Section 3
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."