BUSINESS INCENTIVES AND REFORMS AN ACT INTENDED TO IMPROVE BUSINESS CLIMATE BY AMENDING REPUBLIC ACTS NUMBERED FIFTY-ONE HUNDRED EIGHTY-SIX, SIXTY-ONE HUNDRED THIRTY-FIVE, FIFTY-FOUR HUNDRED FIFTY-FIVE AND FOR OTHER PURPOSES.

• Number: Presidential Decree No. 92
• Sections: 20

Preamble

AN ACT INTENDED TO IMPROVE BUSINESS CLIMATE BY AMENDING REPUBLIC ACTS NUMBERED FIFTY-ONE HUNDRED EIGHTY-SIX, SIXTY-ONE HUNDRED THIRTY-FIVE, FIFTY-FOUR HUNDRED FIFTY-FIVE AND FOR OTHER PURPOSES.

WHEREAS, There is a need to improve the overall climate for

business and industry in the Philippines in order to accelerate economic growth

and promote the well-being

especially of the masses of our people;

WHEREAS, although the various incentives already

provided in existing laws to encourage investment, both local and

foreign, in desirable industries and projects have actually induced their

establishment in preferred areas, there is still a need to re-examine their

precise impact and relevance not only to increased productivity but to the

improvement of the living standards of the people;

WHEREAS, in order to achieve the foregoing objectives, it is

necessary to update and rationalize existing incentives and provide new ones

that can help optimize the rate of economic development by giving priority to

export-oriented industries especially those utilizing indigenous raw materials

and which can generate more employment and income opportunities in keeping with

the escalating demands of our people for the basic essentials that make for

decent existence;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the

Philippines, by virtue of the powers in me vested by the Constitution as

Commander-in-Chief of the Armed Forces of the Philippines and pursuant to

Proclamation No. 1081, dated September 21, 1972, and General Order No. 1, dated

September 22, 1972, as amended and in order to effect the desired changes and

reforms in the social, economic and political structure of our society, do

hereby order and decree amendments to Republic Act Numbered Fifty-one hundred

eighty-six, otherwise known as the Investment Incentives Act, and complementary

laws such as Republic Act Numbered Sixty-one hundred thirty-five, otherwise

known as the Export Incentives Act and Republic Act Numbered Fifty-Four hundred

fifty-five, as follows:

Section 1

SECTION 1. Section seven of Republic Act Numbered Fifty-one

hundred eighty-six is hereby amended by adding a new subsection and amending

paragraphs (d), (e) and (h) hereof, to read as follows:

"SEC. 7. Incentives to a Registered Enterprise. — A

registered enterprise, to the extent

engaged in a preferred area of

investment, shall be granted the following

incentive

benefits:

* * * * * * *

"(d) Tax Exemption on Imported Capital Equipment. Within seven years from the

date of registration of the enterprise, 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 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; (3) are covered by shipping documents in the name of the registered

enterprise to whom the shipment will be delivered direct to customs authorities;

(4) the prior approval of the Board was obtained by the registered enterprise

before the importation of such machinery, equipment and spare parts; and (5) the

registered enterprise chooses not to avail of the privileges granted by Republic

Act Numbered Thirty-one hundred twenty-seven, as amended. If the registered

enterprise 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 enterprise shall pay twice the amount of the

tax exemption given it. However, the Board shall allow and approve the sale,

transfer, of the 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 purpose of replacement to improve and/or

expand the operations of the enterprise.

"(e) Tax Credit on Domestic Capital Equipment. — A tax credit

equivalent to one hundred per cent (100%) of the value of the compensation tax

and customs duties that would have been paid on the machinery, equipment and

spare parts had these items been imported shall be given to the registered

enterprise who purchases machinery, equipment and spare parts from a domestic

manufacturer, and another tax credit equivalent to fifty per cent (50%) thereof

shall be given to the said manufacturer: Provided, (1) That the said

machinery, equipment and spare parts 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; (2) that the prior approval of the Board was obtained by the local

manufacturer concerned; and (3) that the sale is made within seven years from

the date of registration of the registered enterprise. If the registered

enterprise 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, then it shall pay twice the amount of the tax credit 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."

