House Bill No. 8083 (Package 2) www.pwc.com/ph Tax Reform for Attracting Better and High-quality Opportunities Isla Lipana & Co.
Tax Reform for Attracting Better and High-quality Opportunities Package 2 In brief The House of Representatives approved on third and final reading House Bill No. 8083 otherwise known as Tax Reform for Attracting Better and High-quality Opportunities or TRABAHO Bill last 10 September 2018. This Bill complements Package 1 of the comprehensive tax reform program or Republic Act ( RA ) No. 10963 known as the Tax Reform for Acceleration and Inclusion Act or TRAIN which became effective on 01 January 2018. TRAIN amended several provisions of the National Internal Revenue Code of 1997 ( Tax Code ) on individual income taxation, passive income for both individuals and corporations, estate tax, donor s tax, value-added tax ( VAT ), excise tax, and documentary stamp tax ( DST ), among others. TRABAHO Bill is the 2nd Package of the government s comprehensive tax reform program which proposes to gradually lower the corporate income tax rate and rationalize corporate incentives. The proposed provisions in this Bill are intended to enhance fairness, improve competitiveness, plug tax leakages and achieve fiscal sustainability. The salient provisions of the TRABAHO Bill are as follows: Corporate income tax rate for domestic corporations, resident foreign corporations (RFCs); and non-resident foreign corporations (NRFCs) shall be reduced by 2% points every two years beginning 1 January 2019 until 1 January 2020 following this schedule: 28% (1 January 2021); 26% (1 January 2023); 24% (1 January 2025); 22% (1 January 2027); and 20% (1 January 2029) Repeal of the 15% branch profits remittance tax ( BPRT ) exemption of Philippine branches registered with the Philippine Economic Zone Authority ( PEZA ); repeal of the 10% special income tax rate of offshore banking units (OBUs); repeal of the 10% special income tax rate of regional operating headquarters (ROHQs) within 2 years from the effectivity of the law Increase in income tax rates of: (a) interest income derived by RFCs from a depository bank under the expanded foreign currency deposit system from 7.5% to 15%; and (b) capital gains tax on sale of shares of stocks not traded in the stock exchange by RFC and NRFCs from 5%/10% to 15% 40% optional standard deduction ( OSD ) on gross income shall be applicable only to individuals (except non-resident aliens) and Micro, Small and Medium Enterprises ( MSME ) as determined by the Department of Trade and Industry Expansion of tax-free exchange transactions under Section 40 (C)(2) of the Tax Code Introduction of a general anti-avoidance rule Removal of the option to apply for the issuance of tax credit certificate on the refund of input VAT attributable to zero-rated sales Penalties and imprisonment period shall be increased for specific violations of the Tax Code I House Bill no. 8083 (Package 2) 1
Rationalization of Tax Incentives Registered projects or activities under the Strategic Investment Priority Plan ( SIPP ) shall be entitled to the following incentives: A. Income Tax Income Tax Holiday ( ITH ) shall be granted for a maximum period of 3 years. After which, the 18% preferential tax rate and other special deductions may be applied for the remaining 2-year period, discussed briefly as follows: 18% preferential tax rate, which shall be reduced by 1% every 2 years until 2029 (i.e., 18% to 13%). That in the case of registered enterprises within economic zones and freeports, 3% of the preferential rate shall be directly remitted to the local government, which shall be in lieu of local business tax; Other special or additional deductions on: a. depreciation allowance for qualified capital expenditure b. direct labor expense c. research & development ( R&D ) expenses d. training expenses I House Bill no. 8083 (Package 2) e. infrastructure development f. reinvestment allowance to manufacturing industry g. enhanced net operating loss carry over ( NOLCO ) h. domestic input expense used in registered export activity Specific industries as determined in the SIPP may be entitled to the other special deductions in lieu of the ITH or 18% preferential tax rate. 5-year maximum period to avail of income tax incentives except for (1) additional special deductions on infrastructure development and enhanced NOLCO; (2) agribusiness projects located outside Metro Manila and other urban areas; (3) projects in less developed areas and those recovering from armed conflict/major disaster; and (4) projects relocating from Metro Manila B. Customs duty incentives 5-year maximum period to avail of exemption from customs duty on importation of capital equipment and raw materials directly and exclusively used in the registered activity (The 5-year period shall not apply to freeport zones) 5-year maximum period to avail of exemption from customs duty on importation of capital equipment only on expansion projects C. VAT incentives VAT-exempt importation and VAT zero-rating on domestic purchases for registered enterprises located within an economic zone, freeport, or those utilizing customs bonded manufacturing warehouse, subject to the following conditions: 90% export sales threshold is met 90% export sales threshold is not met but complies with the rules on electronic receipts and invoices Registered enterprises that will not meet the 90% export threshold or are located outside an economic zone or freeport (regardless of the export sale threshold) shall be subject to VAT; export registered enterprises are entitled to refund the VAT paid on importation of capital equipment and raw materials 2
Transitory Provisions for Existing Registered Activities For activities under ITH: 5-year maximum period to avail of the combined remaining ITH period and 5% Gross Income Tax ( GIT ) incentive, in lieu of all national and local taxes For activities under the 5% GIT: 2 years for activities enjoying the tax incentives for more than 10 years 3 years for activities enjoying the tax incentives between 5 to 10 years 5 years for activities enjoying the tax incentives below 5 years I House Bill no. 8083 (Package 2) 3
Proposed amendments on Income taxation Tax Particulars Current Tax Law House Bill No. 8083 [Tax Reform for Attracting Better And High-quality Opportunities or TRABAHO Bill ] Income taxation of individuals On the definition of Section 22 (E) The definition of a non-resident citizen includes citizen non-resident citizen of the Philippines who works and derives income from abroad and whose employment thereat requires him to be physically present abroad most of the time during the taxable year. Income taxation of domestic corporations On the regular Section 27(A) Domestic corporations are taxed on taxable income corporate income tax sourced from within and outside the Philippines based on the (RCIT) rate following tax rates: On the preferential income tax rate of proprietary educational institutions On the income tax exemption of certain government-owned and controlled corporations, agencies or instrumentalities 30% effective 1 January 2009; or Optional tax rate of 15% of gross income subject to certain conditions Section 27 (B) For purposes of applying the lower corporate income tax rate of 10%, a proprietary educational institution is any private school maintained and administered by private individuals or groups with an issued permit to operate from the Department of Education, Culture and Sports (DECS), or the Commission on Higher Education (CHED), or the Technical Education and Skills Development Authority (TESDA), as the case may be, in accordance with existing laws and regulations. Section 27 (C) The following are exempt from income tax: Government Service Insurance System ( GSIS ) Social Security System ( SSS ) Philippine Health Insurance Corporation ( PHIC ) Local Water Districts I House Bill no. 8083 (Package 2) The phrase most of the time was replaced with for 183 days or more RCIT is 30% to be reduced by 2% points every other year beginning 1 January 2021 until 1 January 2029, i.e., 20% beginning 1 January 2029. The President may advance the reduction when adequate savings are realized from the additional provisions on realization of fiscal incentives. Deleted the optional tax rate of 15% Replaced Department of Education, Culture and Sports (DECS) with Department of Education (DepEd) Included Home Development Mutual Fund ( HDMF ) in the coverage of income tax exempt governmentowned and controlled corporations, agencies or instrumentalities 4
Tax Particulars Current Tax Law House Bill No. 8083 [Tax Reform for Attracting Better And High-quality Opportunities or TRABAHO Bill ] Income taxation of resident foreign corporations ( RFC ) On the RCIT rate On branch profits remittance tax On the income tax rate / exemption of certain resident foreign corporations On interest income derived from a depository bank under the expanded foreign currency deposit system On capital gains tax from sale of shares of stock not traded in the stock exchange Section 28 (A)(1) RFCs are taxed on taxable income sourced from within the Philippines based on the following tax rates: 30% effective 1 January 2009; or Optional tax rate of 15% of gross income subject to certain conditions Section 28 (A)(5) Any profit remitted by a foreign branch to its head office shall be subject to a tax of fifteen percent (15%) except those activities which are registered with the Philippine Economic Zone Authority Section 28 (A)(4) and (6) The following RFCs are entitled to a lower income tax rate and exemption: Income tax at 10%: OBUs ROHQs Exempt from income tax: Regional headquarters ( RHQ ) Section 28 (A)(7)(a) Interest income of an RFC from a depository bank under the expanded foreign currency deposit system shall be subject to a final income tax rate of 7 ½%. Section 28 (A)(7)(c) Capital gains from sale of shares of stock not traded in the stock exchange of an RFC shall be taxed as follows: 5% of the capital gain not exceeding PHP100,000; and 10% on any amount in excess thereof. I House Bill no. 8083 (Package 2) RCIT is at 30% to be reduced by 2% points every other year beginning 1 January 2021 until 1 January 2029, i.e., 20% beginning 1 January 2029. The President may advance the reduction when adequate savings are realized from the additional provisions on realization of fiscal incentives. Deleted the optional tax rate of 15% Removed the exemption of PEZA-registered branches from the 15% BPRT Repealed the 10% special tax rate of OBUs ROHQs shall be subject to the regular corporate income tax after 2 years from effectivity of the law. Increased the tax rate from 7 ½% to 15% Increased the capital gains tax rate from 5%/10% to 15% 5
Tax Particulars Current Tax Law House Bill No. 8083 [Tax Reform for Attracting Better And High-quality Opportunities or TRABAHO Bill ] Income taxation of non-resident foreign corporations On the RCIT rate On intercorporate dividends On capital gains tax from sale of shares of stock not traded in the stock exchange Section 28 (B)(1) NRFCs are subject to income tax on their Philippinesourced gross income at the rate of 30%. Section 28 (B)(5)(b) A final withholding tax of 15% shall be imposed on cash and/or property dividends received from a domestic corporation provided that the country of domicile of the NRFC shall allow a credit against the tax due from the taxes deemed to have been paid in the Philippines equivalent to 20%, which is the difference between the 15% and 35% RCIT. Section 28 (B)(5)(c) Capital gains from sale of shares of stock not traded in the stock exchange of an NRFC shall be taxed as follows: 5% of the capital gain not exceeding PHP100,000; and 10% on any amount in excess thereof. Allowable deductions for income tax purposes On interest expense limitation On optional standard deduction ( OSD ) Section 34 (B)(1) The deductible interest expense shall be reduced by 33% of the interest income subjected to final tax. Section 34 (L) The OSD shall be calculated as follows: 40% of gross sales or gross receipts for individuals other than a non-resident alien; or 40% of gross income in case of domestic corporations and RFCs. I House Bill no. 8083 (Package 2) RCIT is at 30% to be reduced by 2% points every other year beginning 1 January 2021 until 1 January 2029, i.e., 20% beginning 1 January 2029. The President may advance the reduction when adequate savings are realized from the additional provisions on realization of fiscal incentives. Adjusted the percentage of the required allowed credit against the tax due in the foreign country to 15%, which represents the difference between the RCIT rate and 15% tax on dividends beginning 1 January 2019 Increased the capital gains tax rate from 5%/10% to 15% The interest expense reduction shall be lowered to as low as nil of the interest income subjected to final tax in consonance with the reduced RCIT. 1 OSD shall be based on gross income and applicable only to the following: Individuals (except non-resident alien); and Micro, small and medium sized enterprise as determined by the Department of Trade and Industry. Deleted the provision added by TRAIN prescribing that general professional partnership and the partners comprising the partnership may avail of the OSD only once 1 If CIT rate is 30%, interest expense reduction rate is 33%; If CIT rate is 28%, interest expense reduction rate is 29%; If the CIT rate is 26%, interest expense reduction rate is 23%; If the CIT rate is 24%, interest expense reduction rate is 16%; If the CIT rate is 22%, interest expense reduction rate is 9%; If the CIT rate is 20%, interest expense reduction rate is 0% 6
