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Republic of the Philippines

HOUSE OF REPRESENTATIVES
Quezon City

Fifteenth Congress
First Regular Session

Submitted ait the Committees on Ways and Means and Trade and Industry on

14 UL 20
4935

Re. House Bill No. _
Recommending, its approval in substitution of House Bill Nos, 938,
3162, 4152 and 4402

Sponsors _: Representatives Hermilando 1, Mandanas, Albert §. Garcia, Susan A.
Yap, Gloria Macapagal-Arroyo, Feliciano Belmonte, Jr. an Neptali
M, Gonzales 11

Mr, Speaker;

‘The Committees on Ways and Means and ‘Tvade and Industry to which were referred
House Bill No. 938, introduced by Reprosentative Susan A. Yap, entitled

“THE INVESTMENTS AND INCENTIVES CODE OF THE
PHILIPPINES,”

House Bill No. 3162, introduced by Representative Gloria Macapagal-Arroyo,
entitled om,

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

House Bill No. 4152, iniroduced by Representatives Feliciano Belmonte, Jr. and
‘Neptali M. Gonzales Ui, entitled:

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

House Bill No. 4402, introduced by Representative Albert S. Garcia entitled:

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“AN ACT CREATING THE INVESTMENTS AND INCENTIVES,
CODE OF THE PHILIPPINES,”

have considered the same and recommend that the attached House Bill No.
49 35). antitied.
“THE INVESTMENTS AND INCENTIVES CODE OF THE
PRUOLEPPINES,”

be approved in substitution of House Bill Nos. 938, 3162, 4152 and 4402, with
Representatives Susan A. Yap, Gloria Macapagal-Arroyo, Feliciano Belmome, Jr.,
Nepiali M. Gonzales IL Albert §. Garcia, Hermilando I. Mandanas, Tomas V.
Apacible and Rufus B. Rodriguez, as authors thereof.

Respectfully submitted,

8. GARCIA REBATERMELANDO 1. MANDANAS
Chibrman
mmittee on Trade and industry mmittee on Ways and Means

‘THE HONORABLE SPEAKER
HOUSE OF REPRESENTATIVES
QUEZON CiTY



eI Abe

Republic of the Philippines
House of Representatives
Quezon City, Metro Manila

Fifteenth Congress
First Regular Session

HOUSE BLLL NO, 4935

(In substitution of House Bill Nos, 938, 3162, 4152 and 4402)

Introduced by Representatives Susan A Yap, Gloria Macapagal-Arroyo, Feliciano Belmonte, Jr
Neptali M. Gonzales I, Albert 8. Gurcia, Hermilandg T Mandanas, Tomas V. Apacible and
Rufils B. Rodriguez

‘THE INVESTMENTS AND INCENTIVES CODE OF THE PHILIPPINES

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

PRELIMINARY TITLE
CHAPTER 1

TITLE AND DECLARATION OF POLICY

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

SEC. 2. Declaration of Investment Policies. - The national economy shall be developed
$0 as to enhance its competitiveness in the global economy through investment promotion and
industrial development activities geared towards employment generation and countrywide
development. Accordingly, the following are the declared policies of the State:


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The State shall pursue a market-responsive investment regime
The State shall formulate industry and sectoral development programs;

The State shall undertake investment promotion activities,

The State shall grant incentives that are simple to administer, time-bound and
performance-based; and

ce. The State recognizes that industrial peace is essential to attracting investments

ange

CHAPTER UL
ORGANIZATION AND FUNCTIONS OF THE BOARD OF INVESTMENTS

SEC. 3. the Board of Investments (BOD), ~The Board of Lavestments hereinafter referred
fo as the “BOL” shall implement the provisions of this Act except as otherwise provided therein

SEC. 4. Relationship of tnvestment Promotion Agencies (IPAs) with the BOL and Other
Government Agencies. - IPAS shall maintain their functions as provided for in their respective
Charters except to the extent modified by the provisions of this Act

For purposes of maintaining an efficient database on investment statistics and other
investment data and information, all PAs shall be required to submit to the BOL all investment
data and information and such other related data semi-annually or as olen as may be required.

SEC 5. Governing Provision for IPAS. — All existing and future LPAs vested with the
power to confer and administer incentives shall offer the incentives provided in this Act:
Provided, bowever, That LPAs that are not covered by this Act may opi to administer the
incentives hereunder; Provided, further, That there shall be no double availment of incentives.

SEC 6, Composition of the BOL Board of Governors. ~The BOL Board of Governors,
hereinafter referred to as the “Board”, shall be composed of nine (9) governors: the Secretary of
the Department of Trade and industry (DT), the Secretary of the Department of Finance (DOF),
the Director General of the Nationat Economic and Development Authority (NEDA), the DTT
Undersecretary for Investments and Industry Group (IG), the DTI Undersecretary for
International Trade Group (ITG), the IDT1 Undersecretary for Regional Operations Group (ROG)
and three (3) representatives from the private sector. The Secretary of the JT! shall concurrently
be the Chairperson of the BOT and the DT] Undersecretary for Investments and Industry Group
shall be the concurrent Vice Chairperson and Managing Governor of the BOL. The three (3)
representatives from the private sector shall be appointed by the President for a term not
exceeding two (2) years: Provided, That 4 governor may be reappointed: Provided, further, That
a governor shall serve as such until the successor shal! have been appointed and qualified

‘The Managing Governor of the BOI shall be assisted by four (4) career depury managing
governors with the rank of Assistant Secretary, who shall be appointed by the Board, upon the
recornmendation of the Managing Governor.


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SEC. 7. Qualifications of the ROT Bourd of Governors. - The governors of the BOT shail
be citizens of the Philippines. at least thirty-five (35) years old, with proven probity and integrit
of good moral character and of recognized competence in law, economics, business. marketing,
advertising, management or its equivalent

SEC. 8. Powers and Functions uf the Board. - The Board shall be responsible for
industry development, policy formulation, investment promotion, and investment facilitation. It
shall hold meetings at least once a week for the conduct of business or as often as may be
necessary upon the instance of the Chairperson or the Managing Governor. The notice of regular
and special meetings shall be given to all the members of the Board and the presence of five (5)
members siall constitute 4 quorum and the affirmative vote of five (5) members in a meeting
validly held shall be necessary to exercise its powers and perform its functions which shall
include the following,

a. Formulate an evolving National Framework for Investment Promotions (NFIP) and
promulgate its rules, regutations and policies thar will govern all investments
Promotion Agencies (IPAs);

b. Formulate an evolving National Framework for Industrial Development (NFLD) and
promulgate its rules, regulations and policies in consultation with the private sector
The NFID shall identify key emerging markets or industries that will substantially
enhance the competitiveness of the country, which include among others, research
and development, agricultural technology, biomedical devices and systems,
renewable energy, logistics and information communications and technologies.

¢. Promulgate cules, regulations and policies on the administration of incentives which
‘the [PAs are mandated to implement,

d, Plan and implement industrial programs to hasten economic development including
those relating to the implementation of international trade, investment and industry-
related environmental agreements and protocols,

€. Determine the criteria for the grant of subsidy on utilities to certain sectors and/or
industries and recommend to the President the approval thereof, this shall be carried
out and be appropriated in the annual general appropriations or such other sources as
may be identified;

Prepare the Investments Priorities Plan (LPP) in accordance with Title T1, Chapter I of
this Act,

g. Formulate rationalization programs for certain industries whose operation may result
in dislocation, oversupply or inefficient use of resources that impedes economic
growth. In the interest of national development and upon approval of the President,
the Board may resttict, either totally or partially, the importation or exportation of any
equipment, raw materials, intermediate goods or finished goods:

b, Formulate and negotiate positions for bilateral, multilateral and regional investments
and investment-related trade agreements and/or arrangements;


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Establish the Investment Promotion Action Center (-PAC),

Establish and operate regional investment centers in the Philippines, und establish and
operate overseas investment offices:

Extend assistance to micro and small enterprises in the preparation of feasibility and
other pre-investment project studies;

Process and approve, deny, suspend, revoke applications for registration, imposing
terms and conditions as it may deem necessary to promote the purposes of this Act,
including the refund and forfeiture of incentives when appropriate, restricting
ayailment of incentives not needed by the project as determined by the Board,
requiring performance bonds trom BOLaccredited bonding companies, and payment
of application, registration, publication and other fees, when warranted:

Recommend to the President the suspension of the nationality requirement provided
for in this Act in appropriate cases such as those involving bilateral, multilateral, or
regional investments, or other trading agreements of the Philippines with other
countries; or when the existing Jaws of another country where the investor comes
from provides no nationality restrictions for Filipino investors of provides for
reciprocal nationality accommodations;

In meritorious cases, waive, condone or reduce fines or penalties imposed on
registered enterprises; Provicledd, That in case of reduction, the minimum compromise
rate shall nor be less than 4 % of the basic assessed fines or penalties,

Enter into agreements with other agencies for the simplification of systems and
procedures involved in the promotion of investments, operation of zones and
registered enterprises, and other activities necessary tor the effective implementation
of this Act,

Exercise general supervision over the ecozones and freeports according to the
principles and provisions set forth in this Act;

Establish domestic industrial zones to be approved by the President,

Set the general policies on the establishment and operations of domestic industrial
zones and determine the qualifications. responsibilities and tunctions of the
Administrator of such domestic industrial zones,

Coordinate with local government units and exercise general supervision over the
development plans, activities and operations of domestic industrial zones,

Set the policies on the establishment of utilities, other services, and infrastructure in
the domestic industrial zones such as heat, light, power, water supply
telecommunications, transport, toll roads and bridges, port services, and others and to
fix just, reasonable and competitive rates, charges, and fees therefor: Provided. That
the appropriate government regulatory agencies shall regulate the operation and

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maintenance of utilities, such as heat, light, power, water supply, telecommunications,
transport, toll reads and bridges, port services, and others based inside the domestic
industrial zones insofar as such services are rendered outside the domestic imdustrial
zones;

Approve the consiruction, acquisition, ownership, and lease through contract,
franchise, license, bulk purchase from the private sector and build-operate-transfer
scheme or joint venture, or such other scheme as may be determined, adequate
facilities and infrastructure, such as light and power systems, water supply and
distribution systems, telecommunications and transportation, buildings, structures,
warehouses, toads, bridges, ports and other facilities for the operation and
development of the domestic industrial zones;

Gather, consolidate and monitor incentives data and information from all LPAS and
other concerned government agencies for submission to the President and Congress:

Monitor the implementation of Regional Operating Headquarters, Retail ‘Trade Law.
Long-Term Lease and other laws as mandated;

Cancel registration or suspend the availment of incentives of a registered enterprise
and/or require the cetund of incentives, including interests and monetary penalties,
when warranted:

