Presidential Decree No. 485 (PD 485) — Amending Certain Sections of Republic Act Numbered Fifty-One Hundred Eighty-Six as Amended, Otherwise Known as the Investment Incentives Act, and Republic Act Numbered Sixty-One Hundred Thirty-Five as Amended, Otherwise Known as the Export Incentives Act.
WHEREAS, to further ensure the sound development of the
national economy, it is imperative that certain provisions of R.A. No.
5186 ("Investment Incentives Act") and R.A. No. 6135 ("Export Incentives
Act") be amended;
WHEREAS, there are certain sectors of the industry, i.e.,
those engaged essentially in rendering services, such as public
utilities, the growth of which is likewise indispensable to the sound
development of the national economy;
WHEREAS, under the present provisions of the Investment
Incentives Act, service industries are not eligible for registration
thereunder;
WHEREAS, to encourage and hasten the establishment of
facilities that are necessary for a balanced growth of the economy and
the effective regional dispersal of industries, certain services to be
listed in a Utilities Priorities Plan should be eligible for incentives
upon registration with the Board of Investments;
WHEREAS, there is further need to align the incentives and
requirements of the Export Incentives Act with the Investment Incentives
Act;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the
Philippines, by virtue of the powers in me vested by the Constitution,
do hereby order and decree amendments to Republic Act Numbered Fifty-One
Hundred Eighty-Six, as amended, otherwise known as the Investment
Incentives Act and Republic Act Numbered Sixty-One Hundred Thirty-Five,
as amended, otherwise known as the Export Incentives Act, as follows:
SECTION 1. Subsections (b), (i) and (j) of Section 8 of
Republic Act Numbered Fifty-One Hundred Eighty-Six are hereby amended to
read as follows:
"SEC. 3. * * *
"Registered Enterprise" shall mean a corporation (1)
incorporated, organized and existing under Philippine laws, (2) of
which, except as provided in Section nineteen of this Act, at least
sixty per cent (60%) of the capital stock outstanding and entitled to
vote is owned and held by Philippine Nationals, and at least sixty
percent (60%) of the members of the Board of Directors are citizens of
the Philippines, (3) engaged in a preferred area of investment, and (4)
duly registered with the Board of Investments; Provided, however,
That the term registered enterprise shall not include commercial banks,
savings and mortgage banks, rural banks, savings and loan associations,
building and loan associations, development banks, trust companies,
investment banks, finance companies, brokers and dealers in securities,
consumers cooperatives and credit unions, and other business
organizations whose principal purpose or principal source of income is
to receive deposits, lend or borrow money, buy and sell or otherwise
deal, trade or invest in common or preferred stocks, debentures, bond or
other marketable instruments generally recognized as securities, or
discharge other similar intermediary, trust or fiduciary functions;
neither shall the term include business organization whose exclusive or
principal purpose is to buy goods and merchandise and resell the same in
substantially the same form in which bought.
* * * * * * * *
"Measured Capacity" shall mean the estimated additional
volume of production or service which the Board determines to be
desirable in each preferred and pioneer area of investment, in order to
supply the needs of the economy at reasonable prices, taking into
account the export potential of the area. Measured capacity shall not be
less than the amount by which the measurable market demand exceeds the
existing productive capacity in said preferred and pioneer areas nor
shall measured capacity be so much in excess of measurable market demand
as to foster or encourage overcrowding in any such area. For export
market industries, the Board shall base measured capacity on the
availability of domestic raw materials after deducting the needs of the
domestic market therefor. In no case, however, shall measured capacity
be construed so as to result in a monopoly in any preferred or pioneer
area of investment which would unduly restrict trade and fair
competition.
"Tax Credit" shall mean any of the credits against taxes
and/or duties extended to a registered enterprise by this Act, to
evidence which a tax credit certificate shall be issued by the Secretary
of Finance. Unless otherwise provided herein, the tax credit
certificate may be used by the registered enterprise to pay taxes,
duties, charges and fees due to the national government in connection
with its registered operations. A tax credit certificate shall be
non-transferable; it may be used by the registered enterprise only for
as long as it enjoys the benefits and incentives provided for in this
Act, but may not be used so as to result, in effect, in a refund."