Tax Particulars Current Tax Law House Bill No. 8083 [Tax Reform for Attracting Better And High-quality Opportunities or TRABAHO Bill ] Allowable deductions for income tax purposes On the determination of gain or loss on exchange of properties Section 40(C)(2) No gain or loss shall be recognized if in pursuance of a plan of merger or consolidation a. A corporation, which is a party to a merger or consolidation, exchanges property solely for stock in a corporation, which is a party to the merger or consolidation; or b. A shareholder exchanges stock in a corporation, which is a party to the merger or consolidation, solely for the stock of another corporation also a party to the merger or consolidation; or c. A security holder of a corporation, which is a party to the merger or consolidation, exchanges his securities in such corporation, solely for stock or securities in such corporation, a party to the merger or consolidation. No gain or loss shall also be recognized if property is transferred to a corporation by a person in exchange for stock or unit of participation in such a corporation of which as a result of such exchange, said person, alone or together with others not exceeding four (4) persons, gains control of said corporation: Provided, that stocks issued for services shall not be considered as issued in return for property. I House Bill no. 8083 (Package 2) Expansion of the tax-free exchange application to cover exchange of properties between parties pursuant to a reorganization A reorganization is defined to include: A corporation, which is a party to a merger or consolidation, exchanges property solely for stock in a corporation, which is a party to the merger or consolidation; The acquisition by one corporation, in exchange solely for all or a part of its voting stock, or in exchange solely for all or a part of the voting stock of a corporation which is in control of the acquiring corporation, of stock of another corporation if, immediately after the acquisition, the acquiring corporation has control of such other corporation whether or not such acquiring corporation had control immediately before the acquisition; The acquisition by one corporation, in exchange solely for all or a part of its voting stock or in exchange solely for all or a part of the voting stock of a corporation which is in control of the acquiring corporation, or substantially all of the properties of another corporation, but in determining whether the exchange is solely for stock the assumption by the acquiring corporation of a liability of the other shall be disregarded; Recapitalization; or Reincorporation The phrase gains control of said corporation was replaced with and immediately after, such person or persons are in control. Expressly included the bona fide or legitimate business purpose requirement of the transaction; otherwise, Section 50 (i.e., on related-party transactions) would apply Sale or exchanges of property used for business for shares of stock covered under this subsection shall not be subject to VAT. 7
Tax Particulars Current Tax Law House Bill No. 8083 [Tax Reform for Attracting Better And High-quality Opportunities or TRABAHO Bill ] On allocation of income and deductions On the distribution of dividends or assets by corporations Section 50 In the case of two or more organizations, trades or businesses (whether or not incorporated and whether or not organized in the Philippines) owned or controlled directly or indirectly by the same interests, the CIR is authorized to distribute, apportion or allocate gross income or deductions between or among such organization, trade or business, if he determined that such distribution, apportionment or allocation is necessary in order to prevent evasion of taxes or clearly to reflect the income of any such organization, trade or business. Section 73 (A) and (B) The term dividends means any distribution made by a corporation to its shareholders out of its earnings or profits and payable to its shareholders, whether in money or in other property. Where a corporation distributes all of its assets in complete liquidation or dissolution, the gain realized or loss sustained by the stockholder, whether individual or corporate, is a taxable income or a deductible loss, as the case may be. I House Bill no. 8083 (Package 2) Grants the CIR the authority to distribute, apportion, allocate and impute income and deductions between or among organizations, trades, or business in order to prevent avoidance of taxes or to clearly reflect the income of any such organization, trade, or business. In cases when a transaction or arrangement, whether entered into by the person affected by the transaction or arrangement or by another person, that directly or indirectly has tax avoidance as its purpose or effect, whether or not any other purpose or effect is attributable to ordinary business or family dealings, if the tax avoidance purpose or effect is not merely incidental, the Commissioner is authorized to disregard and consider such transaction or arrangement as void for income tax purposes, and may adjust the taxable income of a person affected by the arrangement in a way the commissioner thinks appropriate, in order to counteract a tax advantage obtained by the person from or under the arrangement. Tax avoidance arrangements include: a. directly or indirectly altering the incidence of any income tax; b. directly or indirectly relieving a person from liability to pay income tax or from a potential or prospective liability to future income tax; or c. directly or indirectly avoiding, postponing, or reducing any liability to income tax, or any potential or prospective liability to future income tax. Provided definition for and corresponding taxation of liquidating dividends, which reads: (C) Liquidating dividends. liquidating dividends are dividends representing the remaining gains realized or loss sustained by the stockholder in a complete liquidation or dissolution by a corporation and shall be considered as taxable income or a deductible loss, as the case may be. 8
Proposed amendments on Value-Added Taxation Tax Particulars Current Tax Law House Bill No. 8083 [Tax Reform for Attracting Better And High-quality Opportunities or TRABAHO Bill ] On refund of input VAT attributable to zerorated sales On the cancellation of VAT registration On percentage tax to domestic carriers by land Section 112 (A) VAT-registered person may apply for the issuance of a tax credit certificate or refund of creditable input tax attributable to zero-rated sales within 2 years after the close of the taxable quarter when such sales were made. Provided, however, that for certain zero-rated sales, the acceptable foreign currency exchange proceeds thereof has been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas ( BSP ). Section 112 (B) A person whose registration has been cancelled due to retirement from or cessation of business, or due to changes in or cessation of status under Section 106(C) of this Code may, within two (2) years from the date of cancellation, apply for the issuance of a tax credit certificate for any unused input tax which may be used in payment of his other internal revenue taxes. Section 117 Owners of bancas and owners of animal drawn two wheeled vehicles are the only exceptions of the percentage tax of three percent (3%) on domestic carriers and keepers of garages. I House Bill no. 8083 (Package 2) Removed the option to apply for the issuance of a tax credit certificate The requirement that zero-rated sales should be paid in an acceptable foreign currency exchange proceeds shall no longer apply to foreign currency denominated sales. This is to align with the revision made by TRAIN law which removed foreign currency denominated sales from zerorated sale of goods under Section 106(A)(2). Replacement of the phrase apply for the issuance of tax credit certificate with apply for refund Included owners/operators of tricycles operating not more than two (2) units in the coverage of the 3% percentage tax on domestic carriers and keepers of garages 9
Proposed amendments on the authority of the Commissioner in the tax assessment process Tax Particulars Current Tax Law House Bill No. 8083 [Tax Reform for Attracting Better And High-quality Opportunities or TRABAHO Bill ] On the issuance of a Subpoena Duces Tecum ( SDT ) On the service of Letter of Authority and assessment notices None Note: Under the current regulations, the issuance of the SDT shall be requested from: (1) Assistant Commissioner, Enforcement and Advocacy Service, through the Prosecution Division; (2) Assistant Commissioner, Large Taxpayers Service, through the Prosecution Division; (3) Revenue Regional Directors, through the Legal Divisions; and (4) any other officer duly delegated by the Commissioner. None I House Bill no. 8083 (Package 2) Added subsection (F) in Section 5, to include the authority of the CIR or his duly authorized representative to issue an SDT in case the information or records requested are not furnished within the period prescribed in the written notice, or when the information or records submitted are incomplete, subject to the following rules: The information or records duly received or already within the custody of the Bureau shall not be covered by any SDT; Service of said SDT shall be effected by the revenue officers assigned to investigate the case or any other internal revenue officer authorized for the purpose ; The SDT shall be served through personal service, but if not practicable, by substituted service; A criminal action shall be instituted for failure to obey the SDT; and The books, records, and documents submitted as a result of SDT shall be under the custodianship of the receiving officer who shall be responsible for its safekeeping and preservation, subject to applicable rules. Section 6-A - Added provision on the service of Letter of Authority and Assessment Notices issued by the Bureau. Proper service shall be by way of personal delivery at the taxpayer s registered address; or if not practicable, by substituted service in accordance with the rules of court 2. 2 Substituted service in accordance with the rules of court: If, for justifiable reasons, the defendant cannot be served in person within a reasonable time, the service of the summons may then be effected either: (1) by leaving a copy of the summons at his residence with some person of suitable age and discretion then residing therein, or (2) by leaving the copy at his office or regular place of business with some competent person in charge thereof. 10
Tax Particulars Current Tax Law House Bill No. 8083 [Tax Reform for Attracting Better And High-quality Opportunities or TRABAHO Bill ] On the authority to compromise taxes On the execution of the Waiver of Statute of Limitations Section 204 Compromise payment involving a basic tax amount exceeding PHP1m or settlement offered is less than the prescribed minimum rates 3 shall be subject to the approval of the National Evaluation Board. Section 222 The CIR and the taxpayer may agree in writing to extend the tax assessment up to the period agreed upon. This must done before the end of the three-year period limit as defined in Section 203 of the same law or before the expiration of the period previously agreed upon. I House Bill no. 8083 (Package 2) Increased the minimum threshold of the basic tax from PHP1m to PHP10m Rather than agreeing on the extended assessment period with the Commissioner, the taxpayer would need to apply for an extension. Extension shall not exceed 6 months at any one time, subject to further extension upon filing written application before the expiration of the period previously applied for. 3 Minimum of 10% of the basic assessed tax for cases of financial incapacity; minimum of 40% of the basic assessed tax in other cases (i.e., reasonable doubt as to the validity of the claim against the taxpayer exists) 11