Mediate controversies and/or disputes involving investors,

After due hearing, decide controversies that may atise between BOl-registered
enterprises arising ftom the implementation of this Act. The Board shall have the
power to subpocna witnesses, administer oaths, and compel the production of books,
papers and other evidence, and to cite for contempt any person or organization that
fails to comply with the aforestated processes: Provided, ‘That the Board may grant
immunity from prosevution to any person whose testimony or possession of relevant
ducuments and other evidence is necessary to the case: Provided, further, That a
registered enterprise may file a motion for reconsideration of a decision or final order
within fifteen (15) days from notice thereof, with proof of service on the parties
affected. No second motion for reconsideration of a decision or final order by the
same party shail be entertained:

Implement the investment projects covered by bilateral, multilateral, and regional
agreements subject to rules and guidelines to be formulated by the Board;

Determine the organizational structure of the BOI, and

Exercise all the powers necessary or incidental to attain the purposes of this Act and
other laws vesting additional functions on the Board


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SEC. 9. Powers and Duties of the Managing Governor. - ‘The Managing Governor shall
have the following powers and duties:

a. Preside over the meetings of the Board in the absence of the Chairperson;
b. Prepare the Agenda for the meetings of the Board and submit for its consideration and
approval the policies and measures which the Chairperson deems necessary and

proper to carry out the provisions of this Act,

c. Recommend to the Board such policies and measures may be deemed necessary to
carry out the objectives of this Act

d, Sit as member of the Board of ail IPAs covered under this Code;
@. Assist registered enterprises and prospective investors to have their papers processed
with dispatch by all government offices, agencies, instrumentalities and financial

institutions,

f. Act as liaison to investors, government, affiliated organizations and other
stakeholders;

Coordinate the policies, plans and programs of the BOL As such, to exercise overall
supervision and general direction on the operations and affairs of the BOT;

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fh, Perform the other duties of the Chairperson in the absence of the latter, and such other
duties as may be assigned by the Board of Governors; and

i, Generally, exercise such other powers and perform such other duties as may be
directed by the Board trom time to time.

SEC. 10. the Invesiment Promotion Action Center (i-PAC). ~ There is hereby created an
‘PAC at the BOI that shall serve as the link to all government agencies 10 facilitate enicy,
retentios, expansion and diversification of investments. The BOI shall serve as the Coordinator
of the iKPAC.

The i-PAC shall be composed of all government agencies involved in the establishment
of the operation of business enterprises inctuding, but not limited to, all IPAs, the Securities and
Exchange Commission (SEC), the Bureau of tnternal Revere (BIR), the Bureau of Customs
(BOC), the Bureau of Immigration (BI), the Department of Trade and Industry (DTL), the
Department of the Interior and Local Government (DILG), the Department of Agriculture (DA),
the Department pf Environment and Natural Resources (DENR), the Department of Labor and
Employment (DOLE), the Department of Foreign Affairs (DFA), the Department of Eneray
(DOE), the Department of Public Works and Highways (DPWH), the Department of Agrarian
Reform (DAR) and such other agencies as may be determined by the Board. The government
agencies involved shall designate representatives to the PAC authorized to act and
approve/deny any matter relative to their respective agencies.


SEC. 11. Powers and Functions of the i-PAC.- The i-PAC shalt exercise and perform the

following powers and functions

a. Provide advice, guidance, information and procedure on various laws, rules and
regulations governing investments and the conduct of business in the Philippines,

b. Ensure that all inyestment-related requirements are acted upon within ten (10)
working days,

c. Recommend the streamlining of existing procedures to ensure that all frontline
agencies, dealing with the operation of business enterprises, shall perform their tasks
for identified transactions between the government and the enterprises,

d. Establish an on-line investment facilitation system,

e. Act, in coordination with appropriate government offices or agencies, such as the
Office of the Ombudsman and the Civil Service Commission (CSC), on complainis
filed by any investor or potential investor against any public official or employee or
any office, agency or instrumentality, incuding local government units (LGUs) and
officials, as well as any government-owned and -controlled corporation (GOCC), in
connection with any act or duty required by law to facilitate the entry of local and
foreign investments; and

f Perform other functions as may be directed by the Board.

SEC. 12. Honoraria and Allowances. -. The Board shall provide for reasonable honoraria

and allowances for the /-PAC members and their personnel,

CHAPTER UT

ESTABLISHMENT OF DOMESTIC INDUSTRIAL ZONES

SEC 13. Criteria for the Establishment of Domestic Industrial Zones. -- The

establishment of domestic industrial zones must conform to the following criteria:

a. The proposed area must be identified as a regional growth center in the Medium-
Term Phitippine Development Plan or by the Regional Development Council,

b. The existence of required infrastructure in the proposed domestic industrial zones,
such as roads, railways, telephones, ports, airports, and the suitability and capacity of
the proposed site to absorb such improvements;

c. The availability of water source and electric power supply for use of the domestic
industrial zones,


d. The extent of vacant lands available for industrial and commercial development and

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2 fiture expansion of the domestic industrial zones as well as of lands adjacemt to the
3 domestic industrial zones available for development of residemial areas for the
4 domestic industeial zones workers,

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6 The availability of skilled, semi-skilled and non-skilled trainable labor force in and
7 around the domestic industrial zones,

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9 f The area must have a signiticant incremental advantage over the existing economic
10 zones-and its potential profitability can be established,

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12 g. The area must be strategically located; and

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4 h The area must be situated where controls can easily be established to curtail
15 smuggling activities

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7 Other areas which do not meet the foregoing criteria may be established as domestic

18 industrial estates: Provided, That the area shall be developed only through local government
19 and/or private sector initiative under any of the schemes allowed in Republic Act No. 6957 or
20 the Build-Operate-Transfer Law, and without any financial exposure on the part of the national
government: Provided,” further, That the area can be easily secured to curtail smuggling
activities: Provided, finally, That after five (5) years the area must have attained a substantial
degree of development, the indicators of which shall be formulated by the Board.

TITLE D

DEFINITION OF TERMS

SEC. 14. Definition of Terms. — As used herein, the following shall mean:

34 a. BOT or the Board shall refer to the Board of Investments created under this Act.
35

36 b. Invesiments Promotion Agencies (IPAs) shall include the BOT, the Philippine
37 Economic Zone Authority (PEZA), the Bases Conversion Develapment Authority
38 (BCDA), the Subic Bay Metropolitan Authority (SBMA), the Clark Development
39 Corporation (CDC), the John Hay Management Corporation (IHMC), the Poro Point
40 Management Corporation (PPMC), and the Tourism Infrastructure and Enterprise
41 Zone Authority (TIKZA) and all other IPAs that may be created by law.

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B ©. Registered Enterprise shall refer to any individual, partnership, corporation,
44 Philippine ‘branch of a foreign corporation or other entity incorporated and/or
45 organized and oxisting under Philippine laws and registered with an TPA, in
46 accordance with this Act: Provided, bowever, That the term “registered enterprise”
47 shall not include any of the following service enterprises such as, but not limited to,
48 those engaged in customs brokerage, trucking/forwarding services, janitorial services,
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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 (NIRC) of
1997, as amended.

Investments Priorities Plan (LPP) shall refer to the list of industries, services and other
economic activities, which will be eligible for incentives under this Act, prepared and
determined as priority or preferred activities in accordance with Title IM], Chapter 1 of
this Act

. New Product or Service shall refer to any product or service not locally or not

sufficiently manufactured/rendered to meet the demand,

Gross Income Earned shalt refer to gross sales or gross receipts derived from the
registered activity less sales returns, discounts and allowances and cost of goods
sold/cost of service.

. Export Sales of Goods shall refer to the sales 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:

1) The sale and actual shipment of goods from the Philippines to a foreign country
by a registered enterprise;

2) Sale of goods to an export enterprise registered in accordance with this Act; to
diplomatic missions and to agencies or institutions allowed to import said goods
tax and duty-free, to international shipping or international air transport
operations; and to foreign military aircraft or seacraft;

3) Sale to a nonresidemt 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

4)

Sale 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 they are paid for in acceptable foreign currency,

Provided, That in the case of paragraph (2) above, only sales to an export
enterprise of capital equipment, raw materials, production supplies, packaging
materials and other production requirements needed for the registered activity of the
export enterprise; and sales to international sea or air transport operations of goods,
equipment, spare parts and supplies, except fuel, to be used in the aircraft or sea craft
and capital equipment needed for the shipping or air transport operations, shall be
entitled to incentives for export emterprises under this Act.


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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”

Export Sales of Services shall mean the sales revenues or receipts, determined from
contracts, invoices, vouchers, official receipts, or other commercial documents of the
following

1) Services rendered for clients abroad by registered enterprises;

2) Services rendered for an export enterprise registered in accordance with this Act;
to diplomatic missions and to other agencies or institutions with tax and duty-free
privileges;

3) Services rendered to international airlines or shipping lines, or foreign military
aircraft or seacraft, or information and communication technology enterprises,
even if rendered locally.

Provided, That in the case of paragraph (2) 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 (3), only services for the overhaul, repair and
maintenance for international shipping or air transport operations, and foreign
military aircraft or seacraf, shall be entitled to incentives for export enterprises under
this Act

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

An Export Enterprise shall refer to a registered enterprise which is a manufacturer,
Processor or service provider and whose export sale of its products or services
exceeds seventy percent (70%) of its total annual production of the preceding taxable
year, The export requirement herein provided may be reduced, but shall not be less.
than thirty (30%), in meritorious cases under such conditions as the Board may
determine.

A Domestic Enterprise shall refer to a registered enterprise, 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.

Service Enterprise shali refer to an enterprise engaged or proposing to engage ia
rendering technical, professional or other services listed in the IPP.

Service enterprise that earns more than seventy percent (70%) of its revenues
paid for in foreign currency generated from nonresident clients shall be entitled to the
incentives provided to an “export enterprise.”


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Source Documents shail refer to input materials and documents reasonably needed by
the registered enterprise 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.

1. Processing shall mean the conversion of 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, aiilfing,
pasteurizing, drying or desiccating, quick freezing, that results in a change in the
nature or state of the products. Processing shall include assembly provided that a
distinct or new product is formed. Mere packing or packaging shall not constitute
processing,

Domestic Industrial Zone shall refer 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 or without pre-built standard
factory buildings and community facilities for the use of a community of industries
established under this Act in accordance with the criteria provided in Section 14,
Chapter III of the Preliminary Title

. ECOZONES or Special Economic Zones (SEZ) shalt refer to selected areas with

highly developed or which bave the potential to be developed into agro-industrial,
industrial, supply chain city, information technology, _tourist/recreational,
commercial, banking, investment and financial centers, retirement and medical zones
whose metes and bounds are fixed or delimited by law or presidential proclamations.
‘An ecozone may contain any or all of the following: industrial estates (IEs), export
processing zones (EPZs), supply chain cities, 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,

Ecozone Developer or Domestic Industrial Zone Developer shall refer to a business
entity duly registered with the Philippine Economic Zone Authority (PEZA) or the
BOL, as the case may be, 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 the PEZA.

