Section 6
SEC. 6. Incentives to a Registered Agricultural Enterprise. A registered enterprise, to the extent engaged in a preferred of investment, shall be granted the following incentive benefits: (a) Deduction of Organizational and Pre-operating Expenses. All capitalized organizational and pre-operating expenses attributable to the establishment of a registered enterprise may be deducted from its taxable income over a period of not more than ten years beginning with the month the enterprise begins operations, provided the taxpayer indicates the desired amortization period at the time of the filing of income tax returns for the first taxable year. For the purpose of this provision, organizational and pre-operating expenses shall include expenses for pre-investment studies, start up costs, costs of initial recruitment and training, pilot projects and similar expenses. (b) Accelerated Depreciation. At the option of the taxpayer and in accordance with the procedure established by the Bureau of Internal Revenue, fixed assets and capital equipment including breeding stock may be (1) depreciated to the extent of not more than twice as fast as normal rate of depreciation or depreciated at normal rate of depreciation if expected life is ten years or less; or (2) depreciated over any number of years between five years and expected life if the latter is more than ten (10) years; and the depreciation thereon allowed as a deduction from taxable income: Provided, that the taxpayer notifies the Bureau of Internal Revenue at the beginning of the depreciation period which depreciation rate allowed by this section will be used. (c) Net Operating Loss Carry-over. A net operating loss incurred in any of the first ten years of operations may be carried over as a deduction from taxable income for the six years immediately following the year of such loss. The entire amount of the loss shall be carried over to the first of the six taxable years following the loss, and any portion of such loss which exceeds the taxable income of such first year shall be deducted in like manner from the taxable income of the next remaining five years. The net operating loss shall be computed in accordance with the provisions of the National Internal Revenue Code, any provisions of this Decree to the contrary notwithstanding, except that income not taxable either in whole or in part under this or other laws shall be included in gross income. (d) Tax Exemption on Imported Capital Equipment. Within seven 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 enterprises 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 directly 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) 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, but in no case exceeding 33-1/3% thereof, mere deferment in payment of taxes and duties as above provided shall be allowed without reduction thereof for return of taxes and duties as above provided shall be imposed without deferment. 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 cost of importation is less than one million U.S. dollars (US$1,000,000), or (4) the Board has other means of determining the reasonableness of the procurement cost. 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, 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 transfer shall not be subject to 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. (e) Tax exemption on Breeding Stocks and Genetic Materials. In addition to the above incentive benefits, the registered agricultural enterprise shall be entitled to a tax exemption on breeding stocks and/or genetic materials imported within seven years from the date of registration of the enterprise: Provided, that such breeding stock and/or genetic materials are (1) not locally available strains/breeding stocks at reasonable prices; (2) shall be used exclusively by the registered agricultural enterprise in the improvement of the strains/breeding stocks of its livestocks, poultry, fish and/or plants and must have been acquired with prior approval of the Board; Provided, further that breeding stocks and genetic materials shall not be disposed of, transferred or sold for whatever reason within the periods specified in the rules and regulations to implement the Decree, except for causes prejudicial to the viability and operation of the enterprise as determined and approved by the Board.Sale, transfer and disposition made within the specified period without prior approval shall render the registered enterprise liable to pay twice the amount of tax that should have been paid. (f) Tax credit on Domestic Capital Equipment. A tax credit equivalent to one hundred per cent (100%) of the value of the compensating 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 which 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-term utilization of said equipment in non-registered operation 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 the period determined by the Board in consultation with the Department. 