Proposed amendments on administrative provisions Tax Particulars Current Tax Law House Bill No. 8083 [Tax Reform for Attracting Better And High-quality Opportunities or TRABAHO Bill ] On electronic invoicing requirements of certain types of taxpayers Section 237-A Within 5 years from effectivity of RA 10963 (TRAIN), the following taxpayers shall issue electronic receipts or commercial invoices: a. taxpayers engaged in export of goods and service; b. taxpayers engaged in e-commerce; and c. taxpayers under the Large Taxpayers Service. The original, duplicate and electronic copies of the receipts or invoices shall be preserved for a period of 3 years from the close of the taxable year in which such invoice or receipt was issued in the taxpayer s and its customer s place of business. I House Bill no. 8083 (Package 2) These taxpayers shall be required to transmit the electronic receipts and commercial invoices thru designated electronic channels 4 with a public certification system 5 accredited by the BIR. Electronic copies of the receipts and invoices to be preserved shall bear the approved electronic tax transaction number 6 for sufficient compliance. 4 Designated electronic channel shall refer to any medium or portal identified by the Bureau with an ability to receive the transaction data of the electronic receipts of sales or commercial invoices for assignment of an approved electronic tax transaction number. 5 Public certification system shall refer to a digital personal authentication program with ability to verify the identity of issuing taxpayer and attest to the authenticity of the information in the electronic receipts or sales or commercial invoices. This may include the use of digital signature issued by the certification authority as accredited by the Bureau of Internal Revenue. 6 Approved tax transaction number shall refer to the unique assigned series of numbers and/or letters linked to a validated sales transaction reported through the designated electronic channel. 12
Tax Particulars Current Tax Law House Bill No. 8083 [Tax Reform for Attracting Better And High-quality Opportunities or TRABAHO Bill ] On the grant of tax credit or incentives for the adoption of electronic sales reporting system On the Commissioner s power to interpret tax laws and decide tax cases Reporting responsibility to the Department of Finance ( DOF ) Sec. 237-A Within 5 years from the effectivity of RA 10963 (TRAIN 1), the taxpayers mentioned above shall be required to electronically report their sales data to the Bureau of Internal Revenue through the use of electronic point of sales systems provided that such machines, fiscal devices, fiscal memory devices, shall be at the expense of the taxpayers. Section 4 The power to interpret the provisions of the Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance. Sec. 20 The CIR has particular reporting responsibilities to the following: (a) Congress (in aid of legislation); and (b) Congressional Oversight Committee. I House Bill no. 8083 (Package 2) The taxpayers mentioned should use a system capable of issuing electronic receipt or sales or commercial invoices, collect transaction records and transmit the same thru the designated electronic channels of the BIR in the standard format required. The Point of Sale ( POS ) machine, Value-Added Network ( VAN ) terminals, fiscal devices, and fiscal memory devices with the capacity to make such transmission shall be at the expense of the taxpayers. Incentives to support electronic sales reporting system: In year 1 to 4 of the implementation: tax credit of 0.1% of the purchase value, net of value added tax shall be granted for every electronic receipt or sale or commercial invoice transmitted thru the designated electronic channels allowable deductible expense of up to 10% of the electronically traceable payments 7 made by the taxpayer, subject to an annual limit receipt and invoice lottery program for electronic receipts or sales or commercial invoices transmitted thru the designated electronic channels of the Bureau and issue an electronic tax transaction number Clarified that the power to interpret the provisions on tax incentives under Title XIII shall be under the exclusive and original jurisdiction of the Secretary of Finance Additional provision to include the reporting responsibilities to the DOF subject to the condition that the Secretary of Finance must specifically identify the information needed and supply the justification for the request The Secretary of Finance and the relevant officers handling the information shall be subject to the provisions of Section 270 on unlawful divulgence of trade secrets unless the taxpayer consents to such disclosure in writing. 7 Electronically traceable payments refer to credit card, debit card, or other method of payment with a system to verify or link the payment to the identity of the payor. 13
Tax Particulars Current Tax Law House Bill No. 8083 [Tax Reform for Attracting Better And High-quality Opportunities or TRABAHO Bill ] On disposition and allotment of national internal revenue Congressional oversight committee Structural Adjustment Fund Section 288 provides for the following dispositions and allotment: A. Incremental revenues from RA No. 7660; B. Incremental revenues from RA No. 8240; C. Incremental revenues from the excise tax on alcohol and tobacco products; D. Incremental revenue from the VAT; and E. Allotment to Public Information and Education Program. Section 290 enumerates four (4) functions of the committee, as follows: 1. Monitoring and ensuring the proper implementation of RA No. 8240; 2. Determination of that the power of the CIR to compromise and abate is reasonably exercised; 3. Review of the collection performance of the BIR; and 4. Review of the implementation of the programs of the BIR There is no existing provision for Structural Adjustment Fund in the Tax Code. I House Bill no. 8083 (Package 2) Allocated a disposition of incremental revenue for (1) student vouchers, (2) universal healthcare, and (3) housing vouchers from the tax payments of educational institutions, hospitals, and real estate developers, respectively. Added the following function of the committee: 5. Review the performance of functions of the Investment Promotion Agencies ( IPA ) and the Fiscal Incentives Review Board ( FIRB ), particularly in the grant of incentives to registered enterprises and in the review and evaluation of granted incentives, respectively, as well as in the formulation of the SIPP. Section 312 The following shall be appropriated to compensate workers that may be displaced by the rationalization of fiscal incentives, to mitigate its negative impact, and to improve employability of workers: PHP500m shall be appropriated annually to provide targeted cash grants or other support programs to displaced workers PHP500m shall be appropriated annually to provide targeted training to displaced workers PHP5bn shall be allocated annually for the skills upgrade program of the IT-BPO industry. The fund shall solely be used to pay for formal academic or training programs of accredited private or public schools and training centers 14
Tax Particulars Current Tax Law House Bill No. 8083 [Tax Reform for Attracting Better And High-quality Opportunities or TRABAHO Bill ] Structural Adjustment Fund Annual report to be submitted by the IPAs to the Congress There is no existing provision for Structural Adjustment Fund in the Tax Code. None Section 314 I House Bill no. 8083 (Package 2) PHP15bn shall be appropriated for the development of infrastructure surrounding and within the areas/localities of special economic zones and freeports affected. This shall be utilized to support R&D, costs of power, water and other utilities, lease of properties, and other economic activities relevant to developing the areas/ localities. Releases to IPAs shall be governed by implementing guidelines to be promulgated by the Department of Finance and the Department of Budget and Management. Earmarking for these funds shall be terminated 5 years after the effectivity of the proposed law. The name of recipient of incentives and the amount of incentives availed shall be reported by the IPA annually to Congress. Such report shall be made available to the public. 15
Proposed amendments on penal provisions Tax Particulars Current Tax Law House Bill No. 8083 [Tax Reform for Attracting Better And High-quality Opportunities or TRABAHO Bill ] On penalty provisions The existing penalties for the following crimes, offenses and forfeitures are as follows: The penalties for the following crimes, offenses and forfeitures are revised or retained, as follows: 1. Failure to file return, supply correct and accurate information, pay tax, withhold and remit tax, and refund excess taxes withheld on compensation (Section 255, 1st par) Fine: PHP10,000 minimum Imprisonment: 1-10 years 2. Making it appear that he or another filed the return or statement or actually files a return and subsequently withdraws the same after securing the official receiving seal or stamp of receipt of internal revenue office where the same was actually filed (Section 255, 2nd par) Fine: PHP10,000 to PHP20,000 Imprisonment: 1-3 years 3. Penal liability of corporations (Section 256) Fine: PHP50,000 to PHP100,000 4. Willful attempt to evade or defeat any tax or knowingly uses fake or falsified revenue official receipts, letters of authority, certificates authorizing registration, tax credit certificates, tax debit memoranda and other accountable forms (Section 257(B)(8)) Fine: PHP50,000 to PHP100,000 Imprisonment: 2-6 years I House Bill no. 8083 (Package 2) 1. Failure to file return, supply correct and accurate information, pay tax withhold and remit tax and refund excess taxes withheld on compensation Fine: PHP100,000 to PHP1,200,000 Imprisonment: 1-10 years 2. Making it appear that he or another filed the return or statement or actually files a return and subsequently withdraws the same after securing the official receiving seal or stamp of receipt of internal revenue office where the same was actually filed Fine: PHPP100,000 to PHP1,200,000 Imprisonment: 1-3 years 3. Penal liability of corporations Fine: PHP200,000 to PHP2,400,000 4. Willful attempt to evade or defeat any tax or knowingly uses fake or falsified revenue official receipts, letters of authority, certificates authorizing registration, tax credit certificates, tax debit memoranda and other accountable forms Fine: PHP300,000 to PHP1,200,000 Imprisonment: 2-6 years 16
Tax Particulars Current Tax Law House Bill No. 8083 [Tax Reform for Attracting Better And High-quality Opportunities or TRABAHO Bill ] 5. Unlawful pursuit of business (Section 258) Fine: PHP5,000 to PHP20,000 Imprisonment: 6 months - 2 years 5. Unlawful pursuit of business Fine: Php50,000 to Php300,000 Imprisonment: 6 months 2 years *For persons engaged in the business of repacking and manufacturing any article subject to excise tax: Fine: PHP30,000 to PHP50,000 Imprisonment: 2-4 years 6. Unlawful possession of cigarette paper in bobbins or rolls, cigarette tipping paper or cigarette filter tips (Section 260) Fine: PHP20,000 to PHP100,000 Imprisonment: 6 years and 1 day to 12 years 7. Unlawful use of denatured alcohol (Section 261) Fine: PHP20,000 to PHP100,000 Imprisonment: 6 years and 1 day to 12 years 8. Shipment or removal of liquor or tobacco products under false name or brand or as an imitation of any existing or otherwise known product name or brand (Section 262) Fine: Php20,000 to Php100,000 Imprisonment: 6 years and 1 day to 12 years 9. Unlawful ownership or possession of imported articles subject to excise tax without payment of the tax Section 263, 1st par) Fine: Php1,000 to Php100,000 Imprisonment: 60 days - 12 years, depending on the appraised value to be determined in the manner prescribed in the Tariff and Customs Code 10. Possession of locally manufactured articles subject to excise tax without payment of the tax (Section 263, 2nd par) Fine: PHP500 or 10 times the amount of excise tax due on the articles found, whichever is higher Imprisonment: 2-4 years I House Bill no. 8083 (Package 2) *For persons engaged in the business of distilling, rectifying, repacking, compounding or manufacturing any article subject to excise tax: Fine: PHP300,000 to PHP700,000 Imprisonment: 2-4 years 6. Unlawful possession of cigarette paper in bobbins or rolls, cigarette tipping paper or cigarette filter tips Fine: PHP1,500,000 to PHP15,000, 000 Imprisonment: 6 years and 1 day to 12 years 7. Unlawful use of denatured alcohol Fine: PHP1,500,000 to PHP15,000,000 Imprisonment: 6 years and 1 day to 12 years 8. Shipment or removal of liquor or tobacco products under false name or brand or as an imitation of any existing or otherwise known product name or brand Fine: PHP1,500,000 to PHP15,000,000 Imprisonment: 6 years and 1 day to 12 years 9. Unlawful ownership or possession of imported articles subject to excise tax without payment of the tax Fine: PHP25,000 minimum Imprisonment: 30 days to 30 years, depending on the appraised value to be determined in the manner prescribed in the Customs Modernization and Tariff Act 10. Possession of locally manufactured articles subject to excise tax without payment of the tax Fine: PHP25,000 or 10 times the amount of excise tax due on the articles found, whichever is higher Imprisonment: 2-4 years 17
