promotions functions from, the
tegulatory and administrative functions.

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SECTION 20. 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 IPA may
suspend its availment of incentives, until proven otherwise.

The IPA may impose fines and penalties and/or forfeit the incentives granted to
its registered enterprises whenever there are violations of the registration terms and

conditions by the latter, without prejudice to the cancellation of the registration of said
enterprise.

In case of cancellation of the Certificate of Registration granted under this Code,
the IPA may, in appropriate cases, require the refund of incentives availed of and
impose corresponding fines and penalties.

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

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 above, shall be subject to a fine of not less than One Hundred
Thousand Pesos (P100,000.00) but not more than Three Hundred Thousand Pesos
(P300,000.00) without prejudice to disqualification from appearing or doing business
with any IPA.

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

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

SECTION 21: Revenue Savings from the Rationalization of Fiscal
Incentives. - Revenue gains or savings from the implementation of this Act shall be
utilized exclusively for the following purposes: fifty per cent (50%) for infrastructure and
fifty per cent (50%) for educational purposes.

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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.

SECTION 22. Implementing Rules and Regulations (IRR). - The DTI, DOF
and NEDA, in consultation with the DBM, BOI, PEZA, other IPAs and other concemed
government agencies, shall jointly promulgate rules and regulations to implement the
intent and provisions of this Code within one hundred twenty (120) days from effectivity
of this Code. Such rules and regulations shall take effect fifteen (15) days following its
publication in a newspaper of general circulation in the Philippines.

The different IPAs shall implement the provisions of this act in accordance with
their respective mandates.

SECTION 23. Transitory Provision. Until the Implementing Rules and
Regulations of this Code take effect, the present rules and regulations under the old
investments laws shall apply.

SECTION 24, Separability Clause. - The provisions of this Code are hereby
declared to be separable and, in the event any of such provisions is declared
unconstitutional, the other provisions which are not affected thereby, shall-remain in
force and effect.

SECTION 25. Repealing Clause. -

a. Pursuant to Section 15 of this Code, the following provisions are amended
accordingly:

i. Article 4 of EO 226, as amended, or “Omnibus Investment Code of 1987;"

ii, Section 9, 13 (c), and 16 of RA 7227, as amended, or "Bases Conversion
and Development Act of 1992;"

iii, Section 3 of EO 80 entitled “Creation of the Clark Development
Corporation:”

iv. Section 6 of EO 132 entitled "Creation of the Poro Point Management
Corporation;*

v. Section 7 of RA 7922 or "Cagayan Special Economic Zone Act of 1995,”

vi. Section 9 of RA 7903 or “Zamboanga City Special Economic Zone Act of
1995;"

vil. Section 15 of RA 9490, as amended, or “Aurora Pacific Economic Zone
and Freeport Act of 2010,”

vili. Section 14 of RA 9728 or "Freeport Area of Bataan Act of 2009;” and
ix. Section 65 of RA 9593 or “The Tourism Act of 2009;*
b. The following provisions on tax incentives are repealed accordingly:

i. Title Il, Article 39 (A), (B), (D), (E), (G), (0), (J). (K). (L), (M) and (N),
Title IV, Article 40, (A) and (B): Book III, Chapter I, Articles 61 and 62;

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Book III, Chapter Ill, Articles 63, 64, 65, 66 and 67; Book IV, Articles 69
And 70; and Book VI, Articles 77 and 78 of Executive Order No. 226,
Series of 1987 entitled "The Omnibus Investments Code Of 1987;"

Sections 23 and 24 of RA No. 7916 entitled “An Act Providing For The
Legal Framework And Mechanisms For The Creation, Operation,
Administration, And Coordination Of Special Economic Zones In The
Philippines, Creating For The Purpose The Philippine Economic Zone

Authority (PEZA), And For Other Purposes (Special Economic Zone
Act of 1995);"

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

Section 17 (1) to (8) and Section 18 (A), (B), (C) and (F) of PD No. 68
entitled “An Act Creating The Export Processing Zone Authority And
Revising Republic Act No. 5490;"

4" Paragraph of PD No. 529 (Restored y FIRB Resolution 19-87)
entitled "An Act Granting To Petroleum Exploration Goncessionaires
Under The Petroleum Act Of 1949 Exemption From Customs Duty And
Compensating Tax On Importations Of Machinery And Equipment,
Spare Parts And Materials Required For Their Exploration Operations,”

Sections 8, 9 and 2" Sentence of the 1* Paragraph and 2™ Paragraph
of Sec. 10 of PD No. 538 entitled “An Act Creating And Establishing
The Phividec Industrial Authority And Making It A Subsidiary Agency
Of The Philippine Veterans Development Corporation, Defining Its
Powers, Functions And Responsibilities, And For Other Purposes;"

Sections 36 (E) and (F), (1) and (2) of PD No. 705, or “Revising PD
No, 389, Otherwise Known As The Forestry Reform Code Of The
Philippines,”

Section 16 (A), (B) and (C) and Section 17 (A) to (E) of PD 972,
Otherwise Known As “Promulgating an Act to Promote an Accelerated
Exploration, Development, Exploitation, Production And Utilization Of
Coal;”