SEC. 2. Section 3 of the same Act is hereby further amended by
adding a new subsection (1) which reads as follows:
"(1) "Public Utilities Priorities Plan" shall mean the plan
prepared by the Board in consultation with the Board of Transportation,
Board of Power, Power Development Council, and other appropriate
government agencies. Such plan shall be approved by the President upon
recommendation of the National Economic and Development Authority
(NEDA), which shall contain a listing of specific public utilities which
can qualify for incentives under this Act, and which shall be supported
by studies of existing and prospective regional demands for such
services in the light of the level and structure of income, production,
trade, prices and relevant economic and technical factors of the regions
as well as the existing facilities to produce such service."
SEC. 3. Subsection (d) of Section 7 of the same Act is hereby
amended to read as follows:
"(d) Tax exemption on Imported Capital Equipment.— Within
seven (7) years from the date of registration of the enterprise,
importations of machinery and equipment and spare parts shipped with
such machinery and equipment shall not be subject to tariff duties and
compensating tax: Provided, That said machinery, equipment and
spare parts: (1) are not manufactured domestically in reasonable
quantity and quality at reasonable prices; (2) are directly and actually
needed and will be used exclusively by the registered enterprise in the
manufacture of its products, unless prior approval of the Board is
secured for the part-time utilization of said equipment in
non-registered operations to maximize usage thereof, or the
proportionate taxes and duties are paid on the specific equipment and
machinery being permanently used for non-registered operations; (3) are
covered by shipping documents in the name of the registered enterprise
to whom the shipment will be delivered direct by customs authorities;
and (4) the prior approval of the Board was obtained by the registered
enterprise before the importation of such machinery, equipment and spare
parts. For enterprises approved for registration by the Board after the
effective date of this decree, which are engaged in new preferred
non-pioneer activities, with total assets or projected total assets of
five hundred thousand pesos (P500,000.00) or more for the first two
years of commercial operations, the Board subject to the criteria to be
formulated in consultation with the Secretary of Finance, and to the
above enumerated conditions, shall in lieu of an exemption reduce
partially the tariff duties and compensating tax on such machinery,
equipment, and spare parts, and defer the payment of such reduced taxes
and duties for a period not exceeding ten (10) years, after posting the
appropriate bond as may be required by the Secretary of Finance. For
replacement or modernization of existing facilities of pioneer and
non-pioneer registered enterprises, or for expansion of projects with
20% or greater return on equity, mere deferment in payment of taxes and
duties as above provided shall be allowed without reduction thereof. In
granting approval of importations under this paragraph, the Board shall
require international bidding to be conducted by the end-user in Manila
under its supervision; however, the Board may, in its discretion,
dispense with this requirement if (1) there is, to the knowledge of the
Board, only one manufacturer of the machinery, equipment and spare parts
to be imported or (2) the importation is caused by the expansion of the
registered enterprises and such imports shall be acquired from the same
manufacturer who supplied the machinery, equipment, and spare parts
being used by the registered enterprise or (3) the total cost of
importation is less than one million dollars ($1,000,000.00) or (4) the
Board has other means of determining the reasonableness of the
procurement cost. If the registered enterprise sells, transfers or
disposes these machinery, equipment and spare parts without the prior
approval of the Board within five (5) years from the date of
acquisition, the registered enterprise shall pay twice the amount of the
tax exemption given it. However, the Board shall allow and approve the
sale, transfer, or disposition of the said items within the said period
of five (5) years if made: (1) to another registered enterprise; (2) for
reasons of proven technical obsolescence; or (3) for purposes of
replacement to improve and/or expand the operations of the enterprise.
In such cases, the transferee shall not be subject to the taxes and
duties on the said equipment other than the deferred taxes, if any, if
it will undertake an economic project substantially carrying out the
objective for which such equipment has been imported, as determined by
the Board."
SEC. 4. Section 9 (b) of the same Act is hereby amended to
read as follows:
"(b) Reduced Income Tax.—Registered enterprises shall be
entitled for the first five (5) years from its registration, to deduct
from its taxable income an amount equivalent to the sum of the direct
labor cost and local raw materials utilized in the manufacture of its
completely finished export products: Provided, however, That such
deduction shall in no case exceed twenty-five per centum (25%) of its
total export revenue: Provided, further, That in case of
traditional exports, the local raw material component shall not be
included in computing the above deduction."