Export Processing Zone (EPZ) or Export Zone shall refer to a specialized industrial
estate located physically and/or administratively outside the customs territory and
predominantly oriented to export production.

Freeport shail refer to an isolated and policed area adjacent to a port of entry, which
shall be operated and managed as a separate customs territory 10 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, miixed or otherwise manipulated

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without being subject to taxes and duties.

3. Information and Communications Technology (ICT) Park or ICT Park shall vefer 10
an area which has been developed into an integrated development complex capable of
providing infrastructure and other support facilities required by ICT enterprises, as
well as amenities required by professionals and workers involved in ICT enterprises,
or easy access to such amenities.

t. ICT Center shall refer to a building which has been developed by public or private
corporate entities to provide infrastructure and other support facilities required by
CT enterprises, as well as amenities required by professionals and workers involved
in ICT enterprises, or easy access to such amenities

u. Supply Chain City shail refer to a self-contained zone that includes manufacturing
facility with hub operations in an economic zone: Provided, That, the manufacturing
facility covers whole or partial operations, and the hub operations include Business
Process Outsourcing (BPO) in support of the manufacturing activity of the registered
enterprise; Provided, further, That the BPO activities cover finance and accounting,
high end processes such as marketing, client or buyer- manufacturer relationship,
procurement of materials, logistics management, and other related activities of a
borderless global manufacturing set-up.

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

w. Less Developed Area (LDA) shall refer to an area that is included in the list prepared
by the BOL, afler consultation with appropriate governmem agencies. Such listing
shall take into consideration the following criteria: low per capita gross domestic
product, low level of investments, high rate of unemployment and/or
underemployment and low Jevel of infrastructure development including its
accessibility to developed urban centers,

TITLE
INVESTMENTS WITH INCENTIVES
CHAPTER 1

QUALIFIED ACTIVITIES

SEC. 15. dnvestments Priorities Plan (IPP). - The BOL upon consultation with the Office

of the President, concerned IPAs and appropriate government agencies and the private sector,
shall formulate 4 focused IPP to be submitted to the President for approval and which shall be
valid for a period of thtee (3) years

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In the listing of activities to be undertaken under the IPP, the following shall be complied
with:

a. The activity shall be covered by the current Medium Term Philippine Development
Plan (MTPDP) and Medium Term Philippine Investment Plan (MTPIP) or its
equivalent,

b. The activity shall satisfy the following conditions:

1) Substantial amount of investments;
2) Considerable generation of employment,

3) Use of modern or new technology; or

4) Installation of adequate environmental protection systems:

Provided, That items b(1) and b(4) above shall be required in all activities, and the
threshold amount of investments and employment generation required for a specific
activity shall be subject to a periodic review taking into consideration international
standards and other indicators: Provided, further, That the Plan shalt be reviewed
every three (3) years,

©. The activity must comply with the specific qualification requirements and conditions
for a particular sector or industry as set by the appropriate government agency and
such other conditions as may be determined.

SEC, 16, Amendments. — Subject to publication requirements and the criteria for
investment priority determination, the Board may, at any time, include additional areas in the
APP, alter any of the terms of the declaration of an investment area, and temporarily or
permanently suspend activities on the {PP if it considers that such activity is no longer a priority.
In no case, however, shall any amendment of the IPP impair the incentives conferred on «
registered enterprise. The Board shall not accept applications in an area of investment prior to
the approval of the same as a preferred area or after approval of its deletion as a preferred area of
investment in the IPP.

SEC. 17. Publication, — Upon approval of the IPP, in whole or in part, or upon approval
of an amendment thereof, the IPP or the amendment, specifying and declaring the areas of
investment shall be published in at least one (1) newspaper of general circulation and alt such
areas shall be open for application until publication of an amendment or deletion thereof.

SEC. 18, Strategic Projects, — The President, upon recommendation of the Board, may
allow registration of a strategic project that may not be listed in the IPP, but will locate in the
country as a result.of stiff competition with other countries,

A strategic project is a project that exhibits high social economic returns and requires
large investments that will significantly contribute to the country’s economic development. In
the exercise of this authority, any three (3) of the following criteria shall be taken into account:
(1) large capital invesiments; (2) generate sizeable employment, (3) use of new and
internationally accepted high level of technology, and (4) create value-added.


Notwithstanding the preceding paragraphs of this Section or any law to the contrary, a
project which shall lead to significant improvements in productivity and value-added and that
will (a) produce or manufacture new, emerging and technologically advanced product, or (6)
involve breakthrough process innovation, or (c) involve new and innovative service, and projects
under the flagship program of the government such as projects under the Public-Private
Partnership (PPP) program shall also be deemed as “strategic project”.

CHAPTER If

INCENTIVES TO REGISTERED ENTERPRISES

SEC 19. General Incentive Provision The incentives provided in this Act may be
availed of by the registered enterprise to the extent of their registered activity upon election at the
time of application for registration: Provided, That, such election, once made, shall be final,
Provided, further, That the reckoning period for availment of incentives shall be at the start of
commercial operation.

SEC. 20, Incentives to Registered Export Enterprises. — Registered Export Enterprises
shall have the following incentives;

a. Income tax-hased incentive options for registered export enterprises located inside or
outside ecozones or free ports. —

1) Income Tax Holiday (ITH) for a period of six years (6) years and thereafter, five
percent (5%) tax on Gross Income Earned (GIB), in lieu of all national and local
taxes except real property tax (RPT) on tand owned by private developers, for a
period of nineteen (19) years, or

2) Five Percent (5%) Tax on GIE, in lieu of all national and local taxes except RPT
on land owned by private developers, for a period of twenty five years (25) years,
or

3) Fifty Percent (50%) reduction from corporate income tax for a period of twenty-
five (25) years.

The registered export enterprise shall avail 100% of any of these income-tax
based incentives; Provided, That, the 70% export requirement is reached; Provided,
further, That failure to meet the 70% threshold, the registered export enterprise may
only be entitled thereto to the extent of the export sales generated provided that it is
not less than 30%, otherwise, all of its income shall be subject to the relevant internal
revenue taxes under the National Intemal Revenue Code of 1997, as amended;
Provided, finally, That the tegistered export enterprise shall pay taxes and duties on
importation of raw materials used for domestic sales.

b. Value-added Tax (VAT) and Customs Duty Treatment on Importation of Capital
Equipment and Raw Materials.


1) Located Inside an Economic Zone and/or Freeport Zones

i, Exemption from VAT and customs duty on importation of capital
equipment, including consignment thereof subject to Section 32 of this Act,

ii, Exemption from VAT and customs duty on importation of raw materials,
supplies, spare parts and semi-finished products used exclusively by the
registered export enterprise in its registered activity;

2) Located Outside Economic and/or Freeport Zones

i. Exemption from VAT and customs duty on importation of capital
equipment, inchiding consignment thereof subject to Section 32 of this Act.

ii, Exemption from VAT and customs duty on importation of raw materials,
supplies, spare parts and semi-finished products used exclusively by the
registered export enterprise in its registered activity provided that such
registered export enterprise is operating a Customs Bonded Manufacturing
Warehouse (CBMW) or is an accredited user of a Customs Common
Bonded Manufacturing Warehouse (CCBMW),

iii, Refund of VAT and customs duty on importation of raw materials, supplies,
spare parts and semi-finished products used exclusively by the registered
export enterprise in its registered activity if the registered export enterprise
is not operating a CBMW or is not an accredited user of a CCBMW.

Tax and Duty Free Importation of Source Documents. — The importation of source
documents by registered export enterprises shall be eligible for VAT and customs
duty exemption. The tax incentive may be granted to the registered export enterprise
for a period of ten (10) years

|. Zero Percent (0%) Rate of VAT on the Sale by a Domestic Enterprise to a Registered

Export Enterprise. — The provisions of law to the contrary notwithstanding, the sale
by a domestic enterprise of goods and/or services to a registered export enterprise,
regardless of the latter’s location and whether enjoying the ITH, the Reduced Income
Tax or the five percent (5%) tax on GIE shall be subject to zero percent (0%) VAT
rate: Provided, That such goods and/or services are required by registered export
eaterprise’s activity.

. Exemption from Wharfage Dues. - The provisions of law to the contrary

notwithstanding, exports by a registered export enterprise shalt be exempted from
wharfage dues and export taxes.

Employment of Foreign Nationals. - Subject to the provisions of Commonwealth Act
No. 613, as amended, a registered export enterprise may employ foreign nationals in
managerial, technical or advisory positions


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 amended,
shall be permitted to enter and reside in the Philippines during the period of
employment of such foreign nationals.

Notwithstanding any provision of the law to the contrary, foreign nationals,
subject to the following conditions, may be allowed the practice of profession inside
an ecozone:

1) The foreign national shall secure the required permit from the Professional
Regulatory Commission to practice his profession;

2) The law of the country of that foreign national allows genuine reciprocity for
Filipinos to practice their profession thereto;

3) There is no competent, able and willing Filipino at the time of application to
perform the profession for which the foreign national is desired;

4) The foreign national shalt train two Filipino understudies;

5) The ratio of foreign nationals vis-a-vis Filipinos practicing the same profession in
a registered enterprise shall not exceed 1:5 and shall not in any case exceed 5% of
the total workforce of the said registered enterprise:

6) The foreign national meets the conditions set forth under Section 28 (b), (c) and
(dof this Act; and

7) The practice of profession of, the foreign national in the Philippines shall not
exceed a total of five years extendible for a limited period as determined by the
Board,

SEC. 21. Tax Treatment and Other Incentives for Registered Enterprises in Ecozones and
Freeport Zones. — In addition to the applicable incentives provided under the preceding section
‘on export incentives, registered enterprises locating in the Special Economic Zones and Freeport
Zones shall be entitled to the following incentives:

a. Tax Treatment of Merchandise in Ecozones or Freeports. —

1) Except as otherwise provided in this Act, foreign and domestic merchandise, raw
materials, supplies, articles, equipment, machineries, spare parts and wares of
every description, except those prohibited by law, brought into the ecozones of
freeports to be sold, stored, broken up, repacked, assembled, installed, sorted,
cleaned, graded, or otherwise processed, manufactured, mixed with foreign or
domestic merchandise whether directly or indirectly related in such activity, shail
not be subject to customs and internal revenue laws and regulations nor to local
tax ordinances, the provisions of law to the contrary notwithstanding

16


2) Merchandise purchased by a registered enterprise located in the ecozones or
freeports from the customs territory, and subsequently brought into the ecozones
or freeports, shall be considered as export sales and exportation thereof shail be
entitled 10 the benefits allowed by law for such transaction.