Tax Particulars Current Tax Law House Bill No. 8083 [Tax Reform for Attracting Better And High-quality Opportunities or TRABAHO Bill ] 11. Unlawful removal of articles subject to excise tax without payment of the tax (Section 263, 3rd par) Fine: PHP1,000 or 10 times the amount of excise tax due on the articles found, whichever is higher Imprisonment: 1-2 years 11. Unlawful removal of articles subject to excise tax without payment of the tax Fine: Php25,000 or 10 times the amount of excise tax due on the articles found, whichever is higher Imprisonment: 2-4 years On other penal provisions 12. Failure or refusal to issue receipts or sales or commercial invoices, violations related to the printing of such receipts or invoices and other violations (Section 264(A)) Fine: PHP1,000 to PHP50,000 Imprisonment: 2-4 years 13. Offenses relating to stamps (Section 265) Fine: PHP20,000 to PHP50,000 Imprisonment: 4-8 years 14. Failure to obey summons (Section 266) Fine: PHP5,000 to PHP10,000 Imprisonment: 1-2 years 15. Violation of other provisions in the NIRC or regulation promulgated by the Department of Finance, in general (Section 275) Fine: not more than PHP1,000 Imprisonment: not more than 6 months, or both None I House Bill no. 8083 (Package 2) 12. Failure or refusal to issue receipts or sales or commercial invoices, violations related to the printing of such receipts or invoices and other violations Fine: PHP100,000 to PHP500,000 Imprisonment: 4-8 years 13. Offenses relating to stamps Fine: PHP700,000 to PHP1,200,000 Imprisonment: 4-8 years 14. Failure to obey summons Fine: PHP100,000 to PHP300,000 Imprisonment: 1-2 years Coverage of this penalty also includes violation to the authority of the CIR to issue SDT under proposed Section 6-A. 15. Violation of other provisions in the NIRC or regulation promulgated by the Department of Finance, in general Fine: not more than PHP10,000 Imprisonment: not more than 2 years, or both A new provision (Section 282-A) is inserted providing for the meaning and penalty of acts constituting economic sabotage. Economic sabotage: Any violation in attempting to evade or defeat tax (Section 254 of the Tax Code) that also undermines, weakens or renders into disrepute the economic system of viability of the country or tends to bring out such effects. Penalty: Upon conviction, fine of not less than fifty million (PHP50m) and imprisonment of 12 years and one day but not more than 20 years. 18
Proposed additional provisions on tax incentives Tax Particulars House Bill No. 8083 [Tax Reform for Attracting Better And High-quality Opportunities or TRABAHO Bill ] General provisions on incentives Section 291 The provisions on tax incentives cover all existing IPA as defined in the Tax Code or related laws, and all other IPAs and other similar authorities that may be created by law IPAs shall maintain their functions and powers as provided under the special laws governing them except on the extent modified by the proposed provisions of the Tax Code. Governing provision for IPAs Section 292 All IPAs vested with power to confer and administer incentives shall grant tax incentives to registered enterprises only to the extent of their approved registered activity or activities under SIPP. Income derived from non-registered activity or project shall be subject to appropriate taxes under the Tax Code. Unless otherwise provided, direct exports are subject to VAT zero-rating and domestic sales are subject to regular VAT rate. Definition of significant terms in relation to tax incentives provision I House Bill no. 8083 (Package 2) Section 293 (Selected terminologies only) Export sales of goods shall mean the sales of an export enterprise paid for in freely convertible foreign currency inwardly remitted to the Philippines, from the following: 1. Sale and actual shipment of goods from the Philippines to a foreign country by an export enterprise; 2. Sales to diplomatic missions and institutions covered by international treaty; and 3. Sales of an export enterprise to an international sea or air transport operations of goods, equipment, spare parts, and supplies, except fuel, forming part of direct costs and to be used in the aircraft or seacraft, and capital equipment needed for the shipping or air transport operations. Export sales of services shall mean the sales of an export enterprise, paid for in freely convertible foreign currency inwardly remitted to the Philippines, for the following: 1. Services rendered to non-resident foreign clients by export enterprises; 2. Services rendered to diplomatic missions and institutions covered by international treaty; and 3. Services for the overhaul, repair, and maintenance of international shipping, or air transport operations. 19
Tax Particulars I House Bill no. 8083 (Package 2) House Bill No. 8083 [Tax Reform for Attracting Better And High-quality Opportunities or TRABAHO Bill ] Investment Promotion Agencies (IPAs) shall refer to government entities created by law, executive order, decree or other issuance, in charge of promoting investments, administering tax and non-tax incentives, and/ or overseeing the operations for the different economic zones and freeports in accordance with their respective charters, e.g., Board of Investments ( BOI ), Regional Board of Investments Autonomous Region in Muslim Mindanao ( RBOI-ARMM ), Philippine Economic Zone Authority ( PEZA ), Bases Conversion and Development Authority ( BCDA ), Subic Bay Metropolitan Authority ( SBMA ), Clark Development Corporation ( CDC ). Registered enterprise shall mean any individual, partnership, corporation, Philippine branch of a foreign corporation, or other entity organized and existing under Philippine laws and registered with an IPA as defined under Republic Act No. 10708 or the Tax Incentives Management and Transparency Act ( TIMTA Law ). Composition of the FIRB Section 299 Board Chairperson: Secretary of Finance Members: oosecretary of the Trade and Industry oodirector General of the National Economic and Development Authority ( NEDA ) oosecretary of Budget and Management ooexecutive Secretary of the Office of the President Technical Committee Chairperson: Undersecretary of Finance Members: ooundersecretary of Trade and Industry/ Managing Head of the BOI ooundersecretary of Budget and Management oodeputy Director General of NEDA oocommissioner of Internal Revenue oocommissioner of Customs ooexecutive Director of the National Tax and Research Center ( NTRC ) Secretariat - NTRC 20
Tax Particulars Expanded functions of the FIRB Section 298 I House Bill no. 8083 (Package 2) House Bill No. 8083 [Tax Reform for Attracting Better And High-quality Opportunities or TRABAHO Bill ] The functions of FIRB 8 is proposed to be expanded to include the following: a. Exercise oversight functions over IPAs. For this purpose, the IPAs shall submit to the FIRB the following: 1. List of registered enterprise annually with corresponding firm level data as mandated under TIMTA 2. Approved amount of investments and employment generation and other benefits on a firm-level basis annually 3. Approved amount of tax incentives both income and non-income tax based incentives, on a firm-level basis annually b. For projects or activities that pose risk to the environment, health, and economic stability and projects or activities the approval of which encounters a deadlock in the IPA Board: 1. Formulate policies on tax incentives in accordance with the provisions of the Tax Code 2. Review the compliance of IPA with the policies set forth in the Tax Code, provided that the FIRB may cancel or suspend the power of IPAs to grant incentives for violations of such policies 3. Approve the grant of incentives on the above instances 4. Suspend or cancel the tax incentives granted to registered enterprises which are not compliant with the conditions on the availment of tax incentives as well as the policies set forth by the IPAs c. Publish the names of the registered enterprises or beneficiaries of tax incentives with approved estimated amount of the corresponding tax incentives d. Grant tax subsidies to government-owned and/or controlled corporations (GOCCs), government instrumentalities (GIS), Government Commissaries, and state universities and colleges (SUCS) as may be provided under the Annual General Appropriations Act. The NEDA and the DTI shall be members of existing and future IPAs. Strategic Investments Priorities Plan Section 300 The BOI, in coordination with the Office of the President, the FIRB, the concerned IPAs, and other government agencies and the private sector, shall formulate the SIPP to be submitted to the President for his approval not later than December of the third year set for periodic review. The plan shall be valid for a period of three (3) years subject to review and amendment as the need arises. All sectors or industries that may be included in the SIPP shall undergo an evaluation process to determine the suitability and potential of the industry or the sector in promoting long-term growth and development, and the national interest. Taking into consideration international standards and other indicators, the threshold amount of investments and employment generation required for a specific activity shall also be subject to a periodic every 3 years. 8 As provided in PD No. 776, as amended 21
Tax Particulars I House Bill no. 8083 (Package 2) House Bill No. 8083 [Tax Reform for Attracting Better And High-quality Opportunities or TRABAHO Bill ] Section 300 The SIPP shall: include activities that are covered by the Philippine Development Plan or its equivalent and other government programs, and complies with other conditions 9 identify agribusiness activities, the less developed areas and those recovering from armed conflict or a major disaster; determine services and activities that can spur regional or global operations in the country; include existing registered projects or activities that shall relocate from Metro Manila to other areas of the country Activities must comply with specific qualification requirements or conditions for a particular sector or industry and other limitations as set and determined by the BOI. Section 301 Highly-desirable projects not in SIPP: The President, upon recommendation of the FIRB may grant incentives to highly desirable projects. Provided, that the benefits that the government could derive from such investment is clear and convincing and by far outweighs the cost of incentives that will be granted. Criteria in determining the types of incentives and its duration that may be granted are as follows: the project has a comprehensive sustainable development plan with clear inclusive business approaches and innovations; or minimum investment of US$200m or minimum direct employment generation of at least 1,500 within 3 years from the start of commercial operation. The threshold shall be subject to a periodic review every 3 years taking into consideration international standards and other indicators. BOI is granted the authority to impose other terms and conditions taking into consideration the amount or kind of incentives that will be granted to such investments. The government may utilize its resources 10 for the grant of incentives. Section 302 Amendments: Subject to certain requirements, the BOI may (1) include additional areas in the SIPP, (2) alter any of the terms of the declaration of an investment area, and (3) temporarily or permanently suspend activities on the SIPP if it considers that such activity is no longer a priority. The IPAs shall not accept applications unless the activity is listed in the SIPP. 9 The activity shall take into account the following: (1) substantial amount of actual investments; (2) considerable generation of actual full time employment; (3) adopt inclusive business activities and value-added production by micro, small, and mediumsize enterprises or MSMEs; (4) use of modern or new technology; (5) adoption of adequate environmental protection systems; (6) address missing gaps in the supply/value chain and/or move up the value chain or product ladder; and (7) promotion of market competitiveness. 10 Resources such as land use, water appropriation, power provision, among others, as may be identifies by the BOI. 22