SEC. 5. The second paragraph of Section 10 of the same Act is
hereby amended to read as follows:
"The above-mentioned financial institutions, to the extent allowed
by their respective charters or applicable laws, shall contribute to
the capital of a registered enterprise whenever the said contribution
would enable the formation of a pioneer or other registered enterprise
with at least sixty per cent (60%) control by Philippine Nationals: Provided,
That the shares representing the contribution of the said financial
institutions shall be offered for public sale to Philippine Nationals
through all the members of a registered Philippine stock exchange within
a reasonable period after such acquisition."
SEC. 6. Section 16 of the same Act is hereby further amended
by adding a new subsection (p) to read as follows:
"(p) Withdraw or cancel partially or totally, the incentives
granted to a registered enterprise under Republic Act Numbered Fifty-one
hundred eighty-six or Republic Act Numbered Sixty-one hundred
thirty-five when the registered enterprise has a paid-up capital of at
least five hundred thousand pesos (P500,000.00) and earns for at least
two (2) years profits from the registered operations in excess of
thirty-three and one-third per cent (331/3%) of equity even without
incentives under the said laws."
SEC. 7. The first and fourth paragraph of Section 18 of the
same Act is hereby amended to read as follows:
"SEC. 18. Preferred and Pioneer Areas of Investment.—
The Board of Investments shall submit to the President, not later than
the end of January of every year, through the National Economic and
Development Authority, an Investment Priorities Plan and Public
Utilities Priorities Plan, as defined in Section 3(k) and (1) of this
Act.
* * * * * * *
Considering the amount of investment capital which the Board may
estimate to be available during any given year, the Board shall give
priority to projects with the highest rates of return to the national
economy. No project shall be included in the Investment Priorities Plan
or Public Utilities Priorities Plan, nor declared a preferred area of
investment, nor designated a pioneer area, unless it is shown to be
economically, technically and financially sound after thorough
investigation and analysis by the Board. In any of the areas declared
preferred areas of investment, the Board may designate as pioneer areas
the specific products, commodities and services that meet the
requirements of Section three, paragraph (h) of this Act."
SEC. 8. Section 23 of the same Act is hereby amended by
deleting the first paragraph thereof to read as follows:
"SEC. 23. Other Incentives Acts.—A registered
enterprise under this Act which is entitled to benefits under other laws
shall be entitled, to the extent of its registered capacity, to such
benefits granted under this Act as are not granted by said other laws
and to such benefits granted under the latter as are not granted under
the former."
SEC. 9. Subsection (b) of Section 6 of Republic Act Numbered
Sixty-one hundred thirty-five is hereby amended to read as follows:
"(b) To be entitled to registration, an applicant must satisfy the
Board that (1) he is a citizen of the Philippines, in case the
applicant is a natural person, or in case of a partnership or any other
association, it is organized under Philippine laws and that at least
sixty per cent (60%) of its capital is owned and controlled by citizens
of the Philippines; or in case of a corporation or a cooperative, it is
organized under Philippine laws and that at least sixty per cent (60%)
of the capital stock outstanding and entitled to vote is owned and held
by Philippine Nationals as defined under Section 3(f) of R.A. 5186, and
at least sixty per cent (60%) of the members of the Board of Directors
are citizens of the Philippines; (2) that it is engaged or proposes to
engage in manufacturing, processing or exporting export products listed
in the export priorities plan or tourism priorities, plan, or if not so
listed in the export priorities plan, that at least fifty per cent (50%)
of its sales are exports sales; or in case of a service exporter, that
it is engaged or proposes to engage in rendering services payable in
foreign currency, providing services to foreign tourists and foreign
travelers in areas within the Tourism Priorities Plan and subject to the
guidelines prepared by the Philippine Tourist Commission and the Board,
or in exporting television or motion pictures or musical recordings
produced or made in the Philippines; (3) that it is not engaged and will
not engage in any of the activities reserved by the Constitution or the
laws of the Philippines to Filipino citizens or corporations owned and
controlled by Filipino citizens unless and until the applicant can
fulfill the requirements of the Constitution or said laws; and (4) that
if the applicant is engaged or proposes to engage in activities other
than the manufacture, processing and exportation of export products, or
in rendering services other than export services, it has installed or
undertakes to install an adequate accounting system to segregate the
investments, revenues, sales, receipts, purchases, payrolls, costs,
expenses, and profits and losses of its export operations from those of
its domestic operations: Provided, That in the case of: (i) a
pioneer enterprise herein registered as defined under Section 3 (h) of
Republic Act Numbered Fifty-one hundred eighty-six, (ii) a service
exporter primarily engaged in the business of catering to foreign
tourists and foreign travelers, and (iii) an export producer seventy per
cent (70%) of whose total production is to be exported, the nationality
requirement shall be in accordance with Section Nineteen of the said
Act instead of Section Six, paragraph (b) of this Act: Provided,
further, That in the latter case, the Board may increase the seventy
per cent (70%) export requirement in the event of an adverse effect on
the domestic producers of the export product: Provided, furthermore,
That upon receipt of the application for registration, the Board shall,
within thirty (30) days, notify the applicant of all pertinent
requirements not complied with: And provided, finally, That the
Board of Investments shall act on said application within ninety (90)
days after submission thereof."