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. (g) Tax Credit for Withholding Tax on Interest. A tax credit for taxes withheld on interest payments on foreign loans shall be given a registered enterprise when (1) no such credit is enjoyed by the lender-remittee in his country and (2) the registered enterprise has assumed the liability for payment of the tax due from the lender-remittee. (h) Employment of Foreign Nationals. Subject to the provisions of Section 29 of Commonwealth Act 613, as amended, an enterprise may, within five years from registration, employ foreign nationals in supervisory, technical or advisory positions not in excess of five per centum of its total personnel in each such category: Provided, That in no case shall each employment exceed five years. The employment of foreign nationals after five years from registration, or within such five years but in excess of the proportion herein provided, shall be governed by Section 20 of Commonwealth Act 613, as amended. Foreign nationals under employment contract within the purview of this Decree, their spouse and unmarried children under 21 years of age, who are not excluded by Section 29 of Commonwealth Act 613, shall be permitted to enter and reside in the Philippines during the period of employment of such foreign nationals. A registered enterprise shall train Filipinos in administrative, supervisory and technical skills and shall submit annual reports on such training to the Board of Investments. (i) Deduction for Expansion Reinvestment. When a registered enterprise reinvests its undistributed profit or surplus, whether from registered operation or not, by actual transfer thereof to the capital stock of the corporation, retention thereof in case of individual partnership or cooperatives or for procurement of machinery, equipment, spare parts, breeding stocks and genetic materials previously approved by the Board under subsections “d”, “e” and “f” 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, or for development of additional land area for production purposes the amount so reinvested, to the extent of 25%, 37-1/2, 50% in case of non-pioneer projects, and to the extent of 50%, 75%, 100% in the case of pioneer projects, the appropriate percentage to be jointly determined by the Board and the Department for each priority sector taking into account the relative risk, technology transfer and fallout, export potential or contribution to self-sufficiency in food, etc., 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 that 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. (j) Anti-Dumping Protection. Upon recommendation of the Board, made after notice and hearing, the President shall issue a directive banning for a limited period the importation of goods or commodities which, as provided in Section 301 (a) (1) of the Tariff and Customs Code of the Philippines, unfairly or unnecessarily compete with those produced by registered enterprises: Provided, (1) That the Board certifies to the satisfactory quality of the goods or commodities produced or manufactured by the registered enterprises; and (2) that the enterprises agree not to increase the price of these goods, or commodities during this period, unless, for good cause, the Board allows such an increase. (k) Deduction of 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 deduction shall not exceed ten per cent (10%) of direct labor wage. (l) Deduction of Research and Development Program and Agricultural Management Training Expenses. An additional deduction from taxable income of twenty-five per cent (25%) of the research and development training expenses of Philippine nationals within a period of seven (7) years from the date of registration shall be granted to a registered agricultural enterprise: Provided, That such research and development programs and the fields of agricultural management training are duly approved by the Board in consultation with the Department: and Provided, further, That such deduction on both programs shall not exceed ten per cent (10%) of taxable income. (m) Incentives for Necessary and Major Infrastructure and Public Facilities. Registered agricultural enterprises establishing their production, processing and manufacturing plants in an area that the Board designates as necessary for the proper dispersal of industry or in an areas which the Board finds deficient in irrigation, drainage and other similar waterworks infrastructure, may apply in payment of taxes due from it to the government an amount equivalent to one hundred (100%) per cent of necessary and major infrastructure works it may have undertaken with the prior approval of the Board in consultation with the Department and other government agencies concerned: Provided, That the title to all such infrastructure works shall, upon completion, be transferred to the Philippine Government after which appropriate charges shall be collected by the government for the use of these facilities: Provided, further, That should the registered enterprise undertake necessary and major 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. (n) Deduction of Freight and Transportation Expenses. An additional deduction from taxable income not exceeding thirty per cent (30%) of freight and transportation expenses incurred within a period of five (5) years from date of registration shall be granted to a registered agricultural enterprise; Provided, That such agricultural enterprise is established in a geographical area that the Board in consultation with the Department, designates as a preferred location for agricultural development and in a location that the Board finds deficient in transport facilities; and Provided, further, That such freight and transportation expenses are incurred in the course of transportation registered products from the agricultural enterprises’ project area to the nearest economic marketing center as jointly determined by the Board and the Department.