Tax Particulars Qualifications of a registered enterprise for tax incentives I House Bill no. 8083 (Package 2) House Bill No. 8083 [Tax Reform for Attracting Better And High-quality Opportunities or TRABAHO Bill ] Section 303 Publication: The plan or the amendment, upon approval, shall be published in at least 1 newspaper of general circulation or the Official Gazette and all such areas shall be open for application until publication of an amendment or deletion thereof. Section 292 The period of availment of incentives shall be reckoned from the start of commercial operation. Section 304 A registered enterprise must: a. be engaged in an activity included in the SIPP b. install an adequate accounting system that shall identify the investments, revenues, costs and profits or losses of each registered project undertaken by the enterprise separately from the aggregate investments, revenues, costs and profits or losses of the whole enterprise; or establish a separate corporation for each registered project if the IPA should so require c. comply with the e-invoice and e-sales requirement in accordance with Section 237-A of the Tax Code Income tax incentives Section 294(A), 295, 296 and 297 a. Income tax holiday ( ITH ) for a period not exceeding 3 years After the expiration of the ITH, the following income tax incentives may be applied: b. Preferential tax rate is 18% of the taxable income, which will be reduced by 1% point every year, beginning 1 January 2021 until 1 January 2029, provided that registered enterprises within economic zones and freeports shall pay 3% of the preferential tax to the local government as follows: oo1.5% to the treasurer s office of the province where the enterprise is located, in lieu of local business tax ( LBT ) oo1.5% to the treasurer s office of the municipality or component city where the enterprise is located, in lieu of LBT *If the enterprise is under the jurisdiction of a highly urbanized city ( HUC ) or independent component city ( ICC ), the 3% share of the LGU shall be directly remitted to the treasurer s office of the HUC or ICC. 23
Tax Particulars I House Bill no. 8083 (Package 2) House Bill No. 8083 [Tax Reform for Attracting Better And High-quality Opportunities or TRABAHO Bill ] c. Depreciation Allowance of Qualified Capital Expenditures: oo10% tax allowance for buildings oo20% tax allowance for machineries and equipment or may be computed using acceleration depreciation method 11 d. Labor expense: up to 50% additional deduction on the labor expense as a consequence of an increase in direct local employment e. Research and Development: up to 100% additional deduction on the increment of R&D directly related to the registered activity/ies f. Training: up to 100% additional deduction for training given to employees directly engaged in the production of goods and services provided that the concerned IPA has issued a Certificate of Entitlement and a Certificate of Approval g. Infrastructure development: up to 100% deduction on necessary and major infrastructure works that may be undertaken for establishing activities in specific areas designated by the SIPP 12 with the prior approval and recommendation of the IPA concerned, provided that such infrastructure shall be open for use by the general public. Excess deductions can be carried over for deduction for subsequent years not exceeding 5 years from commercial operation. The title to all infrastructure works shall be transferred to the Philippine government upon completion h. Reinvestment allowance to manufacturing industry: maximum of 50% deduction on the amount of undistributed profit or surplus that is reinvested in any of the activities listed in the SIPP. The deduction shall be allowed for a period of 5 years from the time of reinvestment. Prior approval and recommendation by the concerned IPA shall be obtained. i. Enhanced Net Operating Loss Carry-over: net operating loss during the first 3 years from the start of commercial operation which had not been previously offset as deduction from gross income shall be allowed as a deduction. The deduction may be claimed within the next 5 consecutive taxable years immediately following the year of such loss. j. Domestic Input Expense: up to 50% additional deduction on the increment of the domestic input expense directly related to and actually used in the registered export activity that was incurred in the taxable year 11 Acceleration depreciation method on rate not exceeding twice the rate which would have been used had the annual allowance been computed in accordance with the rules and regulations prescribed by the Secretary of Finance and the provisions of the NIRC of 1997, as amended, provided that the assets are acquired directly for the entity s production of goods and services other than administrative and other support services. 12 Those activities designated by the SIPP as necessary for country-wide development or in an area found to be deficient in facilities, such as irrigation, drainage, or other similar waterworks infrastructure. 24
Tax Particulars Availment of income tax incentives Customs duty incentives I House Bill no. 8083 (Package 2) House Bill No. 8083 [Tax Reform for Attracting Better And High-quality Opportunities or TRABAHO Bill ] For specific industries determined by the BOI in the SIPP, income tax incentives under items (c) to (j) may be granted in lieu of the ITH or 18% preferential tax rate. Additional 2 years incentive for agribusiness and other projects in certain locations - The following are entitled to avail additional 2 years of incentive under Section 294, of which 1 year may be an additional year of income tax holiday: 1. agribusiness projects of located outside Metro Manila and other urban areas as identifies in the SIPP; 2. projects locating in less developed areas as identified in the SIPP, or those recovering from armed conflict and/or a major disaster as determined by the Office of the President; and 3. registered activities prior to the effectivity of the proposed law relocating from Metro Manila and selected areas of Regions III and IV-A to other areas of the country. Period of availment: Generally, income tax incentives shall in no case be extended beyond 5 years, except for the income tax incentives under items (g) and (i), and the additional 2-year incentives for (1) agribusiness projects, (2) activities in less developed areas, and (3) relocation projects Section 305. Income tax-based incentives: Registered enterprises are required to: file all their tax returns using the electronic/online facilities of the BIR; secure a Certificate of Entitlement issued by the IPA and attach the same to the income tax return ( ITR ) or Annual Information Return ( AIR ); and file its claim with the BIR for validation Failure to secure and attach the certification to the ITR or AIR, and/or file the incentive availment application shall cause the forfeiture of the incentive for that taxable period. Section 294 (B) Registered enterprises qualified for incentives may be allowed a maximum of 5 years exemption on customs duty on the importation of the following: Capital equipment; and Raw materials directly and exclusively used in the registered activity. The 5-year limit of customs duty incentive shall not apply to freeport zones. Expansion of registered activities may be granted duty exemption also on capital equipment only, subject to the following conditions: The activity is still covered by the SIPP or is an innovation project as defined in the SIPP Exemption only applies to the incremental portion of the activity; and Extension of exemption shall not exceed 5 years. 25
Tax Particulars Availment of customs duty incentives Subsequent sale, transfer or disposition of the capital equipment and/or spare parts which was granted tax and customs duty exemption I House Bill no. 8083 (Package 2) House Bill No. 8083 [Tax Reform for Attracting Better And High-quality Opportunities or TRABAHO Bill ] Section 306. Customs duty exemption on capital equipment: Registered enterprises may be exempted to the extent of 100% of the customs duty subject to the following conditions: 1. The capital equipment and/or spare parts is/are directly and reasonably needed and will be used exclusively in and as part of the direct costs. These are not manufactured domestically in sufficient quantity, of comparable quality, and at reasonable prices. 2. Approval of the IPA shall be obtained prior to importation Part-time utilization of the equipment in a non-registered activity shall be allowed subject to the payment of the proportionate taxes and duties in proportion to its utilization. Use of the equipment for non-registered activities at any time within 5 years from the date of importation shall subject to prior approval and payment of the taxes and customs duties not paid upon its importation. Section 306. Subsequent sale, transfer or disposition of the capital equipment and/or spare parts which was granted tax and customs duty exemption shall be subject to the approval of the IPA and shall be allowed only under the following circumstances: If made to another enterprise enjoying customs duty exemption on imported capital equipment and/or spare parts; If made to another enterprise not enjoying customs duty exemption on imported capital equipment and/or spare parts, upon payment of any taxes and duties due on the net book value of the capital equipment and/or spare parts to be sold; Exportation of capital equipment, machinery, spare parts or source documents, or those required for pollution abatement and control; or For reasons of proven technical obsolescence. The registered enterprise and the vendee, transferee, or assignee shall be solidarily liable to pay twice the amount of duty exemption that should have been paid during its importation for sales, transfers and dispositions without prior approval. Even if the sale, transfer or disposition of the capital equipment was made after 5 years from the date of importation with the approval of the IPA, the registered enterprise is still liable to pay the duties based on the net book value of the capital equipment if it has violated any of its registration terms and conditions. 26
Tax Particulars VAT incentives Tax incentives of existing registered activities I House Bill no. 8083 (Package 2) House Bill No. 8083 [Tax Reform for Attracting Better And High-quality Opportunities or TRABAHO Bill ] Section 294 (C) The following entities are granted VAT incentives of (1) VAT exemption on importation and (2) VAT zero-rating on domestic purchases of capital equipment and raw materials used in the manufacturing and processing 13 of products and importation of source documents 14 : a. Registered enterprises whose export sales meet the 90% threshold and are located within an economic zone, freeport or those utilizing customs bonded manufacturing warehouse b. Registered enterprises whose export sales are below the 90% threshold and are located within an economic zone, freeport, or those utilizing customs bonded manufacturing warehouse, provided that they comply with electronic receipts or invoicing under Sections 237 and 237(A) of the Tax Code For registered enterprises whose export sales are below 90% or are located outside an economic zone, or freeport regardless of export sales threshold, the VAT Refund Mechanism on Importation of Capital Equipment and Raw Materials under Title IV and Section 307 of the Tax Code shall apply. Section 307 VAT refund mechanism on importation of capital equipment and raw materials: Refund of VAT on importation of capital and equipment and raw materials paid by export registered enterprises that did not meet the 90% threshold or are located outside the economic zone, freeport, or those utilizing the customs bonded manufacturing warehouse, regardless of the threshold shall be allowed following Sections 106 and 108 of the Tax Code. Section 310 Tax incentives of existing registered activities: Those under ITH shall be allowed to continue with the availment for the remaining ITH period or for a period of 5 years, whichever comes first. Those under the 5% GIT incentive shall be allowed to continue based on the following schedule: 2 years for registered activities under the 5% GIT regime for more than 10 years; 3 years - for registered activities under the 5% GIT regime for 5 to 10 years; or 5 years for registered activities under the 5% GIT regime for less than 5 years The 5% GIT shall commence after the ITH period has lapsed only for the remaining years within the 5-year period 13 Processing shall refer to the conversion of raw materials into marketable form through physical, mechanical, chemical, electrical, biochemical, biological, or other means, or by a special treatment or a series of actions, such as slaughtering, milling, pasteurizing, drying, or desiccating, quick freezing, that results in a change in the nature or state of the products. Mere packing or packaging shall not constitute processing. 14 Source documents shall refer to the conversion of raw materials into marketable form through physical, mechanical, chemical, electrical, biochemical, biological, or other means, or by a special treatment or a series of actions, such as slaughtering, milling, pasteurizing, drying, or desiccating, quick freezing, that results in a change in the nature or state of the products. Mere packing or packaging shall not constitute processing. 27