3) Merchandise sent from the ecozones or freeports to the customs territory sball,
whether or not combined with or made part of other articles likewise of local
origin or manufactured in the Philippines while in the ecozones or freeports, be
subject to internal revenue and customs faws of the Philippines as domestic goods
sold, transferred or disposed of for local consumption, Lf the finished goods have
imported components, the duties shall be based on the value of said imported
materials, except when the final product is exempt.

4) Qualified merchandise or articles manufactured by registered ecozone or freeport
locators, which are made available for sale in the domestic market shall be
imposed the applicable ASEAN Common Effective Preferential Tariff (CEPT)
rate, if qualified, or applicable tariff rates under bilateral or regional trade
agreements, if qualified, or Most Favoured Nation (MFN) rate on imported raw
materials and MEN rates on non-qualified raw materials used in the manufacture
of the qualified merchandise or articles. In case of bilateral agreements, the
applicable rate shall be the agreed rate.

5) Domestic merchandise on which ail interna) revenue taxes have been paid, if
subject thereto, and foreign merchandise previously imported on which duty or
tax has been paid, or which have been admitted free of duty and tax, may be taken
into the ecozones or freeports from the customs territory of the Philippines and be
brought back thereto free of quotas, duty or tax.

6)

Subject to such regulations respecting identity and safeguarding of the revenue as
the concerned IPA may deen necessary when the identity of an article entered
into the ecozones or freeports under the immediately preceding paragraph has
been lost, such article when removed from the ecozones or freeports and taken to
the customs territory shall be treated as foreign merchandise emering the country
for the first time, under the provisions of the Tariff and Customs Code of the
Philippines, as amended.

7) Articles produced or manufactured in the ecozones or freeports and exported
therefrom shall, on subsequent importation into the customs territory, be subject
to the import laws applicable to like articles manufactured in a foreign country.

8) Articles regulated by law for sale to the domestic market shall only be allowed to
be used or consumed within the ecozones or freeports.

9) Unless the contrary is shown, merchandise taken out of the ecozones or freeports
shall be considered, for tax purposes, to have been sent to customs territory.


Special Economic Zones declared by presidential proclamations or created
by law may avail of the incentives provided herein as conferred by the appropriate
IPA subject to such terms and conditions as may be provided by law.

b. Tax Treatment of Services in the Ecozones or Freeports. —

1) Sale of service by an entity from the customs territory to a registered ecozone or
freeport enterprise or by a registered ecozone or freeport enterprise 10 another
ecozone or freeport enterprise shail be treated as indirect export, and hence, shall
not be subjected to internat revenue taxes for such transaction.

2) Sale of service by a registered ecozone or freeport enterprise 10 the customs
territory shall be subject to the applicable internal revenue laws and regulations,

SEC. 22. Incentives for Registered Domestic Enierprises. - Registered domestic

enterprises shall be qualified to the following incentives to the extent of their registered activity.

a, Income tax-based incentive options:

1) Income Tax Holiday (ITH) for a period of four (4) years; then ten percent (10%)
Corporate Income Tax (CIT) rate for ten (10) years if located in 1" to 3 class
municipalities; twelve 12 years if located in 4" to 6" class municipalities, or

2) Fifty Percemt (50%) reduction from corporate income tax for a period of fifteen
(15) years;

b. Value-added Tax (VAT) and Customs Duty Treatment on Importation of Capital
‘Equipment:

1) Exemption from customs duty on importation of capital equipment, including
consignment subject to Section 32 of this Act, and

2) Refund of VAT on importation of capital equipment.

¢. Preferential Access to Financing and Acceptable Form of Collaterals, — Registered
Small and Medium Enterprises (SMEs), shall be accorded access to financing from
government financial institutions at preferential rates below the market rates, Further,
capital goods acquired from loans secured from government financial institutions
shall be an acceptable form of collateral for the same loan,

d. Assistance in the Preparation of Project Study, — Registered SMEs may be provided
assistance in the preparation of project study for purposes of registration under this
Act.

e. Employment of Foreign Nationals. — Subject to the provisions of Section 24 of

Commonwealth Act No. 613, as amended, a registered domestic “strategic” enterprise
may employ foreign nationals in managerial, technical or advisory positions.

8


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 exctuded by
Section 29 of Commonwealth Act No. 613, as amended, shall be permitted to enter and reside in
the Philippines during the period of employment of such foreign nationals.

SEC. 23. Incentives for Domestic “Strategic” Enterprises. » Registered domestic
enterprises engaged in strategic projects, as defined under Section 18 of this Act may avail of the
following incentives, whenever applicable, to the extent of their registered activity:

a, Income Tax Holiday (ITH) for a period of eight (8) years. Thereafter, fifty percent
(50%) reduction from corporate income tax for a period of seventeen (17) years.

b, Value-added Tax (VAT) and Customs Duty Treatment on Importation of Capital
Equipment. ~

1) Exemption from customs duty on importation of capital equipment, including
consignment thereof subject to Section 32 of this Act; and

2) Refund of VAT on importation of capital equipment.

‘Notwithstanding (a) above, the President, upon recommendation of the Board, may grant
to highly strategic projects ITH for a period up to fifteen (15) years and thereafter, five percent
(5%) tax on GIE, in lieu of all national and local taxes except RPT on land owned by private
developers and such other incentives as may be determined; Provided that, such projects meets
all the following criteri

a. Large capital investments of at least two billion US dollars (USD2 billion);

b. Generate sizeable employment of at least ten thousand (10,000) direct employees;
¢. Use of new and internationally accented high level of technology; and

d. Creation of value-added,

The amount of capital investment and employment generation shall be reviewed every
five (5) years, In no case shall the requirements prescribed above be reduced.

SEC. 24, Incentives for Registered Domestic Enterprises in Mindanao and in the Thirty
Poorest Provinces outside of Mindanao or Less Developed Areas (1.DA8). — Registered domestic
enterprises located in Mindanao, the thirty poorest provinces outside of Mindanao and LDAs,
shall have the following incentives:

@. Income tax-based incentive options.
1) Income Tax Holiday (ITH) for a period of six (6) years; then ten percent (10%)
Corporate Income Tax (CIT) rate for nineteen (29) years; or

2) Five Percent (5%) Tax on Gross Income Earned (Gili) in lieu of all national and
local taxes, except RPT on land owned by private developers, for a period of
twenty five (25) years,

19


b. Value-added Tax and Customs Duty Treatment on importation of Capital
Equipment—

1) Exemption from customs duty on importation of capital equipment, including
consignment thereof subject to Section 32 of this Act; and

2) Refund of VAT on importation of capital equipment

¢. Special Realty Tax Rate on Equipment and Machinery. Realty ax rate on civit
works, equipment, machinery, and other improvements by a registered enterprises
actually and exclusively used shall not exceed one and a half percent (1.5%) of their
original cost less accumulated normal depreciation or net book value.

SEC. 25, Incentives for Private Ecozone and Domestic: Industrial Zone Developers. —
Private ecozone and domestic industrial zone developers may avail of the incentives provided in
Section 22 of this Act.

SEC. 26, Incentives for Registered Enterprises in Supply Chain Cities. ~ Registered
enterprises located in the supply chain cities shail be granted incentives provided under Sections
20 and 21 hereof. A registered enterprise under the supply chain city engaged ia manufacturing
‘may subcontract a portion of its manufacturing processes to its affiliated entities outside the
Philippines. Moreover, a registered enterprise may book sales in the Philippines which sales
include others undertaken partially outside the Philippines by its affiliated entities.

SEC. 27. Non-fiscal Incentives. — Registered enterprises shall be entitled to the following,
non-fiscal incentives:

a. Time-bound Processing of Requirement for Doing Business. — All application for
permits, licenses, authorization and other requirements necessary for doing business
including application for renewals thereof shall be acted upon by the government
agency concerned within ten (10) working days from official acceptance thereof,
otherwise, the same shall be considered automatically approved, For this purpose, all
government agencies shall be mandated to post in their respective offices, the
procedural process, documentation requirements and the imposable fees to be paid to
facilitate the processing of the application.

b, Simplification of Customs and Imernal Revenue Procedures, ~ Customs procedures
for the importation of equipment, spare parts, raw materials and supplies, exports of
processed products by registered enterprises shall be simplified by the BOC.

. The BIR shall simplify internal revenue procedures for the avaitment of
incentives provided hetein for registered enterprises,

©. Reduction and Harmonization of Documentary Requirements Submitted to
Government Agencies. — The Board shall formulate guidelines for the reduction and
harmonization of related documentary requirements submitted to government
agencies.

20


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d. Employment of Foreign Nationals. — Subject to the provisions of Section 25 of
Commonwealth Act No. 613, as amended, a registered domestic “strategic” enterprise
may employ foreign nationals in managerial, technica! or advisory positions.

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 amended, shall be
permitted to enter and reside in the Philippines during the period of employment of
such foreign nationals

SEC. 28. Entitlement to Investor's Visa by a Foreign National, ~ A foreign national who
invests an amount of at least US$150,000, either in cash and/or equipment, in a registered
enterprise shall be entitled 10 an Investor’s Visa; Provided, That:

|. He is at least eighteon (18) years of age;
He has not been convicted of a crime involving moral turpitude;

He is not afilicted with any loathsome, dangerous or contagious disease; and
He has not been institutionalized for any mental disorder or disability:

aege

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 for the purpose, to prove that he has maintained his
investments in the country. Should said alien withdraw his investments from the Philippines,
then the Investor’s Visa issued to him shatl automatically expire.

The minimum amount for investment provided for under this Act shall be made
applicable to visas granted to investors by the BOI, the PEZA, the SBMA, the CDC, the JHMC,
the PPMC, and other IPAs that may be created under the law.

‘The investment amount heretofore stated shall be subject to a periodic review every three
(3) years by the BOL

CHAPTER UL
AVAILMENT OF INCENTIVES

SEC 29. Income Tax-Based Incentives. — On availing the income tax-related incentives,
the BIR shall require a registered 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 enterprise shall file its claim
with the appropriate IPA for validation. The IPA shail 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 TTH
availment for validation by the appropriate IPA shall cause the forfeiture of the ITH availment
for the taxable period

21


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, of 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

SEC. 30. Fifty Percent (50%) Reduction from Corporate Income Tax. - in computing the
net taxable income for this incentive, the enterprise may be entitled to deduct the following
expenses, in addition to ordinary and necessary business expenses allowed under the National
Internal Revenue Code of 1997 (NIRC of 1997), as amended:

a. Enhanced Net Operating Loss Carryover (NOLCQ) — The net operating loss of the
registered activity during the first five (5) years ftom the stat 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 exteat 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 concerned 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 enterprise to a special deduction from taxable income equivalent to two
hundred (200%) percent of the total expenses over and above the allowabte 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. incurted, 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.

SEC. 31. Five Percent (5%) Tax on Gross Income Earned (GIB). In computing the five
percent (5%) tax on Gross Income Earned (GE), GIE shall refer to gross sales or gross revenues
derived from the business activity, net of sales discounts, sales returns and allowances and minus
cost of guods sold/cost of services or direct costs but before any deduction is made for

22


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administrative, marketing, selling expenses of incidental losses during a given taxable period.