Section 3 of PD 1174, Amending Section 10 of PD 972, As Amended,
Entitled, “Amending PD 972, Otherwise Known as The Coal
Development Act Of 1976,”

x. Section 4 (A) and (0) of Presidential Decree No. 1442 - Restored by FIRB

Resolution 19-87, Otherwise Known As “An Act to Promote the
Exploration And Development Of Geothermal Resources;"

xi. Section 10 (1) to (6) of RA 7156 entitled “An Act Granting Incentives to

Mini-Hydro Electric Power Developers and For Other Purposes” (Mini-
Hydroelectric Incentive Act);*

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Section 16 (A), (C), (D), (E) And Section 17 of RA 7844 entitled “An
Act to Develop Exports as a Key towards thé Achievement of the
National Goals towards the Year 2000 (Export Development Act Of
1994);"

Chapter XV, Section 83; Chapter XVI, Sections 90, 91, 92, 93 (A) and
(B) of RA No. 7942, entitled “An Act instituting a New System of
Mineral Resources Exploration, Development, Utilization, and
Conservation (Philippine Mining Act Of 1995);”

Section 9 of RA No. 8479, entitled “An Act Deregulating the
Downstream Oil Industry, and for Other Purposes (Downstream Oil
Industry Deregulation Act Of 1998);*

Section 3 (A) to (D) and (H) of RA No. 8502, entitled “An Act to
Promote the Development of the Jewelry Manufacturing Industry,
Providing Incentives Therefor and for other Purposes (Jewelry Industry
Development Act of 1998);"

Chapter II, Artiole Il, Sec. 35 (B), (C) And (D) of RA No. 8550, entitled
“An Act Providing for the Development, Management and
Conservation of the Fisheries and Aquatic Resources, Integrating All
Laws Pertinent Thereto, and for other Purposes (The Philippine
Fisheries Code Of 1998);*

Section 1 and Section 2 (A) and (B) and Sec. 6 of EO No. 528, Series
of 2006, Amending EO No. 313, Series of 2004 — “Reducing the Rates
of Duty on Capital Equipment, Spare Parts and Accessories Imported
by BOI-Registered New and Expanding Enterprises;"

Section 4 (E) and (F) of RA No. 7903, entitled “An Act Creating Special
Economic Zone And Free Port in the City Of Zamboanga and
Establishing for this Purpose the Zamboanga City Special Economic
Zone Authority, Appropriating Funds Therefor, and for other Purposes,”

Section 4 (B) and (C) of RA No. 7922, entitled "An Act Establishing a
Special Economic Zone and Free 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
(Cagayan Special Economic Zone Of 1996):"

Section 1 (B) and (C), Sections 2, 3, 4, 5, 6 and 7 of RA No. 9400
Otherwise Known As "An Act Amending RA 7227, as amended,
otherwise known as The Bases Conversion and Development Act Of
1982, and for other Purposes;”

Section 1 of EO No. 619, entitled “Creating and Designating Special
Economic Zones Pursuant to Ra 7916, as Amended by RA 8784, in
Relation to RA No. 7227, as Amended by RA 9400, Inside The Clark
Freeport Zone";

19


| 1 rail. Section 5 (A) to (M) and Section 9 of RA No. 9490, as amended,
| 2 entitled "Establishing the Aurora Pacific Economic and Freeport Zone
i 3 in the Province of Aurora, Creating for the Purpose the Aurora Pacific
i a Economic and Freeport Zone Authority, Appropriating Funds Therefor
5 and for other purposes;”
|
6 xxiii, Chapter I, Section 4 (A), (B), (C) and (D) and Chapter Vill, Section 19
i 7 (A), (B) and (C) of RA 9295, Entitled, “An Act Promoting the
\ 8 Development of Philippine Domestic Shipping, Shipbuilding, Ship
9 Repair and Ship Breaking, Ordaining Reforms in Government Policies
i 10 Towards Shipping in The Philippines and For Other Purposes,”
n xxiv. Sections § and 6 of RA 9728, entitied “An Act Converting the Bataan
2 Economic Zone Located in the Municipality of Mariveles, Province of
3B Bataan, Into the Freeport Area of Bataan (FAB), Creating for this
| 14 Purpose the Authority of the Freeport Area of Bataan (AFAB),
15 Appropriating Funds Therefor and for other Purposes,”
16 xxv, Subchapter V-A, Section 86 (A) to (F) and Section 88 (A) to (E) RA No.
7 9593 entitled “An Act Declaring a National Policy for Tourism as an
18 Engine of Investment, Employment, Growth and National
19 Development, and Strengthening the Department of Tourism and Its
20 Attached Agencies to Effectively and Efficiently Implement that Policy,
a and Appropriating Funds Therefor.”
2 xxvi. Chapter VII, Sections 15, 19, 21, 22 and 23 of RA No. 9513, entitled
23 “Renewable Energy Act of 2008.”
| 2 All other laws, acts, decrees orders and issuances or provisions thereof

i 25 inconsistent with any of the provisions of this act are hereby repealed or modified
| 26 accordingly.

27 SECTION 26. Effectivity. - This Act shall take effect fifteen (15) days following
28 its publication in a newspaper of general circulation in the Philippines.

29 Approved,

20