SEC. 10. Subsection (c) of Section 7 of the same Act is hereby
amended to read as follows:
"(c) Within five (5) years from the date of registration of the
export producer, importation of machinery and equipment, and spare parts
shipped with such machinery, and equipment, shall not be subject to
tariff duties and compensating tax: Provided, That said
machinery, equipment and spare parts: (1) are not manufactured
domestically in reasonable quantity and quality at reasonable prices;
(2) are directly and actually needed and will be used by the registered
enterprise in the manufacture of its product; (3) are covered by
shipping documents in the name of the registered export producer to whom
the shipment will be delivered direct by customs authorities; and (4)
the prior approval of the Board, was obtained by the registered export
producer before the importation of such machinery, equipment and spare
parts. For enterprises approved for registration by the Board after the
effective date of this decree, which are engaged in new preferred
non-pioneer activities with total assets or projected total assets of
five hundred thousand pesos (P500,000.00) or more for the first two (2)
years of commercial operations, the Board, subject to the criteria to be
formulated in consultation with the Secretary of Finance, and to the
above enumerated conditions, shall, in lieu of an exemption, reduce
partially the tariff duties and compensating-tax on such machinery,
equipment and spare parts, and defer the payment of such reduced taxes
and duties for a period not exceeding ten (10) years, after posting the
appropriate bond as may be required by the Secretary of Finance. For
replacement or modernization of existing facilities of pioneer and
non-pioneer registered enterprises, or for expansion of projects with
20% or greater return on equity, mere deferment in payment of taxes and
duties as above provided shall be allowed without reduction thereof. In
granting approval of importations under this paragraph, the Board shall
require international bidding to be conducted by the end-user in Manila
under its supervision; however, the Board may, in its discretion,
dispense with this requirement if (a) there is, to the knowledge of the
Board, only one manufacturer of the machinery, equipment, and spare
parts to be imported or (b) the importation is caused by the expansion
of the registered export producer and such imports shall be acquired
from the same manufacturer who supplied the machinery, equipment, and
spare parts being used by the registered export producer or (c) the
total cost of importation is less than one million dollars
($1,000,000.00) or (d) the Board has other means of determining the
reasonableness of the procurement cost. If the registered export
producer does not bring into the country, the proceeds of export sales
equivalent to at least the costs of the imported machinery, equipment,
and spare parts within five (5) years after delivery of the same to it,
or if it sells, transfers, or disposes of the machinery and equipment,
and spare parts imported under this paragraph without the prior approval
of the Board within the said five (5) years, the registered export
producer shall pay twice the amount of exemption given it, together with
the penalty and interest thereon, computed from the date of
acquisition, fixed by the Tariff and Customs Code and the National
Internal Revenue Code for delinquency in the payment of said duties and
taxes. Likewise, if the registered expert producer sells, transfers or
disposes of these machinery, equipment and spare parts without the prior
approval of the Board within five (5) years from the date of
acquisition, the registered enterprises shall pay twice the amount of
tax exemption given it. However, the Board shall allow and approve the
sale, transfer or disposition of the said items within the said period
of five (5) years if made: (1) to another registered enterprise; (2) for
reasons of proven technical obsolescence; (3) for purposes of
replacement to improve and/or expand the operations of the enterprise.