The 5% tax on GIE shall be paid and remitted by registered enterprises jocated inside the
ecozone or freeport in accordance with the existing sharing allocations provided in the IPAs
respective charters, For registered enterprises located outside the ecozones or free ports, the tax
on GIE shall be paid and remitted as follows:

2% to the National Government
2% to the Province where the project is located
1% to the City or Municipality where the project is located

SEC. 32. VAT and Customs Duties Exemption on Capital Equipmem.- Wmportation of
capital equipment, including consignment thereof, by registered enterprises may be exempted to
the extent of one hundred percent (100%) of the VAT and customs duties provided that the
following conditions are complied with:

a The capital equipment is directly and/or reasonably needed and will be used
exclusively in the registered activity of the registered 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 domesticaily in sufficient quantity, of
comparable quality and at reasonable prices, and

b. The approval of the IPA was obtained by the registered 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:

a. If made to another enterprise enjoying tax and duty exemption on imported capital
equipment,

b. 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;

¢. Exportation of capital equipment, machinery, spare parts or source documents or
those required for pollution abatement and control; or

4. 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 enterprise sells, transfers or disposes the aforementioned imported items without prior
approval within five (5) years from the date of importation, ‘the registered enterprise and the
vendee, transferee, or assignee shall be  solidarily liable to pay twice the amount of the

23


tax and duty exemption given it: Provided, finally, That even if the sale, transfer or disposition of
the capital equipment is approved after five (5) years from the date of importation, the registered
enterprise is still liable to pay the taxes and duties based on the net book value of the capital
equipment if it has violated any of its registration terms and conditions, otherwise, it shall no
longer be subject to the payment of the taxes and duties waived thereon.

SEC. 33. VAT Refund Mechanism on Importation of Capital Equipment andior raw
materials. — The VAT paid on imported capital equipment and/or raw materials may be
refunded provided that the imported items are used exclusively by the registered enterprise
pursuant to its registered activity.

In order to facilitate the immediate processing, clearance and release of VAT refund as
provided in this Act, a Trust Liability Account (TLA) is hereby authorized to be established in
the Bureau of Treasury (BTs). All VAT payments pertaining to the importation of registered
enterprises of capital equipment or raw materials shall be deposited in the TLA for the purpose
of funding valid VAT refund claims. The claims for VAT refund shall be made by the registered
enterprise 10 the DOF — One Stop Shop,Tax Credit and Duty Drawback Center (DOF-OSS)
which, in turn, will process, approve and release the VAT refund

A registered enterprise shall fife a claim for VAT 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 refund shall be processed and acted upon within thinty (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 refund mechanism provided in this section, the
pertinent provisions of the National Imernal Revenue Code of 1997, as amended, and the Tariff
and Customs Code of the Philippines, as amended, shall apply,

CHAPTER IV
REGISTRATION OF ENTERPRISES

SEU. 34. Qualifications of a Registered Enterprise. ~ To qualify for registration and be
entitled to avail of incentives, an applicant must satisfy the following conditions:

a Heisa citizen of the Philippines. In case the applicant is a natural person, or in case
of a corporation or partnership or any other association, regardless of nationality, it
most be organized and/or registered and existing under Philippine laws and that it
must comply with all the qualifications provided under this Act: Provided, however,
That for purposes of this Act and any law to the contrary notwithstanding, a natural-
born ASEAN citizen or a corporation effectively controlled by ASEAN citizens, or a
corporation organized in any ASEAN country shall be considered as a Philippine
investor: Provided, further, That the investment is made in an activity where the

24


1 Constitution does not specifically require Filipino participation,
2
3 b. The activity it will engage in is not within the activities reserved by the Constitution
4 to Philippine citizens or corporations owned and controlled by Philippine citizens;
5
6 c. It will engage in an activity included in the IPP or in an export activity or in an
7 activity located in supply chain cities, thirty (30) poorest provinces or LDAs or in an
8 activity considered as “strategic project”.
9
10 d. Tt will infuse new investments. For this purpose “new investments” shall mean a new
il enterprise infusing new investments and undertaking new activity. However, an
2 enterprise with an existing operation may be qualified for registration if it will
ub undertake new activity. Further, an existing enterprise undertaking the same activity
4 that shall infuse additional investments of at least fifty percent (50%) of its present
15 actual investments shall be deemed to be “new investments” but only to the extent of
16 such additional investments; and
17
18 e. If the applicant is engaged or proposes to engage in undertakings or activities other
19 than the registered projects, it shall install adequate accounting system that shall
20 identify the investments, revenues, costs, and profits or losses of each registered
2h project undertaken by the enterprise separately from the aggregate investment,
22 revenues, costs and profits or losses of the whole enterprise, or establish a separate
23 corporation for each registered project if the IPAS should so require, to facilitate
24 proper implementation of this Act.
25
26
27 CHAPTER V
28 .
29
30 BASIC RIGHTS AND GUARANTEES OF REGISTERED ENTERPRISES
31
32
33 SEC. 35. Protection of Investments, — All investors and registered enterprises are entitled

34 — to the basic rights and guarantees provided in the Constitution. Among other rights recognized
35 by the Government of the Philippines are the following:

36

37 a. Repatriation of Investments.— In the case of foreign investmemts, the right to
38 repatriate the eatire proceeds of the liquidation of the investment in the currency in
39 which the investment was originally made and at the exchange rate prevailing at the
40 time of repatriation, subject to the provisions of Section 74 of Republic Act No. 265,
41 otherwise known as the “Central Bank Act”, as amended.

42 For investments made pursuant to Executive Order No. 32, series of 1986,
43 entitled “Directing the Establishment of a Program for the Conversion of Philippine
44 External Debt into Equity Investments”, and its implementing rules and regulations,
45 the repatriation of investments shall be as provided therein.

46

47 ». Remittance of Earnings. - In the case of foreign investments, the right to remit
48 earnings from the investment in the currency in which the investment was originally
49

25


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, For investments made
pursuant to Executive Order No. 32, series of !986, and its implementing rules and
regulations, the remittance of earnings shall be as provided therein.

Foreign Loans and Contracts. — The right to remit at the prevailing rate 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 at the exchange rate prevailing at the time of remittance, subject
to the provisions of Section 74 of Republic Act No. 265, as amended.

Freedom from Expropriation. — There shalt be no expropriation by the government of
the property represented by investments or of the property of the enterprise except for
public use, public interest, lawful purpose, or in the interest of national welfare or
defense and upon payment of just compensation. In such cases, foreign investors or
enterprises 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.

Requisition of 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 of Republic Act No. 265, as amended.

CHAPTER Vt

ADMINISTRATION OF INCENTIVES

SEC. 36. Application for Registration. — Applications shall be filed with an IPA or any
other government office authorized by the BOI to accept applications, recorded in a registration
book and the date appearing therein and stamped on the application shall be considered the date
of official acceptance.

Ail applications and their supporting documents filed under this Act shall be confidential
and shall not be disclosed to any person except with the consent of the applicant or upon an order
of a court of competent jurisdiction.

SEC. 37, No Double Registration of Enterprises. - Export or domestic enterprises shall
not be allowed to register their export or domestic activity in more than one (1) IPA. In the event
thar an enterprise shall transfer to another IPA, only the remaining unutilized incentives shail be
granted to the enterprise or the transferee.

26


SEC. 38. Criteria for Evaluation of Application. — The following criteria shall be
considered in the evaluation of applications for registration under a preferred area:

a. Impact of the project on the overall economy;

b. Overall viability of the project;

c. The extent of employment generation;

d. The extent to which technological advances are applied and adopted to local
conditions; and

¢. Such other criteria as the Board may determine.

SEC. 39. Environmental Protection and Corporate Social Responsibility. — Every
registered enterprise shall prepare a Program for Environmental Protection and Corporate Sociat
Responsibility (CSR) covering the period for its entitlement to fiscal incentives. Such Program
shall be undertaken on a per registration basis and shall be submitted as an accompanying
document to the application for cegistration to be submitted to the appropriate IPA.

The environmental program shall include activities such as, but not limited to, requiring
registered firms to plant trees.

For the CSR activities, the registered enterprise shall align such activities with the
priority programs and projects of the National Anti-Poverty Commission and other special laws
such as Republic Act No. 7942 or the Philippine Mining Act of 1995, as amended and DOE.
Energy Regulation 1-94

The amount spent for the CSR activities shal] be reflected in the Notes to the Audited
Financial Statements.

SEC. 40. Approval and Registration Procedures. — The IPA is authorized to adopt rules
and reguimions to facilitate action on applications filed with it, prescribe criteria for the
evaluation of applications; devise standard forms for the use of applicants and delegate to the
regional offices of the DTT the authority 10 receive and process applications for enterprises
located in their respective regions.

Applications filed shall be considered automatically spproved if not acted upon by the
IPA within ten (10) working days from official acceptance thereof Deferment by the IPA shall
be considered as an official action: Provided, however, ‘That the IPA may defer action to a
specific application not more than twice: Provided, finally, That the IPA shall act upon the
application within ten (10) working days from compliance with the cause of the last deferment

SEC. 41. Certificate of Registration. — A registered enterprise under this Act shall be
issued a Certificate of Registration under the seal of the IPA and the signature of its Chairperson
and/or such other official or officer of the IPA as it may empower and designate for the purpose.
‘The certificate shall be in such form and style as the IPA may determine and shall state, among
other matters:

a. The name of the registered enterprise;
b. The activity in which the registered enterprise is proposing to engage; and
¢. The terms and conditions to be observed by the registered enterprise by virtue of the
registration
27


SEC. 42. Extension of Period of Availment of Incentives. — The availment period of the
incentives provided herein may be extended by the concerned JPA in the event that the registered
enterprise has suffered operational force majeure or losses that have impaired the viability of the
registered activity.

SEC. 43. Administration of Incentives. - The BOI, the PEZA and the other IPAs shall be
responsible ior the administration of incentives granted to their respective registered enterprises.

TITLE IV
FINAL PROVISIONS

SEC. 44, Vested Right. — Any provision of law to the contrary notwithstanding,
incentives granted to existing registered enterprises pursuant to their certificates of registration,
contracts or agreements entered into with government instrumentalities/corporations shall
continue to be legally binding in accordance with the terms and conditions stated therein.
Provided, further, That, the registered enterprise may opt to be governed by the provisions of this
Act, Provided, however, That, only the remaining unutilized incentives shall be granted to the
said enterprise. In such case, said enterprise shall be required to surrender its certificate of
registration, which shall be deemed as an express waiver of their privilege to apply for and avait
of incentives provided in the incentives law, under which they were previously registered.