"(h) Deduction for Expansion Reinvestment. — When a registered

enterprise reinvests its undistributed profit or surplus, whether from

registered operations or not, by actual transfer thereof to the capital stock of

the corporation for procurement of machinery, equipment and spare parts

previously approved by the Board under subsections ' d ' and ' e ' hereof or for

the expansion of machinery and equipment used in production or for the

construction of the buildings, improvements or other facilities for the.

installation of the said machinery and equipment, the amount so reinvested, to

the extent of twenty-five per cent (25%), thirty-seven and one-half per cent

(37½%), fifty per cent (50%), in case of non-pioneer projects and to the extent

of fifty per cent (50%), seventy-five per cent (75%), one hundred per cent

(100%) in the case of pioneer projects, the appropriate percentage to be

determined by the Board for each industry taking into account the relative risk,

technology, transfer and fall-out, export potential,, incremental labor, use of

locally manufactured machinery and equipment and domestic raw materials, shall

be allowed as a deduction from its taxable income in the year in which such

reinvestment was made: Provided, (1) That prior approval of the Board

of such reinvestment was obtained by the registered enterprise planning such

reinvestment and (2) that the registered enterprise does not reduce its capital

stock represented by the reinvestment within seven (7) years from the date such

reinvestment was made. In the event the registered enterprise does not order the

machinery and equipment within two (2) years from the date the reinvestment was

made or reduces its capital stock represented by the reinvestment within a

period of seven (7) years from the date of reinvestment, a recomputation of the

income tax liability therefor shall be made for the period when the deduction

was made, and the proper taxes shall be assessed and paid with interest."

"(k) Deduction for Labor Training Expenses. — An additional

deduction from taxable income of one half of the value of labor training

expenses incurred for upgrading the productivity and efficiency of unskilled

labor shall be granted to a registered enterprise: Provided, That such

training program is duly approved by the appropriate government agency or in the

absence thereof by the Board: And provided, further, That such

deduction shall not exceed ten per cent (10%) of direct labor

wage."

Section 2

SEC. 2. Subsection (a) of Section Eight of the same Act is

hereby amended as follows:

"SEC. 8. Incentives to a Pioneer Enterprise. — In

addition to the incentives provided in the preceding section, pioneer

enterprises shall be granted the following incentive benefits:

"(a) Tax Exemption. — Exemption from all taxes under the National

Internal Revenue Code, except income tax, from the date the area of investment

is included in the Investment Priorities Plan to the following extent:

(1) One hundred per cent (100%) for the first five years;

(2) Seventy-five

per cent (75%) for the sixth through the eighth year;

(3) Fifty per cent

(50%) for the ninth and tenth year;

(4) Twenty per cent (20%) for the

eleventh and twelfth years; and

(5) Ten per cent (10%) for the thirteenth

through the fifteenth year.

Provided, That the above schedule shall apply only to enterprises

registered in areas included for the first time in the sixth or subsequent

Investment Priorities Plan or therein carried over from the previous Investment

Priorities Plan: Provided, however, That in areas previously declared

preferred and/or carried over the sixth or subsequent Investment Priorities Plan

and wherein enterprises have already registered, the exemption herein

provided shall be as follows:

(1) One hundred per cent (100%) up to December 31, 1972;

(2) Seventy-five

per cent (75%) up to December 31, 1975;

(3) Fifty per cent (50%) up to

December 31, 1977;

(4) Twenty per cent (20%) up to December 31, 1979;

(5)

Ten per cent (10%) up to December 31, 1981;

Provided, further, That subject to the approval of the National

Economic Development Authority, the Board may extend the duration of the tax

exemption provided in any bracket for pioneer projects whose total

costs would exceed one hundred million pesos (P100,000,000) subject to the

condition that in no case shall the total period of exemption herein exceed

twenty (20) years."

Section 3

SEC. 3. Section Nine of the same Act is hereby repealed in

toto, any provision of law to the contrary notwithstanding and in lieu thereof,

the following special export incentives, may be availed of by a registered

enterprise.

"SEC. 9. Special Export Incentives for Registered

Enterprises. — Registered enterprises may be entitled to the following

special incentives for exports of their registered products and commodities:

"(a) Special Tax Credit. — A tax credit equivalent to the sales, compensating

and specific taxes and duties on the supplies, raw materials and

semi-manufactured products used in the manufacture, processing or production of

its export products and forming part thereof, whether exported directly by the

registered enterprise or sold to another export producer which uses such sold

product as a direct input in export products manufactured or processed by it and

subsequently exported, or to an export trader: Provided, That the tax

credit shall accrue to the registered enterprise only after the export producer

or export trader has in fact exported the products of the export producer or

those in the manufacture or processing of which such inputs were used.

