Question & AnswerQ&A (Republic Act No. 5326)
A 'cottage industry' is defined as an economic activity on a small scale, carried out mainly in homes or other places for profit, predominantly done with family members, and with capitalization not exceeding fifteen thousand pesos. It also includes economic activities by students within school premises under supervision, with all profits accruing to the students.
The term includes fiber crafts, woodcraft, hat weaving, mat weaving, metal craft, ceramics, shell craft, bamboo and rattan crafts, small agricultural hand tools, toy craft, embroidery, needle craft, loom weaving, machine parts manufacture, poultry, piggery, home cigar making, food preservation and canning, and other related crafts done at home.
Cottage industries shall be owned and operated by Filipino citizens or by a corporation, partnership, or cooperative at least seventy-five percent of the capital or investment of which is owned by Filipino citizens. All members of its Board of Directors must also be Filipino citizens.
Capitalization means the total current and fixed assets, excluding the value of land and building if the same are the residence of the owner, but including machinery, equipment, and leased land and buildings used at least six months each year. Capitalization includes all branches, agencies, outlets, or divisions of the licensed cottage industry combined.
The production, manufacture, and sale of cottage industry products are exempt from all taxes except specific and income taxes for five years from registration, provided that at least 75% of raw materials are of Philippine origin (with some exceptions). There is no exemption from percentage taxes for sales exceeding two hundred thousand pesos annually.
Yes, the 75% local raw materials requirement does not apply to embroidery, piggery, poultry, livestock, and metal craft industries.
If sold or transferred to another engaged in cottage industry, the corresponding duties and taxes must be paid. If transferred to one not engaged in the cottage industry, duties and taxes are doubled. All such transactions must be made with the knowledge of the NACIDA and the Commissioner of Customs.
They may enjoy tax exemptions for a period not exceeding three months from the date of the Act’s approval, until the expiration of five years from their original registration date with the Board, whichever period comes first.
The Secretary is required to submit an annual report on the amount of taxes waived for each fiscal year for each registered cottage industry of NACIDA to the Presiding Officers of both Houses of Congress thirty days before the opening of its regular session.
This Act took effect upon its approval on June 15, 1968.