SEC. 45. Authority to Retain Funds. - Registered enterprises availing of fiscal incentives,
except those located in the thirty (30) poorest provinces or LDAs, shall be assessed with a
maximum fee of one percent (1%) of the amount of incentives granted. Said amount shall
automatically accrue to the BOL to be allotted for investment promotions activities and other
special projects to achieve the objectives of this Act, subject to the usuai accounting and auditing
rules and procedures.

SEC. 46. Protection of the Environment. — The IPAs, in coordination with the appropriate
agencies, shall take appropriate steps to enact the proper measures for the protection of the
environment, and shalt coordinate with the Environmental Management Bureau of the
Department of Environment and Natural Resources (EMB-DENR) to avoid undue delay in the
issuance of the required Environmental Compliance Certificate (ECC): Provided, however, That
applications for environmental clearances, permits, and/or licenses of registered enterprises shall
be acted upon by the appropriate govemment agency within thirty (30) days from date of official
acceptance, In the event that the appropriate government agency failed 10 act within the
aforementioned date, the application for the said environmental requirement shall be deemed
complied with for purposes of operation of the registered activity.

SEC. 47. Appeals. — All orders or decisions of the IPA in cases involving the provisions
of this Act shall be immediately executory. No appeal from the order or decision of the IPA by
the party adversely affected shall stay such order or decision, unless a supersedeas bond
equivalent to the amount stated in the order or decision is posted by the appellant,

28


All appeals involving cases decided by the IPA, except as provided in the next
succeeding paragraph, shall be filed with the Court of Appeals within fifteen (15) days from
Teceipt of notice of the order or decision or of the denial of the appellant's motion for new trial or
reconsideration. Within the same period, the aggrieved party may file a motion for
reinvestigation or reconsideration. Only one (1) motion for reconsideration shail be allowed,
subject to the posting of the aforementioned supersedeas bond which shall be limited to cash
and/or surety bond from a BOL-accredited bonding company.

in cases involving the denial of an application for registration, the party adversely
affected by such denial may appeal the same to the Office of the President within thirty (30) days
fforu receipt of notice of the order denying the application for registration. Where an appeal has
been filed, said order or decision shalt be final and executory ninety (90) days after the
perfection of the appeal, unless reversed.

SEC. 48. 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 BOI or the IPA may suspend its availment of incentives,
until proven otherwise,

The BOI or 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 Act, the BOL
or 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 Act, its impletnenting rules and
regulations, the terms and conditions of its registration, or of any lawful directive of the BOI or
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 Act and its implementing rules and
regulations, a fine of at least One million pesos (P1,000,000.00) but not to exceed Ten million
pesos (P10,000,000,00) shall be imposed, in addition to other penalties that may be imposed by
the BOI or the IPA.

The IPAs shall prepare a schedule of fines and penalties to be imposed on erring
Tegistered 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 the BOT or 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 Tree 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 a foreign national, in addition to the imposable fines and penalties
above, the foregoing acts shall be grounds for summary deportation,

SEC. 49. Disposition of Savings from the Implementation of this Act. — ‘The total amount
of savings to be generated from the implementation of this Act shall be allocated anmually and
used exclusively for the provision of scholarships under the CHED.

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.

The carmarking provided under this provision shall be observed for ten (10) years
starting from the effectivity of this Act.

SEC. 50. Implementing Rules and Regulations (IRR). - The BOL in coordination with
DOF, NEDA, DBM, PEZA, other IPAs and other concemed government agencies, shal!
promulgate rules and regulations to implement the intent and provisions of this Act within one
hundred twenty (120) days from the effectivity of this Act. Such rules and regulations shall take
effect fifteen (15) days following its publication in a newspaper of general circulation in the
Philippines,

SEC, 51. Transitory Provision, — Until the IRR of this Act takes effect, the present rules
and regulations under the ald investments lays shall apply to the extent that they are not
inconsistent with the provisions of this Act.

SEC. 52, Separability Clause. — The provisions of this Act are hereby declared to be
separable and, in the event any of such provisions is declared unconstitutional, the other
provisions which are not affected thereby, sball remain in full force and effect.

SEC. 53. Survivor Clause, - The provisions of this Act to the contrary notwithstanding,
the following laws, decrees and orders shall continue to have full force and effect

a. Section 18(f of Presidentiat Decree No. 66, otherwise known as “Creating the Export
Processing Zone Authority and Revising Republic Act No. 5490”,

b. Section 1 of Republic Act No. 9281 entitted, “An Act to Strengthen Agriculture and
Fisheries Modernization in the Philippines by Extending the Effectivity of Tax
Incentives and its Mandated Funding Support, Amending for this Purpose Sections
109 and 112 of Republic Act No. 8435”,

30


Sowaauaune

c. Section 10(1) to (6) of Republic Act No. 7156, otherwise known as “An Act Granting
Incentives to Mini-Hydro Electric Power Developers and for other Purposes (Mini-
Hydroelectric Incentive Act)”;

d. Sections 10, 16(a), (b) and (c) and Section 17(a) to (e) of Presidential Decree No.
972, as amended by Presidential Decree No. 1174, otherwise known as
“Promulgsting an Act to Promote an Accelerated Exploration, Development,
Exploitation, Production and Utilization of Coal”;

€. Section 12 of Presidential Decree No. 87, otherwise known as “An Act to Promote
the Discovery and Production of Indigenous Petroleum, and Appropriating Funds
Therefor”;

Section 4 (a) and (4) of Presidential Decree No. 1442, as restored by FIRB Resolution
19-87, otherwise known as “An Act to Promote the Exploration and Development of
Geothermal Resources”;

g. Chapter Ll, Section 4(A), (B), (C) and (D); and Chapter VIII, Section 19(A), (B) and
(C) of Republic Act No. 9295, Entitled “An Act Promoting the Development of
Philippine Domestic Shipping, Shipbuilding, Ship repair and Ship Breaking,
Ordaining Reforms in Government Policies Towards Shipping in the Philippines and
for other Purposes”,

h. Republic Act No, 7903, otherwise known as the “Zamboanga City Special Economic
Zone Act of 1995,” Republic Act No. 7922, otherwise known as the “Cagayan
Speciai Economic Zone Act of 1995,” Republic Act No, 9490, otherwise known as
the “Aurora Special Economic Zone Act of 2007,” and Republic Act No. 9728,
otherwise known as the "Freeport Area of Bataan Act of 2009”.

Provided, That grantees or operators under their respective laws, decrees and orders shall

have the option to avail of the incentives provided under this Act.

SEC. 54, Repealing Clause. ~ The following provisions are hereby repealed:

a Books i, V and VI of Executive Order No. 226, series of 1987, otherwise known as
“The Omnibus Investments Code of 1987";

b. Section 24 of Republic Act No. 7916, otherwise known as “An Act Providing for the
Legal Framework and Mechanisms for the Creation, Operation, Administration and
Coordination of Speciat 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 17(1), (2), (3), (4) 6). ©. (M, (8) and Section 18 (a), (b) and (c) of
Presidential Decree No. 66, otherwise known as “Creating the Export Processing
Zone Authority and Revising Republic Act No. 5490”;

4. Fourth paragraph of Presidential Decree No. 529 (restored by FIRB Resolution 19-
87), otherwise known as “Granting to Petroleum Exploration Concessionaires under
the Petroleum Act of 1949 Exemption from Customs Duty and Compensating Tax on
Importations of Machinery and Equipment, Spare Parts and Materials Required for
Their Exploration Operations”,

3I


e. Sections 8, 9 and the second sentence of the first paragraph and second paragraph of
Section 10 of Presidential Decree No. 538, otherwise known as “Creating and
Establishing the PHIVIDEC Industrial Authority and Making Its Subsidiary Ageacy
of the Philippine Veterans Investment Development Corporation Defining Its Powers,
Functions and Responsibilities, and for Other Purposes”,

f. Section 36(e) and {£) (1) and (2) of Presidential Decree No. 705, otherwise known as
the “Revised Forestry Code”;

g. Section 16 (c) and (d), and Section 17 of Republic Act No. 7844, otherwise known as
“An Act to Develop Exports as a Key Towards the Achievement of the National
Goals Towards the Year 2000 (Export Development Act of 1994)",

h. Chapter XVI, Sections 90, 92, 93(a) and (b) of Republic Act No. 7942, otherwise
known as the “Philippine Mining Act of 1995”;

i. Section 9 of Republic Act No. 8479, otherwise known as the “Downstream Oil
Deregulation Act of 1998";

j. Chapter IL, Article 11, Section 35(b), (c) and (4) of Republic Act No. 8550, otherwise

known as “The Philippine Fisheries Code of 1998”,

k. Section 5 of Proclamation No. 216, otherwise known as “Creating and Designating
the Area Covered by the Former Wallace Air Station and Contiguous Areas in Poro
Point as the Poro Point Special Economic and Freeport Zone and Transferring Lands
to the Bases Conversion Development Authority pursuant to Republic Act No. 7227”,
Section 6 of Proclamation No. 984, otherwise known as “Creating and Designating
the Municipality of Morong, Province of Bataan, including the Area of Philippine
Refugee Processing Center Complex (PRPCC) as the Morong Special Economic
Zone pursuant to Republic Act No. 7227 and transferring the land comprising the
PRPCC to the Bases Conversion Development Authority (BCDA)";

1. Executive Order No, 528, series of 2006, Amending Executive Order No. 31, series
of 2004, “Reducing the Rates of Duty on Capital Equipment, Spare Parts and
‘Accessories Imported by BOL-registered new and Expanding Enterprises”;

m, Section 1 of Executive Order No. 619, otherwise known as “Creating and Designating
Special Economic Zones Pursuant to Republic Act No. 7916, as Amended by
Republic Act No, 8784, in Relation to Republic Act No. 7227, as Amended by
Republic Act No, 9400, Inside the Clark Freeport Zone”; and

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

SEC. 55. Effectiviyy. — This Act shall take effect fifteen (15) days following its

publication in the Official Gazette or in a newspaper of generat circulation.

Approved,

32


Republic of the Philippines
House of Represemuatives
Quezon City, Metro Manila

Fifteemth Congress
First Regular Session

MINUTES GF THE MEETING OF THE COMMITTEE ON WAYS AND MEANS:
HELD ON MAY 24, 2044, 9:30 Am., ROLANDO ANDAYA HALL, HOUSE OF
REPRESENTATIVES, QUEZON CITY

L

OBNAHABWNA

GUESTS/RESOURCE PERSONS

Exec. Dir. Danie Sy
Minam Tabarara

Exec, Director Lucita Reyes
Ailly. Elyjean Portoja

Atty. Madei Almazora

Aity. Juanito Balbastro
Atty. Hell Tiu

Aily. Robert Bernardo

Ms. Concepcion Simeon

10. Eimer S. Lucero

11. Atty. Rue! Cabigting

12.Mr. Jan Palicarpio .
413. Migr. Ronnie Yambao

14. Sr. Dep. Admin. Stefani Safio
15. Atty. Ruel John Kabigting
46.Ms. Levy Vivente

17. Aity. Jules Riego

18. Ms. Fleur-de-lis Nadura
19.Mr Chariie Gorayeb

20 Mr. Oscar Barrera

21.Ms. Flordeliza Leong

i

CALL TO ORDER

DOF-NTRC
DOF

BO!