Tax Particulars I House Bill no. 8083 (Package 2) House Bill No. 8083 [Tax Reform for Attracting Better And High-quality Opportunities or TRABAHO Bill ] Other provisions Section 308. No double registration: Enterprises shall not be allowed to register their activities in more than 1 IPA. Section 309. Listing of shares of stock: The IPAs may require domestic 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 within five (5) years from the date of registration. Section 311. Suspension and forfeiture of tax incentives of registered enterprises, refund and penalties, waiver and condonation: The IPA may impose fines and penalties, suspend and/or forfeit the availment of incentives granted to the registered enterprises for violations of its registration terms and conditions. For this purpose, the IPA shall prepare a schedule of fees, fines and penalties to be imposed. For projects under Section 298(C) 15, the concerned IPA shall recommend to the FIRB the suspension of its availment of incentives. In case of cancellation of the Certificate of Registration, the concerned IPA may require the refund of incentives availed and payment to the appropriate agency, impose corresponding fines and penalties. In meritorious cases, the IPA may waive, condone, or reduce fines or penalties imposed. The minimum compromise rate, in case of reduction, shall not be less than 40% of the basic assessed fines or penalties. Section 313. Enhanced Tax Expenditure Fund: All internal revenue tax and duty obligations of GOCCs shall be chargeable to the Tax Expenditure Fund of the government upon establishment and implementation of Enhanced Tax Expenditure Fund System that grants tax subsidy within 30 days from the filing of application with the FIRB. 15 The projects under Section 298(C) are (1) projects or activities which may pose risk to the environment, health, and economic stability; and (2) projects or activities whose approval in the Investment Promotion Agency Board level encounters a deadlock. 28
Repeal and/or amendment of other laws Tax Particulars Proposed Amendments Under House Bill No. 8083 All internal revenue tax and duty obligations of the listed entities in herein appendix shall be chargeable to the Tax Expenditure Fund ( TEF ) Amendment or repeal of the tax provisions of entities covered by franchises Repeal of various grants of tax incentives for the promotion and development of various industries and activities I House Bill no. 8083 (Package 2) Section 37(b) of HB 8083 amends the provisions on various laws with respect to the aforementioned specific tax and duty incentives. The resulting tax burden will be shouldered by the TEF in the General Appropriations Act (GAA). The various entities affected by the provision are listed in Appendix A. The tax treatment provisions of entities covered by the franchise laws of the entities listed in Appendix B are amended or repealed effective two (2) years from the implementation of TRABAHO. However, the tax treatment provisions of entities covered by franchise laws pertaining to energy and telecommunications shall be deferred for an additional two (2) years. The provisions of the laws granting tax incentives to the following are repealed effective two (2) years from the implementation of TRABAHO. Provided, that the tax treatment provisions of entities covered by special laws pertaining to energy, agriculture, and telecommunications shall be deferred for an additional two (2) years. a. Agriculture and fisheries; b. Banks and financial institutions; c. Book publishing industry; d. Ecological waste management and water quality development; e. Enterprises registered under the Board of Investments and Special Economic Zones; f. Export-oriented industries; g. Forestry; h. National government and government-owned or controlled corporations i. Healthcare; 29
Tax Particulars Proposed Amendments Under House Bill No. 8083 Amended provision of laws to ensure that DOF, NEDA and DTI are represented in the governing boards of all IPAs I House Bill no. 8083 (Package 2) j. Housing; k. Infrastructure, construction and other related industries; l. Jewelry industry; m. Maritime industry; n. Micro, Small and Medium Enterprises; o. Mineral industry; p. Public utilities; q. Regional or area headquarters and regional operating headquarters; r. Sports; s. Tourism industry; and t. Veterans fund management. For reference, the specific details of the tax incentives repealed per industry may be viewed in Appendix C. The following provisions of laws are amended to ensure that DOF, NEDA and DTI are represented in the governing boards of all IPAs, where the DOF shall automatically serve as co-chair, and DTI and NEDA as members: a. Board of Investments (Article 4 of EO 226) b. Bases Conversion and Development Authority (Sections 9 and 13(c) of RA 7227) c. Clark Development Corporation (Section 3 of EO 80 series of 1993) d. John Hay Management Corporation and Poro Point Management Corporation ( Section 6 of EO 132 series of 2002) e. Zamboanga City Economic Zone Authority (Section 9 of RA 7903) f. Authority of Freeport Area of Bataan (Section 14 of RA 9728) g. Tourism Infrastructure and Enterprise Zone Authority (Section 65 of RA 9593) h. Aurora Special Economic Zone Authority (Section 15 of RA 9490) i. Cagayan Economic Zone Authority (Section 7 of RA 7922) j. Philippine Veterans Investment Development Corporation (Section 6 of PD 538) k. PEZA (Section 11 of RA 7916) 30
Appendices Appendix A. List of laws amended pursuant to Section 37(b) of HB 8083 Section 18 of RA 7884: Tax Incentives granted to accelerate the development of the Dairy Industry Section 8 of RA 7903: Incentives of Zamboanga Economic Zone Authority Section 12(a) of RA 10083: Incentives of Aurora Pacific Economic Zone and Freeport Authority ( APECO ) Sections 29, 57, 74, 95(c) of RA 9593: Incentives of National Parks Development Committee ( NPDC ), Nayong Pilipino Foundation ( NPF ), Tourism Promotions Board( TPB ), Tourism Infrastructure and Enterprise Zone Authority ( TIEZA ) and Duty Free Philippines Corporation ( DFPC ) Section 10 of PD 538: Incentives of Philippine Veterans Investment Development Corporation ( PHIVIDEC ) Section 16(a)(b) of RA 9497: Incentives of Civil Aviation Authority of the Philippines ( CAAP ) Section 14 of RA 7354 Incentives of Philippine Postal Corporation ( PPC ) Section 8 and 14 of PD 269: Incentives of National Electrification Administration ( NEA ) Sections 2 and 19 of RA 9679: Incentives of PAG-IBIG Section 17(c) under Section 8 of RA 9576: Incentives of Philippine Deposit Insurance Corporation ( PDIC ) I House Bill no. 8083 (Package 2) Section 13 of RA 7820: Incentives of Partido Development Administration ( PDA ) Section 5(j) of RA 9510:Incentives of Central Credit Information Corporation ( CCIC ) Section 13(e)of PD 857: Incentives of Philippine Port Authority ( PPA ) Section 19 of RA 6847: Incentives of Philippine Sports Commission ( PSC ) Section 8(a)(b) and Section 13 of RA 6395: Incentives of National Power Corporation ( NPC ) Section 21 of RA 7306: Incentives of Charter of the People s Television Network, Incorporated ( CPTNI ) Appendix B. List of franchise grantees subjected by the amendment in section 38 of the HB 8083 1. Fil-Asia Racing Club (Section 12 of RA no. 8446) 2. Manila Jockey Club, Inc. (Section 12 of RA no. 8407) 3. Metro Manila Turf Club, Inc. (Section 9 of RA no. 8298) 4. Philippine Racing Act, Inc. (Section 9 of RA no. 7953) 31
Appendix C. List of the provisions repealed in section 38(b) of the HB 8083 relating to tax incentives Repealed section Provisions proposed to be repealed in HB 8083 a. Agriculture and fisheries Section 26 (a)(1)(3) of Industrial wastewater treatment and/or adoption the RA No. 9275 of water pollution control technology, cleaner production and waste minimization technology shall be classified as preferred areas of investment and shall enjoy the applicable fiscal and nonfiscal incentives as may be provided for under the Omnibus Investment Code, as amended. All legacies, gifts, and donations for the support and maintenance of the program for effective water quality management shall be exempt from donor s tax and shall be deductible from the gross income of the donor for income tax purposes. b. Banks and financial institutions Section 37 of the The Islamic Bank shall be exempt from all the taxes RA No. 6848 enumerated in the NIRC commencing from the first taxable year, for one hundred per centum (100%) Repeal of tax for the first five (5) years and seventy-five per exemptions under centum (75%) for the sixth through eight year. the NIRC granted to Al-Amanah Islamic An investment in Islamic banking business to the Investment Bank of extent of actual participation in profit and loss the Philippines sharing scheme, paid in cash or property, were (The Islamic Bank) also granted an exemption from all taxes under the NIRC, except income tax. Section 17 of the The law provides that thrift banks are exempt RA No. 7906 from the payment of all taxes, fees and charges of whatever nature and description, except the Repeal of tax corporate income tax and local taxes, fees and exemptions granted charges, for a period of five (5) years from the date to Thrift Banks for the of commencement of operations first five (5) years of operations I House Bill no. 8083 (Package 2) Repealed section Provisions proposed to be repealed in HB 8083 Section 15 of the RA The law provides that rural banks are exempt No. 7353 from the payment of all taxes, fees and charges of whatever nature and description, except the Repeal of tax corporate income tax and local taxes, fees and exemptions granted charges, for a period of five (5) years from the date to Rural Banks for the of commencement of operations first five (5) years of operations c. Book publishing industry Section 12 of Persons engaged in book publishing and its RA No. 8047 related activities duly registered with the National Book Development Board shall be entitled to the Repeal of the tax applicable fiscal and non-fiscal incentives provided incentives granted for under the Omnibus Investment Code. Book Development Further, books, magazines, periodicals, newspapers, including book publishing and printing, as well as its distribution and circulation, shall be exempt from the coverage of the expanded value added tax law. d. Ecological waste management and water quality development Section (B) (1) (C) of All legacies, gifts, and donations for the support RA No. 9003 and maintenance of the program for effective solid waste management shall be exempt from all Repeal of tax internal revenue taxes and customs duties, and incentives for shall be deductible in full from the gross income of donations in the donor for income tax purposes. connection with Effective Solid Waste Management 32
Repealed section Provisions proposed to be repealed in HB 8083 e. Enterprises registered under the Board of Investments and Special Economic Zones Section 1 of RA No. Under the existing law, the following are allowed 7918 which amended incentives for qualified enterprises: Article 39 of EO No. a. Income Tax Holiday; 226; Articles 40, 59, b. Additional Deduction for Labor Expense; 60, 61, 77 and 78 of c. Tax and Duty Exemption on Imported Capital EO No. 226 Equipment; Repeal of incentives given to Board of Investment registered enterprises d. Tax Credit on Domestic Capital Equipment; e. Exemption from Contractor s Tax; f. Unrestricted Use of Consigned Equipment; g. Exemption on Breeding Stocks and Genetic Materials; h. Tax Credit on Domestic Breeding Stocks and Genetic Materials; i. Tax Credit for Taxes and Duties on Raw Materials; j. Exemption from Taxes and Duties on Imported Spare Parts; k. Exemption from Wharfage Dues and any Export Tax, Duty, Impost and Fee; l. Tax incentives of merchandise in the Zone of a registered enterprise; and m. A zone registered enterprise shall also enjoy all the incentive granted to registered enterprises. n. Incentives to less-developed areas; o. Incentives to expatriates p. Preferential tax rate of 15% to aliens employed by RHQ or area headquarters; q. Tax- and duty- free importation of personal and household effects of alien executive of RHQ or area headquarter; r. Exemption from national taxes, local taxes and customs of foreign and domestic merchandise; s. Exemption from local taxes and licenses; and t. Exemption from real property taxes of production equipment or machineries. I House Bill no. 8083 (Package 2) Repealed section Provisions proposed to be repealed in HB 8083 Sections 1 to 5 of Existing law provides for the following: RA No. 9400 a. Incentives for tax and duty-free importations of raw materials, capital and equipment are Repeal of tax granted in the following Zones: incentives under the 1. Subic Special Economic Zone (SSEZ); Bases Conversion and 2. Clark Freeport Zone (CFZ); Development Act 3. Poro Point Freeport Zone (PPFZ); 4. Morong Special Economic Zone (MSEZ); and 5. John Hay Special Economic Zone (JHSEZ). b. No national and local taxes shall be imposed within the SSEZ, CFZ, PPFZ, MSEZ, and JHSEZ. In lieu of said taxes, a preferential tax rate on gross income is paid and remitted to the national government and zone authority/ treasurer s office in the city/municipality by a certain percentage. c. Business enterprises presently registered and granted with tax and duty incentives by the Clark Development Corporation (CDC), Poro Point Management Corporation (PPMC), JHMC, and Bataan Technological Park Incorporated (BTPI), including such governing bodies, shall be entitled to the same incentives until the expiration of their contracts entered into prior to the effectivity of Bases conversion and development act of 1982. 33