"(b) Reduced Income Tax. — Registered enterprises shall be entitled

for the first five 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.

"Before registered enterprises may avail themselves of the foregoing export

incentives benefits, they shall apply first with the Board, which shall approve

the application upon proof: (1) that the enterprise proposes to engage in good

faith in creating a market for its products abroad; (2) that the product to be

exported is one included in the government priorities plan as suitable for

export, or if not so included, that its export will not adversely affect the

needs of the domestic market for the finished product to be exported or for the

domestic raw materials used in its manufacture; (3) that the enterprise has or

will set up an adequate accounting system to segregate revenues, purchases and

expenses of its export market operations from those of its domestic market

operations; and (4) that the exported products and commodities meet the

standards of quality established by the Bureau of Standards or, in default

thereof, by the Board.

"The Board may suspend or cancel wholly or partially the above deduction

under this section whenever any action is threatened or taken by an

international association or foreign nation which would nullify the purposes of

said incentive and would impair or threaten to impair the export trade of the

Philippines or its relations with other nations."

Section 4

SEC. 4. Section Thirteen of the same Act is hereby amended,

as follows:

"SEC. 13. Board of Investments. — The Board of

Investments shall be composed of five full-time members to be appointed by the

President of the Philippines with the consent of the Commission on Appointments,

from a list of nominees submitted by the Chamber of Commerce of the Philippines,

the Chamber of Industries, Base Metals Producers Association, Gold Producers

Association, Chamber of Agriculture and Natural Resources of the Philippines,

the Bankers Association of the Philippines and other similar business

organizations as well as from duly organized and existing labor confederations,

federations and other organizations of national standing in the Philippines from

which the President may request nominees: Provided, That each

association shall submit a list of not less than three (3) but not more than

five (5) nominees and that no association shall have more than one member in the

Board at any particular time: And Provided, further, That the President

may appoint as members of the Board qualified persons who have not been so

nominated. The Board shall elect a Chairman and a Vice-Chairman from among

themselves. The tenure of office of each member shall be six. (6) years:

Provided, however, That the members of the Board first appointed

shall

hold office for two (2) years; three (3) years, four (4) years, five (5)

years and six (6) years as fixed in their respective appointments: Provided,

further, That upon the expiration of his term, a member shall serve as such

until his successor shall have been appointed and qualified: Provided,

furthermore, That no vacancy shall be filled except for the unexpired

portion of any term, and that no one may be designated to be a member of the

Board in an acting capacity, but all appointments shall be ad interim or

permanent: Provided, finally, That a member of the Board may serve as

director of government owned or controlled corporation.”

Section 5

SEC. 5. Section Fourteen of the same Act is hereby amended

by deleting the last sentence thereof and shall read as follows:

“SEC. 14. Qualifications of Members of the Board.—

The members of the Board shall be citizens of the Philippines, at least thirty

(30) years old, of good moral character and of recognized competence in the

field of economics finance, banking, commerce, industry agriculture, engineering

management, law or labor, such competence to be certified by the association

making the nomination or by the association whole members belong to the same

profession, calling or occupation as the person appointed." Act is hereby

amended to read as follows:

Section 7

SEC. 7. The first two paragraphs of Section Eighteen of the

same Act are 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

Development Authority, an Investment Priorities Plan, as defined in Section

three, paragraph (k) of this Act.

"In determining the preferred and pioneer areas of investment and their

corresponding measured capacities, the Board shall determine which areas of

investment best accomplish the policy declared in this Act, including those

which will economically produce goods for domestic use in substitution for goods

being imported in large quantities, and especially those which will process

further and thereby increase the value of agricultural, mining and timber

products already being produced for export or which will make products at costs

low enough to be sold competitively in export markets."