BO!

80)

BIR

BIR

BIR

OTi

EDC
BCDA
BCDA
SBMA
SBMA
SBMA
SBMA
AmCham
AmCham
CREBA
Phitexport
Philexport

Chairman Hermilando |. Mandanas called the meating to order at 9:52
a.m.. Upon motion of Rep. George P. Amaiz, duly seconded by Rep. Jany P.
Trefias, the fol call was dispensed with. The reading of the Minutes of the
meeting dated May 17, 2011 was dispensed with and the same was approved
upon mation of Rep. Susana A. Yap. The Chairman acknowledged the presance
of the Committes Mambers, guasts and resourca persons, and then proceeded
with the deliberation of the legislative measures in the Agenda.



Mt, REFERRAL TO THE SUBCOMMITTEES FOR MOTU PROPRIO
INVESTIGATION OF REVENUE PERFORMANCE AND OTHER TAX
RELATED ISSUES:

Chairman Mandanas enjoined the various subcommitiees of the
Committee on Ways and Means to conduct public hearings in aid of legislation
on the Land Transportation Office (LTO), Land Registration Authority (LRA),
Bureau of immigration (81), Department of Finance- Bureau of Treasury {DOF-
BoT), Department of Foreign Affairs (DFA), Overseas Workers Welfare Authority
(OWWA), Philippine Overseas Employment Administration (POEA), Philippine
Amusement and Gaming Corporation (PAGCOR), tha Postal ‘Corporation,
Phitippine Commission on Good Govemment (PCGG) and the Coco levy fund,
Value-Added Tax (VAT) of local govemment untis (LGUs), the alleged smugaling
of petroleum producis, and other antismuggiing measures. The matier of
Common Carriers Tax and the Real Estate Insurance Trust (REIT) will however
be discussed in the Joint Congressional Oversight Committee (JCOC), in its
forthcoming meeting

AL APPROVAL OF THE SUBSTITUTE BILL TO :

1.) HOUSE BILL NOS. 938: The Investments And Incentives Code Of The
Philippines (Rep. Susan A. Yap);

2) HB 3162: An Act Rationalizing The Grant And Administration Of Fiscal
And Nonfiscal incentives, And For Other Purposes (Rep. Gloria
Macapagal-Arroyo);

3.) HB 4182: An Act Rationalizing The Grant And Administration Of Fiscal
incentives For The Promotion Of Incentives And Growth And For Other
Purposes (Rep. Feliciano Seimonte, Jr);

4) HB 4402: An Act Creating The investments And Incentives Code Of The
Philippines (Rep. Albert S. Garcia)

Chairman Mandanas informed the body that the Committes had prepared
a substitute bill to House Bill No. 938 by Rep. Yap which is a re-iled version of
the 14” Congress approved Fiscal incentives Bill, HB 3182 of Rep. Macapagal-
Amoyo; HB 4152 of Speaker Belmonte and HB 4402 of Rep. Garcia. He
highlighted some features of the measures which include: enhanced incentives
for exporters, rationalized income tax hofiday (ITH), the number of years of
effectivity of the ITH, Board of Investments (BOI) as the incentives giving body,
among other features of the four measures.

Executive Director Lucita Reyes of BO! Presented a power-point
presentation: “Cost Benefit Comparison Of Incoma Tax Holiday And Benefits
Generated For The Period 2004 To 2007". She expounded that the study they
are presenting compares the Incentives granted by BOLregistered entarprises
Particularly on the ITH versus the benefits tha incentives will generate,
employment opportunities, forsign currency revenues, iax revenues generated
from the export enterprises, with the end in view of determining if such incentives
wii produce worthwhile retums for the country. She enumerated four factors in
the Cost Benafit Analysis the BO} conducted: 1.) Investmant- total working

2


capital, capital expendituras, pre-operating expenses and other assets of
registered projects; 2.) Labor Generated-employmant figures as reported by the
firms based on their jatest ITH; 3.) Export Sales- aggregate foreign-denominated
Sales or axport oriented entarprises during their (TH availment periods; 4.) Taxes
and Licenses Paid- total actual iaxes and ficenses excluding withholding tax paid
by the firms (composed mainly of taxes paid to local govemment) during their
ITH avaiiments. She informed the body that the study was conducted using data
on the actual amounts of ITH granied for the period 2004 ta 2007. The
enterprises were separated by market orientation, whether export or domestic-
ofented, and aggregated by industry type. The firms ware further grouped into
three: Projects registered under £.0, 226; Infrastructure projects: Projects
fegistered under the mandatory inclusions. With the following listed firms:
Registered. 487; Number of Projects- 582; ITH granted PhP 62 9 Billion;
investments- Php 810.34 Billion; Labor generated 203, 780; Taxes & Licenses-
Php 9.34 Billion; Export Sales: USD 16.48 Billion and Php 906.19 Billion, there is
approximately Php 12.88 worth of investments pas Php 1.00 of ITH. Around 15 %
of the total ITH is paid by availors as taxes and licenses during their faspective
availment periods, Tha taxes and licenses do not factor in the withholding taxes

equivalant approximately to Php 14.41 export sales par Php 1.00 of ITH. Insofar
a8 projects are concemad, projects entitlad to ITH: 761 in 2006; 887 in 2007,
wheisas projects that availed of ITH are 300 in 2006 and 354 in 2007.
Comparing: across catagories, the bulk of the totat ITH gtanted was availed by
Infrastructure Projecis at 74%, power generating planis at 55 % which are
Necessary to support continued growth and development. She expounded that
the buik of investments ara composed of infrastructure projects at 81 %, BOT
Projects at 42 % of total investmenis. The ratio is Php 14.04 of investment per
Php 1.00 of incentive, a large gain with relatively smal} trade-oifs considering the
Necessity of such projects and the inability of the National Govamment to
undertake them. in the data for labor generation, the Printing and Publishing
‘sector was noi considered since there is only 1 firm in the sai sector covered by
the study. The highest ITH availment in the power generation sector inciuda
Team Sual Corporation at (Php 4.9 Billion, San Roque Power Corp. at Php 4.62
Billion and the CE Casecan Waier and Energy at Php 4.40 Billion BOT projects
thai registered ihe highest investments are Maynilad Water Services, Inc. at Php.
180 Billion; Manita Water Company at Php 85. 2 Billion and Manila North
Tollways at Php 33.25 Billion. In the area employment generation, iT and BOP.
firms with the highast employment generation are Sykes Asia at Php 10, 433
Billion Telus International Phils. at Php 6, 799 Billion and Advanced Contact
Solutions at Php 5, 982 Billion.

Atty. Tammy Lipana of Philippine Chamber of Commarce and Industry
(PCC), informed the body that the PCC! finds the version of Rep. Yap
acceptable, and that in the Senate, it is the version of Senator Villar that they
agree with,



Mr. Oscar Barrera of Philexpon, likewise informed the Committee that they
are also in favor of the version of Rep. Yap and Rep. Garcia. Thay also
Tequested if a provision that would give to new entrants, tha incentive of getting
a refund on their tax credit right-away. Chairman Mandanas responded that the
menting Rules aiid Regulations (IRR) wil take care of that because at this
time, tha Committee is not changing the definition of “exportars". He added that
he was also for tempering tha incentives in view of the DOFs concem on how ic
curb the revenue deficit. Further, thai incentives already given will not be taken
back.

Upon request for his comments, Exec. Dir. Danie Sy manifasted that they
are in agreement the 801, in giving incentives to exporters, investments in
strategic and in least developed areas {LDAS). DOF is however not amenable to
giving incentives to domestic enterpnses, because they are not globally
competitive for exports, while on the othemand, they have the advantage of
being exposed in the local market, depending on their location. He added that
DOF was not amenabie to giving IT to housing projects, and to the power sector
because despite the incentives, power rates are still high. He however stated that
the DOF will submit its comments and specific proposed amendments to the said
substitute bili.

The representative of the Joint Foreign Chambers, Atty. Yzrael Pineda,
made the obsarvation that whilo foreign owned companies have an export
threshold of 70%, domestic corporations have a iower ihreshold of 50%, and that
if these thresholds are breached, only then will these locators be entitled to the
jull incentives, otherwise, the entire export sates wili be subject to cosporate
income tax. in the case of PEZA, itis only the excass, thai is subject to corporate
income tax. Dir. Sy agreed with this observation, stating that BIR has difficulty in
delineating between focal and foreign firms and therefore, the proposal was to
lax the entira income and not only the excess.

Exec. Dir, Reyos, however informed the body thal it is pracisely the
reason for the need to rationalize the parameters, making ths thrashold 70 % for
both foreign and doinestic entorprisas. If they hurdle the said threshold, then
these firms are entitied to the full tax incentives. Upon query by the Chairman, if
the Joint Foreign Chambers has any comment on the thrashold of 70 % which
would therefore entitle the investor to the same tax incentive on the balance of
tha 30% domestic salas.

Rep; Rufus B. Rodriguez, manifested an amendment to the Saction 25 of
the subsifiute bili to read as foliows: “xxx Section 25. Incentives for Registered
Domestic Enterpiises in Mindanao and in the Thirty Poorest Provinces outside of
Mindanao or Less Developed Areas (LDAs). — Registered domestic enterprises
located in LDAs shall hava the following incentives: 200". He axplained that
granting such incentives to Mindanao will give it a chance to succeed. He noted
that while ten percent out of the thirly percent of the oudgot for tax administration,
Mindanao is able to contribute fo the Government twenty percent of its
resources. Hence, there is a need to take effective action and make Mindanao an
investments destination. Upon clarification by ihe Chairman, Rep. Rodrigue,

4


informed the body that it will be the entire Mindanao, regardless of wheiher there

are poor or rich provinces in the reg)

Rep. Roman 7. Romulo inquired from Rep. Rodriguez if the amendineni is
the best way that Mindanao can be propelled towards economic development?
Chairman Mandanas commanded tha passion of Rap. Rodriguaz in pushing for
Mindanao’s welfare, bul agreed that the observation raised by Rep. Romulo was
a good point, because there may be other ways in Which to help Mindanao,
through other laws. fle opined that the Code thal is being drafted is to have a
framework that will harmonize all investments incentives. Rep. Rodriguez opined
that perhaps, thare could be other incentives ihat will benefit Mindanao.