Repealed section Provisions proposed to be repealed in HB 8083 Sections 1(6) and 2 The current law provides that tax exemption of PD No. 776; benefits and privileges and all laws, decrees, orders Memorandum Order or ordinances giving rise thereto, may be modified No. 23, s. 1986 by the FIRB except, among others, statutory prescription bearing on: Repeal of certain provisions applicable a. Export Processing Zone Authority to FIRB b. BOI Registered industries c. Multi-national corporations d. Service contracts on oil explorations Executive Order No. 22 series of 2017 Repeal of the 0% duty for any importation of items by BOIregistered enterprises Section 17(1-8) and section 18(A)(B)(C)(F) of PD No. 66 Repeal of the tax incentives given to a Zone Registered Enterprises The law also provides that the FIRB is created for the purpose of determining what subsidies and tax exemptions should be modified, withdrawn, revoked or suspended, which shall be composed of the following officials: Chairman Secretary of Finance Members Secretary of Trade and Industry Ministry of the Budget Director General of the NEDA Commissioner of Internal Revenue Commissioner of Customs Director of National Tax Research Center EO 22: Zero Percent Duty. Any importation of capital equipment, spare parts and accessories by BOI-registered enterprises shall be subjected to zero percent duty. a. Certain tax incentives of merchandise in the Zone of a registered enterprise are granted. b. The following additional incentives are granted to a zone registered enterprises: Net-operating loss carry over; Accelerated depreciation; Exemption from export tax; and Exemption from local taxes and licenses. I House Bill no. 8083 (Package 2) Repealed section Provisions proposed to be repealed in HB 8083 Section 4(E) and (F) Shall be entitled to the existing fiscal incentives of RA no. 7903; as provided under the law creating the Export Section 4(B)(C) of Processing Zone Authority and the Omnibus RA No. 7922; Investment Code of 1987. Section 23 and 24 of Any provisions of existing laws, rules or RA No.7916 regulations to the contrary notwithstanding, no taxes, local and national, shall be imposed on Repeal of tax business establishments operating within the incentives granted to Zamboanga City Special Economic Zone. the following: Zamboanga City In lieu of paying taxes, said business Special Economic establishments shall pay and remit to the national Zone; government a certain percentage of their gross Cagayan Special income and to the city government, if applicable. Economic Zone; and Business establishment operating within the Ecozones Sections 4(f), 5, 6 Registered enterprises located in FAB shall be and 10 of entitled to the following incentives: RA No. 9728 a. Tax- and duty-free importation of raw materials, capital and equipment to registered enterprises Repeal of incentives to b. Fiscal incentives under RA No. 7916 or those registered enterprises provided under EO No. 226 in Freeport Area of c. 5% GIT in lieu of national and local taxes Bataan ( FAB ) d. Income tax holiday or NOLCO prior to the availment of 5% GIT Fiscal incentives shall be terminated after a cumulative period of twenty (20) years from date of registration or start of commercial operation, whichever is applicable, except that it could be extended with regard to industries deemed indispensable to national development. 34
Repealed section Provisions proposed to be repealed in HB 8083 Section 4 of Existing law provides for an exemption from RA No. 8748 national and local taxes of business establishments operating within the ecozone. Repeal of the exemption from In lieu thereof, five percent (5%) of the gross national and income earned by all business enterprises within local taxes of the ecozone shall be paid and a certain percent establishments is remitted to the national government and to the operating within the treasurer s office of the municipality or city where Ecozone the enterprise is located. Section 1 of Duly registered business enterprises that will EO No. 619 operate in special economic zones to be created by proclamation inside the Clark Freeport Zone shall Repeal of tax be entitled to the same tax and duly incentives as incentives for provided for under R.A. 7916, as amended. enterprises operating within Clark Freeport Zone Sections (5)(6)(7)(8) The following incentives to the registered (9) of RA No. 9490 enterprises located in the ASEZ to the extent of the activity/project are, as follows: Repeal of tax incentives granted a. Income Tax Holiday; to Aurora Special b. Net Operating Loss Carryover (NOLCO); Economic Zone c. Imposition of a tax rate of five percent (5%) on ( ASEZ ) Gross Income Earned; d. Accelerated Depreciation; e. Capital Equipment Incentives; f. The importation of source documents by information technology-registered enterprises shall be eligible for tax and duty free importation; g. Raw Materials Incentives; h. Incentives on Breeding Stocks and Genetic Materials; i. Exemption from Wharfage Dues; j. Deferred Imposition of the Minimum Corporate Income Tax; k. Importations of raw materials and capital equipment; l. Employment of Foreign Nationals; m. Incentive to Investors; and n. Extension of Period of Availment. I House Bill no. 8083 (Package 2) Repealed section Provisions proposed to be repealed in HB 8083 Section 1(1.1) of This law provides tax incentives, as follows: EO No. 97-A a. The Secured Area consisting of the presently Repeal of tax and duty fenced-in former Subic Naval Base shall be the free privilege within only completely tax and duty-free area in the the secured area of SSEFPZ; and the Subic Special Economic and Free b. Business enterprises and individuals (Filipinos Port Zone and foreigners) residing within the Secured Area are free to import raw materials, capital goods, equipment, and consumer items tax and dutyfree. Section 3(e),(f) The Aurora Ecozone shall be managed and and (h), Section 4, operated as a separate customs and taxation Section 5(C) and (K), territory ensuring free flow or movement of goods and Section 12(b) of and capital within, into and out of its territory. RA No. 10083 Goods manufactured by an APECO enterprise shall be available for retail sale in the domestic Repeal of certain market, subject to taxes on raw materials and other provisions and tax regulations that may be formulated by the APECO. incentive granted to registered enterprises However, in order to protect domestic industries, in the APECO a negative list of industries shall be drawn up and regularly updated by the PEZA and the BOI. Enterprises engaged in industries included in such negative list shall not be allowed to sell their products locally. This law provides tax incentives, among others: a. Preferential rate of 5% on Gross Income Earned for registered enterprises; b. Foreign and domestic merchandise, except those prohibited by law, brought into the Aurora Ecozone shall not be subject to customs and internal revenue laws and regulations nor to local tax ordinances; and c. Importations of raw materials and capital equipment are tax and duty free. APECO is granted the power to register, regulate and supervise the enterprises in the Aurora ecozone in an efficient and decentralized manner, subject to existing laws. 35
Repealed section Provisions proposed to be repealed in HB 8083 Section 1(c) and (d) The provisions of any general or special law to of EO No. 93; the contrary notwithstanding, all tax and duty Section 1 (a)(b) of incentives granted to government and private PD No. 1955 entities are hereby withdrawn, except: a. those enjoyed by enterprises registered with: Repeal of tax and 1. the Board of Investments pursuant to duty incentives to Presidential Decree No. 1789, as amended; enterprises registered 2. the Export Processing Zone Authority, with BOI, EPZA, Phil. pursuant to Presidential Decree No. 66, as Veterans Investment amended; and Development Corp., 3. the Philippine Veterans Investment and copper mining Development Corporation Industrial industry Authority pursuant to Presidential Decree No. 538, as amended. b. those enjoyed by the copper mining industry pursuant to the provisions of Letter of Instruction No. 1416 f. Export-oriented industries Section 16 and 17 of In addition to existing incentives provided by the RA No. 7844 Board of Investments, the following incentives shall likewise be granted to exporters: Repeal of tax incentives granted to a. Exemption from Presidential Decree No. 1853; exporters b. Importation of machinery and equipment and accompanying spare parts subject to 0% duty for a period of three (3) years, until 1997; c. Tax credit for imported inputs and raw materials used for production; d. Tax credit for increase in current year export revenue; and e. For exporters of non-traditional products who use or substitute locally produced raw materials, capital equipment and/or spare parts, tax credits equivalent to 25% of the duties that would have been paid had these inputs been imported. I House Bill no. 8083 (Package 2) Repealed section Provisions proposed to be repealed in HB 8083 Section 13 of The Board of Investments, the Philippine Economic RA No. 10817 Zone Authority, and other investment promotion agencies shall, as their charters allow, grant fiscal Repeal of fiscal and and non-fiscal incentives to different economic non-fiscal incentives zones and strategic locations in the country to for the promotion of attract investments in pioneering and essential Halal products industries to increase exports of Halal products or as raw materials or ingredients in the production of Halal products. g. Forestry Section 36(E)(F) of To encourage qualified persons to engage in PD No. 705 industrial tree plantation and/or tree farming, the following incentives are granted: Repeal of tax incentives granted a. Exemption from the payment of the percentage to entities engaging tax; in Industrial Tree b. A lessee of an industrial tree plantation or tree Plantation and/or Tree farm may either apply to the BOI for the tax and Farming other benefits or avail of the following benefits: 1. Amounts expended by a lessee in the development and operation of an industrial tree plantation or tree farm prior to the time when the production state is reached, may, at the option of said lessee, be regarded as ordinary and necessary business expenses or as capital expenditures; and 2. Deduction from an investor s taxable income for the year, of an annual investment allowance equivalent to thirtythree and one-third per cent (33-1/3%) of his actual investment during the year in an enterprise engaged in industrial tree plantation or tree farm. h. National government and government-owned and controlled corporations Section 2 of PD 1931 Exemptions from the payment of duties, taxes, fees, imposts and other charges granted in favor of Repeal of tax GOCCs incentives granted to Government- Owned or Controlled Corporations 36
Repealed section Provisions proposed to be repealed in HB 8083 i. Healthcare Section 14 of RA No. 8423 Repeal of tax incentives granted to Manufacturers of Traditional and Alternative Health Care Products j. Housing Section 20 (D)(1) to (5) of RA No. 10884 Repeal of incentives for Private Sector Participating in Socialized Housing Manufacturers of traditional and alternative health care products like herbal medicinal plants shall enjoy such exemptions, deductions and other tax incentives as may be provided for under the Omnibus Investment Code, as amended. To encourage greater private sector participation in socialized housing, it is exempted from the payment of the following: a. Project-related income taxes; b. Capital gains tax on raw lands used for the project; c. Value-added tax for the project contractor concerned; d. Transfer tax for both raw completed projects; and e. Donor s tax for lands certified by the local government units to have been donated for socialized housing purposes. I House Bill no. 8083 (Package 2) Repealed section Provisions proposed to be repealed in HB 8083 k. Infrastructure, construction and other related industries Section 6 (C) (D) (F), All enterprises certified by the BOI, as eligible for 7, 8 of RA No. 7103 incentives of the Iron and Steel Industry Act, shall be entitled to the following incentives: Repeal of incentives granted to eligible a. Tax and Duty Exemption on Imported enterprises in the Equipment; Steel Industry b. Tax Credit on Domestic Capital Equipment equivalent to the national internal revenue taxes and customs duties that would have been waived had the machinery, equipment and spare parts been imported from abroad; c. Rational Tariff Incentives and Protection Scheme that shall enhance viability of the iron and steel industry; and d. Other incentives as may be available to the certified enterprise under the Omnibus Investments Code, laws creating export processing zones, and other laws. RA No. 7718 Repeal of an Act amending certain sections of RA 6957, entitled An act authorizing the financing, construction, operation and maintenance of infrastructure projects by the private sector, and for other purposes. 37