Section 8

SEC. 8. Paragraph (a) Section Nineteen of the same Act is

hereby amended to read as follows:

"SEC. 19. Qualification of Applicants. — To be

entitled to registration, an application

must satisfy the Board that:

(a) It possesses the qualifications prescribed for registered enterprises in

Section three, paragraph (b) of this Act; or if it does not possess the required

degree of ownership by Philippine Nationals, the following circumstances must be

satisfactorily established:

(1) That it is otherwise qualified under Section three, paragraph (b) of this

Act;

(2) That it proposes to engage in a pioneer project, as defined in

Section three, paragraph (h) of this Act which, considering the nature and

extent of capital requirements, processes, technical skills and relative

business risks involved, is in the opinion of the Board of such a nature that

the available measured capacity thereof cannot be readily and adequately filled

by Philippine Nationals;

(3) That it obligates itself to attain the status of

a Philippine National, as defined in Section three, paragraph (f) of this Act

within thirty (30) years from the date of registration by having its shares of

stock listed with a Philippine stock exchange within fifteen (15) years from the

date of registration and actually offering for sale the said shares to

Philippine Nationals immediately after the said period: Provided,

however, That in case of a registered enterprise exporting at least seventy

per cent (70%) of its total production, it shall attain the status of a

Philippine National within forty (40) years from the date of registration by

listing its shares of stock within twenty-five (25) years from the date of

registration and actually selling its shares after the said period:

Provided, further, That the Board may extend this period for another

ten (10) years, subject to such conditions as it may impose in the national

interest, and upon proof by the registered enterprise that it has exerted its

best efforts to sell the required number of shares to Philippine Nationals, as

required by this Section but Philippine Nationals have not bought the same and

for such other cause as the Board may deem sufficient to justify the extension

of the period;

"(4) That the pioneer area it will engage in is one that is not within the

activities reserved by the Constitution or other laws of the Philippines to

Filipino citizens or corporations owned or controlled by Filipino

citizens."

Section 9

SEC. 9. The last two paragraphs of Section Twenty of the

same Act are hereby amended to read as follows:

"SEC. 20. Application. —

* * * * * * *

A non-Philippine National may engage in non-pioneer areas of investment where

Philippine Nationals are already engaged only after three (3) years from the

date of declaration of the area as preferred if the measured capacity has not

been filled within the said period, except where such non-Philippine National

shall engage, without incentives, unless otherwise registered under Republic Act

Numbered Sixty-one hundred thirty-five in the manufacture of finished products

primarily for export. The Board shall fix the percentage of production that must

be exported by a non-Philippine National in order to be deemed to be engaged in

manufacture primarily for export, which percentage shall not be less than

seventy per cent (70%) of its total production.

Any order or decision of the Board under this Section may be appealed within

thirty (30) days from receipt of said order or decision to the National Economic

Development Authority. Upon failure on the part of the National Economic

Development Authority to act within a period of ninety (90) days, the decision

of the Board shall be deemed upheld. The Board or the enterprise applying for

registration under this Act may appeal the decision of the National Economic

Development Authority to the President within thirty (30) days from its

promulgation."

Section 10

SEC. 10. Paragraph (a) of Section Twenty-Five of the same

Act is hereby amended to read as follows:

"SEC. 25. Applicability and Interpretation. — In

interpreting and applying the provisions of this Act, the following rules shall

be observed:

"(a) Applicability to Existing Enterprises. — An enterprise which

satisfies the definition of a 'Philippine National'' engaged in a preferred area

of investment at the time of its declaration as such, shall be entitled to

registration as to its existing capacity, as well as to such an expansion or

enlargement thereof requiring new or additional machinery and equipment as shall

be within the unfilled measured capacity of the area; so also, an investor in

such an existing enterprise shall be entitled to benefits and incentives to the

extent of his present as well as new or additional investment therein:

Provided, That the application is filed while the area is still in the

Investment Priorities Plan: Provided, however, That the benefits of

this Act, so far as may be applicable to such existing enterprises and investors

in such existing enterprises, shall be given prospective effect only from the

date of registration."

Section 11

SEC. 11. The last paragraph of Section 4 of R.A. 5455 is

hereby amended and anew section to be designated as Section 9-A is hereby added:

"SEC. 4. Licenses to do Business.