In such cases, the transferee shall not be subject to the taxes and
duties on the said equipment other than the deferred taxes and duties,
if any, if it will undertake an economic project substantially carrying
the objective for which such equipment has been imported, as determined
by the Board."
SEC. 11. Section 8 of the same Act is hereby amended to read
as follows:
"SEC. 8. Incentives to registered export traders.—A
registered export trader shall be entitled (a) to the exemption from
export tax provided in paragraph (e) of Section 7 of this Act, for
export products bought by it from registered export producers qualified
to avail of such exemption from export tax; (b) to a tax credit
equivalent to the amount of specific and sales taxes on the registered
export products bought by it from export producers and subsequently
exported; (c) for the first five (5) years from registration, to deduct
from its taxable income, in addition to the normal deductions allowed by
the National Internal Revenue Code, an amount equivalent to ten per
cent (10%) of its total export sales. For a period of five (5) years
after registration, an additional deduction of one per cent (1%) of its
total export sales shall be allowed a registered export trader who
extends financial assistance to a registered export producer or
producers in an amount equivalent to not less than twenty per cent (20%)
of the registered export trader's total export sales during the year in
which the incentive is claimed."
SEC. 12. Section 9 of the same Act is hereby amended to read
as follows:
"SEC. 9. Additional Incentives.— (a) The Board shall
grant additional incentives whenever a registered export producer
establishes its processing or manufacturing plant in an area that the
Board designates as necessary for the proper dispersal of industry or in
an area which the Board finds deficient in infrastructure public
utilities, and other facilities. These additional incentives shall
consist of any or all of the following: (1) to use an amount equivalent
to double its direct labor cost in applying the formula for reduced
income tax provided in paragraph (b) of Section 7 of this Act; (2) to
apply in payment of taxes that may be due from it to the National
Government, an amount equivalent to one hundred per cent (100%) of
necessary infrastructure works, in harmony with projects approved by
law, undertaken by the registered export producer with the prior
approval of the Board and the concurrence of the Department of Public
Works, Transportation and Communications any appropriate government
agency, such as port works, waterworks, aircraft landing facilities,
roads and bridges leading from the plant to a loading point or to a
rational highway or poblacion, and other similar projects that are
normally undertaken by the government: Provided, That the title
to all such infrastructure works shall upon completion, be transferred
to the Philippine Government: Provided, further, That should the
registered export producer undertake necessary maintenance work on such
infrastructure works with the prior approval of the Board, a similar
incentive shall be given to it in an amount equivalent to the cost of
such necessary maintenance.
Whenever a registered export producer or export trader shall use a
new brand name for an export produce that distinguishes it from
produces manufactured or processed outside the Philippines, the Board
shall grant the registered export producer directly exporting its
product or export trader who exports the same an additional incentive in
the form of either (1) a net operating loss carryover as provided for
in Section 7, paragraph (c) of Republic Act Numbered Fifty-One Hundred
Eighty-Six, known as the Investment Incentives Act; or (2) an additional
deduction from taxable income equivalent to one per cent (1%) of the
increment of its export sales during the year in which the incentive is
claimed to the export gales of the preceding year; Provided, That
the registered export producer or export trader shall choose at the
time of applying for said additional incentives which of the two
incentives he prefers to enjoy, and such choice shall be binding."
SEC. 13. All Acts, Executive Orders, Administrative Orders,
Rules arid Regulations or parts thereof inconsistent with the provisions
of this Decree are hereby repealed or modified accordingly.
Effectivity.
SEC. 14. Effectivity.—This Decree shall take effect
immediately upon its approval.
Done in the City of Manila, this 19th day of June, in the year
of Our Lord, nineteen hundred and seventy-four.
(Sgd.)
FERDINAND E. MARCOS
President of the Philippines
By the President:
(Sgd.)
ALEJANDRO MELCHOR
Executive Secretary
Source: Supreme Court E-Library, Republic of the Philippines. Philippine laws are public documents (works of the government).