Repealed section Provisions proposed to be repealed in HB 8083 l. Jewelry industry Section 3 (A) to (D) The following tax incentives are granted by the and (H) of qualified jewelry enterprises: RA No. 8502 a. Zero (0) duty on imported raw materials and Repeal of tax imported capital equipment, including spare incentives to develop parts and tooling; the Jewelry Industry b. Exemption from excise tax on jewelry; c. Additional deduction on taxable income of fifty percent (50%) of training expenses; and d. Tax incentives under RA 7844, RA 7916 and EO 226, provided that the activity is exportoriented and that there is no double availment of the same incentives. m. Maritime industry Chapter II, Section In order to promote the development of the 4 And Chapter VIII, domestic shipping industry, the following tax Section 19 of incentives to domestic ship operators to RA No. 9295 a. All MARINA-registered domestic ship owners/ Repeal of tax operators shall be exempt from payment of VAT incentives for the subject to conditions; development of b. Importation of the articles to be used by the Domestic Shipping registered ship owner/operator subject to Industry conditions; and c. Accelerated depreciation of fixed assets based on the expected useful life. I House Bill no. 8083 (Package 2) Repealed section Provisions proposed to be repealed in HB 8083 On the other hand, domestic companies in the shipbuilding and ship repair industry enjoy the following tax incentives: Section 6 of RA No. 7471 Repeal of tax incentives for the development of Overseas Shipping Industry a. Importation of shipyard equipment machinery, spare parts, life-saving, navigational equipment, steel plates, and other metal plates including marine grade aluminum used and installed in the construction, repair, renovation, or alteration of any merchant marine ships operated or to be operated in the domestic trade subject to conditions; and b. Accelerated depreciation of fixed assets based on the expected useful life. Note: The repeal also covered the limitations/ restrictions on sale, transfer or disposition of ships and imported articles along with the penalty of twice the VAT that should have been paid upon breach of the restrictions. The law provides tax incentives for the promotion and development of overseas fishing a. The importation by a Philippine shipping enterprise of oceangoing vessels for registration under the Philippine flag shall be exempt from the payment of import duties and taxes. The spare parts for the repair and/ or overhaul of vessels shall likewise be exempt from the payment of import duties and taxes; and b. Local manufacturers or dealers who sell machinery, equipment, materials and spare parts to a Philippine shipping enterprise shall be entitled to tax credits for the full amount of import duties and taxes actually paid thereon, or on parts or components thereof. 38
Repealed section Provisions proposed to be repealed in HB 8083 n. Micro, Small and Medium Enterprises Section 5 (A) (B) of Business enterprises involved in the creation and RA No. 10771 operation of green jobs are granted the following incentives by the law: Repeal of tax incentives to promote a. Special deduction from taxable income of fifty the establishment of percent (50%) of skills training and research Green Jobs and development expenses; and b. Tax and duty free importation of capital equipment. Section 7 of All Barangay Micro Business Enterprises shall RA no. 9178 be exempt from tax for income arising from the operations of the enterprise. Repeal of exemption from taxes and fees Section 9(h)(10) of Availment of and easier access to tax credits and RA No. 9501 other tax and duty incentives as provided by the Omnibus Investment Code and other laws. Repeal of incentives of MSMEs o. Mineral industry Chapter XV, Section The following tax incentives were granted to the 83; Chapter XVI, contractors in the mineral industry: Sections 90, 91, 92, 93 of RA No. 7942 a. Income Tax Holiday as provided under the EO 226. After the lapse of ITH, the normal income Repeal of tax tax in the NIRC shall apply; incentives for the b. Exemption from real property tax of pollution contractors in the control devices; Mineral Industry c. Extended carryforward of losses of five (5) years from the taxable year in which the net loss was incurred for the first ten (10) years of operations; d. Accelerated depreciation of fixed assets based on estimated useful life; and e. Special rules on the deductibility of exploration and development expenditures. I House Bill no. 8083 (Package 2) Repealed section Provisions proposed to be repealed in HB 8083 p. Public utilities Section 5 (5.1)(5.2) of The following tax benefits were granted to the EO No. 290 NGVPPT participants: a. Income Tax Holiday for pioneering projects Repeal of tax qualifying under the BOI s Investments Priorities incentives in view Plan; and of promoting the b. One percent (1%) duty on imported NGVs, Natural Gas Vehicles NGV engines and other NGV industry related Program for Public equipment, facilities, parts and components as Transportation certified by the DOE. ( NGVPPT ) Section 22 of The provisions of P.D. No. 1590 on the Franchise RA No. 9337 tax of Philippine Airlines, Inc., R.A. No. 7151 on the Franchise tax of Cebu Air, Inc., R.A. No. 7583 Repeal of franchises on the Franchise Tax of Aboitiz Air Transport of Domestic Airlines Corporation, R.A. No. 7909 on the Franchise Tax of Pacific Airways Corporation, R.A. No. 8339 on the Franchise Tax of Air Philippines, or any other franchise agreement or law pertaining to a domestic airline to the contrary notwithstanding: a. The franchise tax is abolished; b. The franchisee shall be liable to the corporate income tax; c. The franchisee shall register for value-added tax under Section 236, and to account under Title IV of the NIRC of 1997, as amended, for value-added tax on its sale of goods, property or services and its lease of property; and d. The franchisee shall otherwise remain exempt from any taxes, duties, royalties, registration, license, and other fees and charges, as may be provided by their respective franchise agreement. 39
Repealed section Provisions proposed to be repealed in HB 8083 q. Regional or area headquarters and regional operating headquarters Article 62, 63, 64, 65, a. An alien executive of the RHQ and ROHQ of a 66 and 67 of multinational company shall enjoy tax and duty RA No. 8756 free importation of personal and household Repeal of various incentives granted to Regional or Area Headquarters and Regional Operating Headquarters effects b. Personnel of RHQ and ROHQ of multinational companies and the dependents of such foreign personnel if joining them during the period of their assignment in the Philippines, as certified by the Board of Investments, shall be exempted from the payment of travel tax c. ROHQ shall be subject to a tax rate of ten percent (10%) of their taxable income as provided for under the NIRC, as amended by Republic Act No. 8424. d. The RHQ established in the Philippines by multinational companies shall be exempted from the value-added tax. In addition, the sale or lease of goods and property and the rendition of services to regional or area headquarters shall be subject to zero percent (0%) VAT as provided for in the NIRC, as amended e. The RHQ and ROHQ of multinational companies shall be exempt from all kinds of local taxes, fees, or charges imposed by a local government unit except real property tax on land improvements and equipment. f. RHQ and ROHQ shall enjoy tax and duty free importation of equipment and materials for training and conferences which are not locally available subject to the prior approval of the BOI. I House Bill no. 8083 (Package 2) Repealed section Provisions proposed to be repealed in HB 8083 Article 69 of a. Qualified Goods destined for re-exportation EO No. 226; Article to the Asia-Pacific and other Foreign Markets 69 of 8756 shall not be subject to customs duty, internal revenue tax, export tax nor to local Repeal of the tax taxes, the provisions of law to the contrary Treatment of Imported notwithstanding. Articles in the b. Payment of applicable duties and taxes on Regional Warehouse Qualified Goods subject to laws and regulations covering imported merchandise if destined for the local market. r. Sports Section 18 and 20 of Under the law, the use of sports facilities is exempt RA No. 6847 from any tax on the user, owner or operator of the sports facilities. Repeal of tax exemption on use of Further, all donations to the Philippine Sports Sports Facilities Commission in connection with its fund-raising projects and its continuing sports development programs shall be exempt from the donor s taxes. Donations to the Philippine Olympic Committee and/or the various national sports associations certified by the Commission shall likewise be exempt from the payment of the donor s and estate taxes and shall be deductible in full in computing the taxable net income of the donor. 40
Repealed section Provisions proposed to be repealed in HB 8083 s. Tourism industry Section 86, 88 and 95 Under the law, the TEZ-registered enterprises enjoy (a) and (b) of the following tax incentives: RA No. 9593 a. Income Tax Holiday for the new enterprises in Repeal of tax Greenfield and Browdeld Tourism Zones for a incentives granted to period of six (6) years; enterprises registered b. Gross income tax of five percent (5%) in lieu under the Tourism of all taxes (except real estate tax and fees Enterprise Zones imposed by TIEZA); (TEZs) c. Exemption from all taxes and customs duties on importations of capital investment and equipment; d. Exemption from duties and national taxes on importation of transportation and the accompanying spare parts; e. Exemption from all taxes and customs duties on importation of goods consumed in the rendering of services; f. A tax credit equivalent to all national internal revenue taxes paid on all locally - sourced goods and services directly or indirectly used by the registered enterprise for services actually rendered within the TEZ; g. Tax deduction equivalent not exceeding fifty percent (50%) of the cost of environmental protection or cultural heritage preservation activities, sustainable livelihood programs for local communities, and other similar activities performed by the registered enterprise; h. Tax incentives granted by BOI and TIEZA subject to requirements and conditions; and i. Income Tax Holiday of six (6) years and tax and duties exemption on capital equipment for any significant expansion, renovation or upgrade in its facilities in relation to the amount of the original investment. Further, The duty free Philippine corporation shall be exempt from duties and taxes, including excise taxes and VAT relative to the importation of merchandise for sale and local taxes and fees imposed by the LGU s. I House Bill no. 8083 (Package 2) Repealed section Provisions proposed to be repealed in HB 8083 Section 8 (Last The TIEZA and the Board of Investments, and other 2 Sentences/ investment promotion agencies, shall develop and Paragraphs) of implement programs that shall establish reasonable RA No. 10816 and innovative investment incentives to attract more investors and farm tourism practitioners in the Repeal of tax farm tourism industry. incentives granted to Farm Tourism Farm tourism operators and practitioners may avail Operators o: incentives under existing laws. t. Veterans fund management Sections 8 and 9 of The following tax incentives are granted in relation Presidential Decree to the Phividec Industrial Areas: No. 538; a. Raw materials, supplies, articles, equipment, Section 1 of PD 1491 machineries, spare parts and wares of every description, except those prohibited by law, Repeal of tax brought in the Phividec Industrial Areas and incentives provided utilized in the production, storing, shall be to Phividec Industrial exempt from customs duties, internal revenue Authority and taxes and local tax ordinances subject to enterprises in the conditions; and Phividec Industrial b. All industries or firms operating in the Phividec Areas Industrial Areas shall be exempt from the payment of local taxes except for real property tax. 41
Let s talk For a discussion on how these proposed changes may affect you and/or your business, please contact: Fedna B. Parallag Tax Partner T: +63 (2) 459 3109 fedna.parallag @ph.pwc.com Roselle Y. Caraig Tax Partner T: +63 (2) 459 2023 roselle.y.caraig @ph.pwc.com Alexander B. Cabrera Chairman & Senior Partner, concurrent Tax Partner T: +63 (2) 459 2002 alex.cabrera@ph.pwc.com Lawrence C. Biscocho Tax Partner T: +63 (2) 459 2007 lawrence.biscocho @ph.pwc.com Harold S. Ocampo Tax Principal T: +63 (2) 459 2029 harold.s.ocampo @ph.pwc.com Malou P. Lim Tax Managing Partner T: +63 (2) 459 2016 malou.p.lim@ph.pwc.com Carlos T. Carado II Tax Partner T: +63 (2) 459 2020 carlos.carado @ph.pwc.com Geraldine E. Longa Tax Partner T: +63 (2) 459 2038 geraldine.c.esguerra-longa @ph.pwc.com