—

The above requirement shall be in addition to those set forth in the

Corporation Law as amended, for licensing foreign corporations and a violation

of any of these requirements or of the terms and conditions which the Board may

impose shall be sufficient cause to cancel a licensed or permit issued pursuant

to this Act: Provided, however, That aliens or foreign firms,

associations, partnerships, corporations or other forms of business organization

or existing under the laws of the Philippines who may lawfully have been

licensed to do business in the Philippines prior to the effectivity of this Act

shall, with respect to the activities for which they were licensed and actually

engaged in prior to the effectivity of this Act, not to be subject to the

provisions of this section but shall be subject to the reporting requirements

prescribed by the Board: Provided, further, That where the issuance of

said license has been irregular or contrary to law, any person adversely

affected thereby may file an action with the Court of First Instance where said

alien or foreign business organization resides or has its principal office to

cancel the said license. In such cases, no injunction shall issue without notice

and hearing, and appeals and other proceedings for review shall be filed

directly with the Supreme Court.”

“SEC. 9-A. Periodic Reports. — The Board shall

periodically check and verify compliance with the provisions of this Act, either

by inspection of the books or by requiring reports from aliens or foreign firms,

domestic enterprises with foreign investments in excess of thirty per cent (30%)

and new entities licensed to do business under Section four of this Act. Nothing

herein shall be deemed to preclude the Board from requiring similar reports from

domestic firms with foreign investments of less than thirty per cent (30%).

“ A summary of said reports shall be annually submitted by the Board to

Congress not later than January fifteen. For this purpose, the Board may require

other government agencies licensing and/or regulating foreign enterprises of

domestic firms with foreign equity, to furnish the Board with reports on such

foreign investments.”

Section 12

SEC. 12. Paragraphs (b), (c), (d), (f) and (g) of Section

Three of Republic Act Numbered Sixty-one hundred and thirty-five are hereby

amended to read as follows:

“SEC. 3. Definition of Terms. — For purposes of this

Act:

“(a)

“(b) ‘Registered Export Producers’ shall mean any person, corporation,

partnership or other entity organized and existing under Philippine laws, (1)

registered with the Board in accordance with this Act, (2) engaged or proposing

to engage in the manufacture or processing of export products as hereinbelow

defined, and (3) directly exporting its export products, or selling them (a) to

a registered export trader that subsequently exports said products, or (b) to

other export producers who utilize said products as direct inputs in

subsequently manufactured or processed by them and thereafter exported, or (c)

to foreign tourists and foreign travelers in areas covered by Tourism Priorities

Plan and subject to the guidelines prepared by the Philippine Tourist Commission

and the Board.

“(c) ‘ Registered Export Trader’ shall mean any person, corporation,

partnership or other entity organized and existing under Philippine laws.

(1) Registered with the Board in accordance with this Act and (2) which

derived at least twenty per cent (20%) of its gross income for the year in which

the incentives are claimed, from the sale abroad of export products bought by it

from one or more export producers or from domestic sale to foreign tourists and

foreign travelers in areas covered by the Tourism Priorities Plan and subject to

the guidelines prepared by the Philippine Tourist Commission and the Board."

"(d) 'Registered Service Exporter' shall mean a person, corporation,

partnership or other entity organized and existing under Philippine laws, (1)

registered with the Board in accordance with this Act and (2) engaged or

proposing to engage (a) rendering technical, professional or other services

which are paid for in foreign currency including, but not limited to, the fields

of law, medicine, accounting, management, valuation and appraisals, engineering,

construction, geodetics, surveying, teaching, pharmacy, nursing, cultural

presentations or promotions, works of arts, and entertainments; (b) in exporting

television and motion pictures and musical recordings made or produced in the

Philippines, either directly or through a registered export trader; or (c) in

rendering services for foreign tourists and foreign travelers covered by the

Tourism Priorities Plan and subject to the guidelines prepared by the Philippine

Tourist Commission and the Board."

"(f) ' Export Sales ' shall mean the Philippine port F.O.B. value, determined

from invoices, bills of lading, inward letters of credit, landing certificates,

and other commercial documents, of export products exported directly by a

registered export producer or registered export trader, or the net selling price

of export products sold by a registered export producer to another export

producer, or registered export trader who subsequently exports the same, or the

net selling price of export products in acceptable foreign currencies sold by a

registered export producer or registered export trader to foreign tourists and

foreign travelers under certain conditions to be prescribed by the Board, but

sales of export products to another registered export producer or to a

registered export trader shall only be deemed export sales when actually

exported by the latter, as evidenced by landing certificates or similar

commercial documents. Exportation of goods or consignment shall not be deemed

export sales until the export products consigned are in fact sold by the

consignee.