Rep. Deogracias A. Ramos inquired from the body if it would also be
possible to give tha same incentives to the Bicol Region. He than inquired as to
what was the basis for determining tha 30 poores! provinces, to which Rep.
Rodriguez replied that it was the National Statistics and Coordination Board
(NSCB), that conducts a census every 3 years and thereafter deciares the official
list of the 30 poorasi provinces in the country. Rap. Tomas V. Apacible also
inquired if the proposed amandment of Rep. Rodriguez would covar the entire of
Mindanao? Rap. George P, Amaiz on the other hand suggested that an
additional section on Mindanao be added to the substitute bill, Chainnan
Mandanas then clarified that the substitute bill at hand was on the rationalization
of fiscal incentives and that the focus of amendments should ba io harmonize all
such incentives. He opined that if there is a need to additionally amend the
substitute bill, the same can be dono al planary, Thereaiter, upon motion of Rep.
Rouriguez, the Gubstitute bill, with amendments to Sec. 25 and committe
amendments subjac! lo style, was approved by the body.

NV. ADJOURNMENT
‘Thera being no other matters to discuss, Chairman Mandanas adjoumed

the meeting at 11:20 a.m

| hereby certify to the correctness and accuracy of the foregoing minutas,

(SGD.)MAURIGIO R. PULHIN
Legisiative Committee Secretary

Noted by:

{SGD.) HERMILANDO 1. MANDANAS
Chairman
Committee on Ways and Maans


FACT SHEET

5
HOUSE BILL NO. 4935
(16 Substitution of House Bill No. 938, 3162, 4152 and 4402)

THE INVESTMENTS AND INCENTIVES CODE OF THE PHILIPPINES:

Introduced by REPS. SUSAN A. YAP, GLORIA MACAPAGAL-ARROYO, FELICLANO
BELMONTE, JR., NEPTALIM. GONZALES Il, ALBERT S. GARCIA, HERMILANDO |
MANDANAS, TOMAS V. APACISLE AND RUFUS B. RODRIGUEZ
Committee Referral: Committee on Ways and Means

Chairman: HERMILANDO |. MANDANAS
Committee Referral: Committee on Trade and industry
Chairman: ALBERT S. GARCIA

OBJECTIVES

* To create a uniform policy on the grant of fiscal incentives to investors by
consotidating and rationalizing investment priorities.

* To provide a formula that balances the need to attract investments through fiscal
incentives, while complying with the requirements of fiscal prudence.

+ To establish a framework that will encourage a stabie, predictable and enhanced
investment regime to spur sustained economic growth and development in the
couniry.

KEY PROVISIONS

4. Mandates the Board of investments (BON), together with the Investments Promotion
Agencies (IPAs), concerned goverment agencies and the private sector to
formulate the Investment Priorities Plan (IPP).

2. Grants tax incentives granted to the foliowing specific industries and areas of
investments;

A. Incentives for Registered Export Enterprises. —
1. Income Tax-Based Incentive Options:

a. Income Tax Holiday (ITH) for six (6) years and thereafter, five percent
(5%) tax on Gross Income Eamed (GIE), in lieu of all national and locat
taxes except real property tax (RPT) on land owned by private developers,
for nineteen (19) years; or

6. Five percent (5%) Tax on GIE, in lieu of all national and local taxes except
RPT on land owned by private developers, for twenty-five (25) years; or

Fifty percent (50%) reduction from corporate income tax for a period of
twenty-five (25) years.


2. Value-Added Tax (VAT) and Customs Duties’
@ Inside Economic Zones and Freeports:

1. Exemption from VAT and customs duty on importation of capital
equipment, and

2. Exemption from VAT and customs duty on importation of raw
materials.

b. Quiside Economic and/or Freeport Zones

+. Exemption from VAT and customs duty on importation of capital
equipment,

2, Exemption from VAT and customs duty on importation of raw materials
provided that such registered export enterprise is operating a Customs
Bonded Manufacturing Warehouse (CBMW) or an accredited user of
A Customs Common Bonded Manufacturing Warehouse (CCBMW),

and

3. Refund of VAT and customs duty on importation of raw materials, if
nat operating a CBMW or is not an accredited user of a CCBMW.

3. Tax and Duty Free importation of Source Decuments

4. Zero Percent (0%) Rate of VAT on the Sale by a Domestic Enterprise to a
Registered Export Enterprise

Exemption from Wharfage Dues

Employment of Foreign Nationals

Exemption from Local Taxes and Licenses

Now

B. Incentives for Registered Domestic Enterprises:
1. Income Tax-Based incentive Options:

a. Income Tax Holiday (ITH) for a period of four (4) years; then ten percent
(10%) Corporate Income Tax (CIT) rate for ten (10) years if located in 1*
to 3" class municipalities; twelve 12 years if located in 4” to 6" class
municipalities; or

5. Fifty Percent (50%) reduction from corporate income tax for a period of
fifteen (15) years;

2. VAT and Customs Duty Treatment on importation of Capital Equipment:

a. Exemption from customs duty on importation of capital equipment; and
b. Refund of VAT on importation of capital equipment.

. Preferential Access to Financing and Acceptable Form of Collaterals
|. Assistance in the Preparation of Project Study
Employment of Foreign Nationals

Oboe


C. incentives for Domestic “Strategic” Enterprises which exhibit high social economic
retums and require large investments:

1._ ITH for eight (8) years and then fifty percent (50%) reduction from cofporate
income tax for seventeen (17) years.
2. VAT and Customs Outy Treatment on Importation of Capital Equipment.

a. Exemption from customs. duty on importation of capital inctuding
consignment thereof, and
b. Refund of VAT on importation of capital equipment.

D_ Incentives for Registered Domestic Enterprises in Mindanao and in the Thirty
(80) Poorest Provinces outside of Mindanao or Less Developed Areas (LDAs):

1. income Tax-Based Incentive Options:

a. ITH for six (6) years then 10% CIT rate for nineteen (19) years; or
b. Five Percent (5%) Tax on GIE in lieu of all National and loca! taxes, except
RPT on jand owned by private developers for twenty-five (25) years

2. VAT and Customs Duty Treatment on Importation of Capital Equipment.

a. Exemption from customs duty on importation of Capital equipment including
consignment, and
b. Refund of VAT on importation of capitat equipment

E. Special Reaity Tax Rate on Equipment and Machinery- A realty tax rate on civil
works, equipment and machinery and other Improvements by a registered
enterprises actually and exclusively used shail not exceed one and half percent
(1.5%) of their original cost less accumulated normal depreciation or net book value.

F. Incentives for Registered Enterprises- in Supply Chain Cities-Registered
enterprises located in the supply chain cities shail be granted similar incentives to
registered export enterprises,

G. Vested Right - Any provision of iaw to the contrary notwithstanding, incentives
granted to existing registered enterprises pursuant to their certificates of registration,
contracts or agreements entered into with government instrumentalities/corporations
shail continue. to be legally binding in accordance with the terms and conditions
stated therein. Provided, further, That, the registered enterprise may opt to be
governed by the provisions of this Act, Provided however, That, only the remaining
unutilized incentives shall be granted to the said enterprise. In such case, said
enterprise shall be required to surrender its certificate of registration, which shall be


RELATED LAWS

a. Executive Order No. 226, series of 1987, otherwise known as “The Omnibus
Investments Code of 1987";

b. Republic Act No. 7916, otherwise known as “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)",

¢. Presidential Decree No. 66, otherwise known as “Creating the Export Processing
Zone Authority and Revising Republic Act No. 5490",

d. Presidential Decree No. 529 (restored by FIRB Resolution 19-87), otherwise known
as “Granting to Petroleum Exploration Concessionaires under the Petroleum Act of
1849 Exemption from Customs Duty and Compensating Tax on Importations of
Machinery and Equipment, Spare Parts and Materials Required for Their Exploration
Operations”;

e. Presidential Decree No. 538, otherwise known as “Creating and Establishing the
PHIVIDEC Indusirial Authority and Making Its Subsidiary ‘Agency of the Philippine
Veterans Investment Development Corporation Defining Its Powers, Functions and
Responsibilities, and for Other Purposes";

{. Presidential Decree No. 705, otherwise known as the "Revised Forestry Code",

g. Republic Act No. 7844, otherwise known as “An Act to Develop Exports as a Key
Towards the Achievement of the National Goals Towards the Year 2000 (Export
Development Act of 1994)":

h. Republic Act No. 7492, otherwise known as the “Philippine Mining Act of 1995";

i. Republic Act No. 8479, otherwise known as the “Downstream Oil Deregulation Act of
1998",

j. Republic Act No. 8550, otherwise known as “The Philippine Fisheries Code of 1998";

. Proclamation No. 216, otherwise known as “Creating and Designating the Area
Covered by the Former Waliace Air Station and Contiguous Areas in Poro Point as
the Poro Point Special Economic and Freeport Zane and Transferring Lands to the
Bases Conversion Development Authority pursuant to Republic Act No. 72277;

i. Proclamation No. 984, otherwise known as “Creating and Designating the
Municipality of Morong, Province of Bataan, including the Area of Philippine Refugee
Processing Center Complex (PRPCC) as the Morong Special Economic Zone
pursuant to Republic Act No. 7227 and transferring the land comprising the PRPCC
to the Bases Conversion Development Authority (BCDA)”;

m, Executive Order No. 528, series of 2006, Amending Executive Order No. 31, series
of 2004, “Reducing the Rates of Duty on Capital Equipment, Spare Parts and
Accessories Imported by BOI-registered new and Expanding Enterprises",

n. Republic Act No. 7903, otherwise known as “Zamboanga City Special Economic
Zone Act of 1995",

0. Executive Order No. 619, otherwise known as “Creating and Designating Special
Economic Zones Pursuant to Republic Act No. 7916, as Amended by Republic Act
No. 8784, in Relation to Republic Act No. 7227, as Amended by Repubiic Act No.
9400, Inside the Clark Freeport Zone",

4


Republic Act No. 9281 entitled, “An Act to Strengthen Agriculture and Fisheries
Modemization in the Philippines by Extending the Effectivity of Tax Incentives and its
Mandated Funding Support, Amending for this Purpose Sections 109 and 112 of
Republic Act No, 8435",

Republic Act No, 7156, otherwise known as “An Act Granting Incentives to Mini-
Hydro Electric Power Developers and for other Purposes (Mini-Hydroelectric
Incentive Act)’;

Presidential Decree No. 1174, otherwise known as “Promulgating an Act to Promote
an Accelerated Exploration, Development, Exploitation, Production and Utilization of
Coal’;

Presidential Decree No. 87, atherwise known as “An Act to Promote the Discovery
and Production of Indigenous Petroleum, and Appropriating Funds Therefor",
Presidential Decree No. 1442, as restored by FIRB Resolution 19-87, otherwise
known as “An Act to Promote the Exploration and Development of Geothermal
Resources”, and

Republic Act No, 9295, Entitled “An Act Promoting the Development of Philippine
Domestic Shipping, Shipbuilding, Ship repair and Ship Breaking, Ordaining Reforms:
in Government Policies Towards Shipping in the Philippines and for other Purpases’