"(g) ' Export Fees ' shall mean the total foreign exchange which is charged

or received by a registered service exporter for furnishing or performing

services, or permitting the showing or playing, outside of the Philippines, of

television or motion pictures or musical recordings. It shall also include fees

in acceptable foreign currencies received by service exporters catering to

foreign tourists and foreign travelers under certain conditions to be prescribed

by the Board."

Section 13

SEC. 13. Section Four of Republic Act Numbered Sixty-one

hundred and thirty-five is hereby amended to read as follows:

"SEC. 4. Export Priorities Plan. — Not later than

the end of January of every year the Board shall submit to the President,

through the National Economic Development Authority, an export priorities plan

setting forth the export products that should be encouraged with priority,

considering:

(a) the comparative advantage they enjoy or could be made to enjoy;

(b)

their potential for earning foreign exchange; and

(c) their profitability to

the national economy.

"Within the same period, the Philippine Tourist Commission shall submit to

the President through the National Economic Development Authority, a Tourism

Priorities Plan setting the required tourism facilities in various regions which

can qualify for incentives. The Export Priorities Plan and the Tourism

Priorities Plan shall be acted upon and take effect, and may be amended,

following the procedure for, and with like effect as, the investments priorities

plan."

Section 14

SEC. 14. Section Six, paragraph (b) of Republic Act Numbered

Sixty-one hundred thirty-five is hereby amended to read as follows:

"SEC. 6. Conditions for Availment of Incentives.

"(a) * * *

"(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 that at least sixty per cent (60%) of its capital is owned and

controlled by citizens of the Philippines, in case the applicant is a

corporation, partnership or other entity; (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

export 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 currency, providing services to foreign tourists and foreign

travelers in areas with the Tourism Priorities Plan and subject to the

guidelines prepared by the Philippine Tourism 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."

Section 15

SEC. 15. Section Seven, excluding paragraphs (c) and (d),

Republic Act Numbered

Sixty-One hundred Thirty-Five is hereby amended to read

as follows:

"SEC. 7. Incentives to Registered Export Producers.

— Registered export producers, unless they already enjoy the same privileges

under other laws, shall be entitled to the incentives set forth in paragraphs

(g), (h), (i), (j) and (k) of Section seven of Republic Act Numbered Fifty-one

hundred eighty-six, known as the Investment Incentives Act; and registered

export producers that are pioneer enterprises shall be entitled also to the

incentives set Forth in paragraphs (a), (b) and (c) of Section eight of the said

Act. In addition to the said incentives, and in lieu of other incentives

provided in Sections seven and nine of that Act, registered export

producers shall be entitled to benefits and incentives as enumerated

hereunder:

Tax Credit. — Every registered export producer shall enjoy a tax

credit equivalent to the sales, compensating and specific taxes and duties on

the supplies, raw materials and semi-manufactured products used in the

manufacture, processing or production of its export products and forming part

thereof, whether exported directly by the registered export producer or sold to

another export producer, which uses such sold product as a direct input in

export products manufactured or processed by it and subsequently exported or to

a registered export trader: Provided, That the tax credit shall accrue

to the registered export producer only after the other export producer or

registered export trader has in fact exported the products of the export

producer or those in the manufacture or processing of which such inputs were

used. The tax credit shall be issued by the Secretary of Finance, upon

presentation of the export documents, and shall be in lieu of refunds. It may be

used to pay taxes, duties, charges, and fees due to the National Government in

connection with its operations. A tax credit shall be non-transferrable, except

when such transfer is by hereditary succession or occurs by operation of law; it

may be used by the person or entity to whom it is issued only for as long as it

enjoys the benefits and incentives provided for in this Act; and may

not be used so as to result in a refund.

Reduced income tax. — Every registered export producer, except

those registered under Section six, paragraph (b), subsection (iii) of this Act,

shall be entitled for the first five (5) years from the 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 export products:

Provided, however, That such deduction shall in no case exceed

twenty-five per centum (25%) of its total export revenue.

Exemption from Export Tax. — The provisions of law to the contrary

notwithstanding, exports by a registered export producer, of its registered

export product shall be exempted from the export tax, impost or fee, including

the stabilization tax under Republic Act Numbered Sixty-one hundred

twenty-five."

Section 16 Powers and Duties of the Board.

SEC. 16. Powers and Duties of the Board. — The

Board shall meet as often as may be necessary, but not than once each week on

such day as it may fix. Notice of special meeting shall be given all members of

the Board and proof of such notice shall be spread upon the minutes. The

presence of three (3) members shall constitute a quorum; and the affirmative

vote of (3) members in a meeting validly held shall be necessary to exercise its

powers and perform its duties, which shall be as follows:

Draw up annually an investment priorities plan in the manner prescribed in

Section eighteen which shall be the basis for the implementation of this Act;

Promulgate such rules and regulations as may be necessary to implement the

intent and provisions of this Act, which rules and regulations shall take effect

thirty (30) days after their publication in two (2) newspapers of general,

circulation in the Philippines;

Process and approve, imposing such terms and conditions as it may deem

necessary to promote the objectives of this Act, including refund of incentives

availed or to be availed by an enterprise in amounts to be determined by the

Board, applications for registration under this Act, and issue the proper

certificate of registration upon payment of the necessary fees, which shall not

exceed two hundred pesos;

After due hearing, decide controversies concerning the implementation of

this Act that may arise between registered enterprises or investors therein and

government agencies within thirty (30) days after the controversy has been

submitted for decision: Provided, That the investor or the registered

enterprise may appeal the decision of the Board within fifteen (15) days from

receipt thereof to the Court of First Instance of the City of Manila or of the

city or province where the principal office of the registered enterprise is

located, in the manner provided for by the Rules of Court in cases of

this nature;

Recommend to the Commissioner of Immigration the entry into the Philippines

for employment of foreign nationals as permitted in Sections seven and eight of

this Act;

Periodically check and verify, either by inspection of the books or by

requiring regular reports, the proportion of the participation of Philippine

Nationals in a registered enterprise to ascertain compliance with its

qualification to retain registration under this Act;

Periodically check and verify the compliance by registered enterprises with

the provisions of this Act, with the rules and regulations promulgated under

this Act and with the terms and conditions of registration;

After notice and hearing, cancel the registration or suspend the enjoyment

of incentive benefits of any registered enterprise or require refund of

incentives enjoyed by such enterprise including interest and monetary penalties,

for (1) failure to maintain the qualifications required by this Act for

registration, or (2) for willful or grossly negligent violation of any provision

of this Act, of the rules and regulations issued under this Act, or the terms

and conditions of registration, or of laws for the protection of labor or of the

consuming public: Provided, That the registered enterprise affected by

the order of cancellation or suspension may appeal within fifteen (15) days from

the receipt of the order to the Court of First Instance of the City of Manila or

of the city or province where the principal office of the registered enterprise

is located;

Appoint, discipline and remove, and determine the compensation of its

technical staff and other personnel: Provided, That except as to the

technical staff and such other positions as the Board may declare to be highly

technical or primarily confidential, all positions in the Board are subject to

the provisions of the Civil Service Law and Rules, but are exempt from the

regulations of the Wage and Position Classification Office;

Prepare or contract for the preparation of feasibility and other

pre-investment studies for pioneer areas either upon its own initiative or upon

the request of Philippine Nationals who commit themselves to invest therein and

show the capability of doing so, and upon condition that in no case shall the

expenditure of the Board exceed one hundred twenty-five thousand pesos

(P125,000) per study: Provided, That if venture is implemented, then

the amount advanced by the Board should be repaid within five (5) years from the

date the commercial operation of said enterprise starts;

Require registered enterprises to list their shares of stock in any

accredited stock exchange or directly offer a portion of their capital stock to

the public and/or their employees;

Recommend to the National Economic Development Authority guidelines for the

rationalization of certain industries whose continued operation will result in

the dislocation of and/or overcrowding in said industries, thus retarding

economic growth, and upon approval thereof, the Board shall have the power to

implement the same and in appropriate cases, recommend to the President, after

due hearing and notice, to restrict, either totally or partially, the

importation of any equipment or raw materials for firms in the industry not

conforming with the prescribed guidelines.

In appropriate cases and upon approval of the National Economic Development

Authority, suspend the nationality requirement provided for in this Act

or any other nationalization statute in case of international complementation

arrangements for the manufacture of a particular product on a regional basis to

take advantage of economies of scale;

Within four (4) months after the close of the fiscal year, submit annual

reports to the President and Congress, with copies to each member thereof, which

shall cover its activities in the administration of this Act, including

recommendations

on investment policies; and

Generally, exercise all the powers necessary or incidental to attain the

purposes of this Act."

Section 17

SEC. 17. Section Ten of Republic Act Numbered Sixty-one

hundred and thirty-five is hereby amended to read as follows:

"SEC. 10. Incentives to Registered Service

Exporters. — Every registered service exporter shall, for the first five

(5) years from registration, be entitled to deduct from its taxable income an

amount equivalent to fifty per cent (50%) of its total export fees during the

year in which the incentive is claimed: Provided, That to be entitled

to this deduction, the registered service exporter must have remitted or

repatriated to the Philippines in acceptable foreign currencies its total export

fees earned during the year in which the incentive is claimed, less reasonable

costs and expenses incurred or payable in foreign currencies, under such rules

and regulations as the Monetary Board may prescribe. In addition, for a period

of five (5 ) years from registration, a registered service exporter who produces

television or motion pictures, or musical recordings, in the Philippines, and

exports the picture or recording directly or through a registered export trader

shall also be entitled (a) to a tax credit equivalent to the amount of specific,

compensating and sales taxes and duties paid by it on the raw materials and

supplies used in producing the picture or recording that is exported; and (b) to

exemption from payment of customs duties and compensating taxes on importations

of equipment, machinery or spare parts shipped with such machinery and equipment

that (1) are not manufactured domestically in reasonable quantity and quality or

sold at reasonable prices; (2) are directly and actually needed and will be used

by the registered service exporter in producing or making the pictures or

recordings that it exports; (3) are covered by shipping documents in the name of

the registered service exporter to whom the shipment will be delivered direct by

customs authorities; (4) have the approval of the Board of Investments obtained

by the registered service exporter before placing the order for the importation;

and (5) are the subject of international bidding, under the supervision of the

Board, unless the Board dispenses with this condition for any of the reasons set

forth in Section seven, paragraph (c) of this Act. If the registered service

exporter does not bring into the Philippines export fees equivalent to at least

the cost 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 same or any part thereof, without prior approval of the Board,

within said five (5) years, it shall pay twice the amount of the exemption given

it, together with the penalty and interest thereon, computed from the date of

delivery, fixed by the Tariff and Customs Code and the National Internal Revenue

Code for delinquency in the payment of duties and taxes. However, the Board

shall allow and approve the sale, transfer or disposition within the said period

of five (5) years, if the registered service exporter has brought into the

Philippines export fees during the period it has held the equipment which amount

to twenty per cent (20%) of the cost of the equipment for each year in which it

has held the equipment; and if made (1) to another registered service exporter

of pictures and recordings; (2) for reasons of proven technical obsolescence; or

(3) for purposes of replacement to improve or expand the operations of the

registered service exporter. A similar incentive of tax and duty-free

importation of equipment, machinery and spare parts shipped with such machinery

and equipment under the same conditions as above enumerated shall be granted to

service exporters engaged primarily in catering to foreign tourists and foreign

travelers in preferred areas covered by the Tourism Priorities Plan and within

the guidelines prescribed by the Philippine Tourist Commission and the Board.

Section 18

SEC. 18. All acts, executive orders, administrative orders,

rules and regulations or

parts thereof inconsistent with the provisions of

this Decree are hereby repealed or modified accordingly.

Section 19 Effectivity.

SEC. 19. Effectivity. — This Decree shall take

effect from its approval.

Done in the City of Manila, this 6th day of January, in the year of Our Lord,

nineteen hundred and seventy-three.

(Sgd.) FERDINAND E. MARCOS

President

Republic of the Philippines

By the President:

(Sgd.) ALEJANDRO MELCHOR

Executive Secretary

Section 16

SEC. 16. Section Eight of Republic Act Numbered Sixty-One

hundred thirty-five is hereby amended to read as follows:

"SEC. 8. Incentives to Registered Export Traders.

—A registered export trader shall be entitled to (a) exemption from export tax

provided in paragraph (e) of Section seven of this Act, for export

products bought by it from registered export producer/s 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; and (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%) 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."