QuestionsQuestions (Republic Act No. 6135)
The Act is titled the “Export Incentives Act of 1970.” Its policy is to actively encourage, promote, and diversify exports of services and manufactured products using domestic raw materials to the fullest extent possible; develop new markets; attain rising production and employment; increase foreign exchange earnings; hasten national economic development; and ensure benefits of development accrue to Filipinos.
BOI is the approving and administering body. It created under the Investment Incentives Act; under RA 6135 it registers qualified applicants, approves applications for incentives, issues implementing rules, may suspend/cancel incentives, and submits the annual export priorities plan to the President through the National Economic Council.
A person/partnership/entity organized under Philippine laws that (1) is registered with BOI, (2) engages or proposes to engage in the manufacture/processing of export products, and (3) directly exports its export products or sells them to (a) a registered export trader that exports them, or (b) other export producers who use them as direct inputs in products that they thereafter export.
A registered export trader must derive at least 50% of its gross income for the year incentives are claimed from the sale abroad of export products bought from two or more registered export producers not owned/controlled/managed by the same entity/group. If the trader is owned/managed with another enterprise, the 50% basis is computed using combined/consolidated gross income of the export trader and the other enterprise.
It is an entity registered with BOI that renders technical/professional services paid in foreign currency (e.g., law, medicine, accounting, engineering, construction, surveying, teaching, pharmacy, nursing, cultural presentations/promotions, works of arts, entertainment) OR exports Philippine-produced television and motion pictures and musical recordings, either directly or through a registered export trader.
Export products are manufactured/processed products meeting: (1) no more than 80% of the individual FOB Philippine port value is attributable to imported raw materials (with the maximum percentage progressively decreased by BOI after 3 years based on factors like technological advancement and domestic raw material availability); (2) the total FOB Philippine port value of exports did not exceed US$5 million in 1968; and (3) products meet quality standards set by the Bureau of Standards or, if not available, by BOI or a designated public/private body.
Export sales refer to the Philippine port FOB value of export products exported directly by a registered export producer/trader or the net selling price of export products sold by the producer to a trader, but such sales count as export sales only when actually exported by the trader, proven by landing certificates or similar documents. Consignment exports are not export sales until actually sold by the consignee.
Incentives are unavailable until BOI approves registration (with approval retroacting to the filing date). To obtain registration, BOI must be satisfied the applicant (1) meets the Philippine nationality/capital ownership requirements, (2) is engaged/proposes to engage in eligible export manufacturing/processing/export or eligible service export activities (or at least 50% sales are export sales), (3) is not/does not engage in activities reserved by Constitution/laws for Filipinos unless/ until compliant, and (4) if doing other activities, has an adequate accounting system segregating export operations from domestic operations.
BOI approval of the application retroacts to the date of filing of the registration application; thus, if approved, incentives may be treated as available from the filing date (subject to the Act’s requirements).
In addition to Section 7/8 incentives referenced from the Investment Incentives Act, RA 6135 provides: (1) a tax credit for taxes/duties on supplies/raw materials/semi-manufactured products used in export production (accruing only after actual export and issued by the Secretary of Finance, in lieu of refunds, non-transferable except by hereditary succession/operation of law); (2) reduced income tax for the first five years based on an export revenue formula using labor component and domestic raw material component, with caps; (3) tariff and compensating tax exemption on imported capital equipment and spare parts for up to five years from registration if conditions are met; (4) tax credit on domestic capital equipment purchases by the export producer (100% compensating tax/duties for producer and 50% for domestic manufacturer); and (5) export tax exemption for certain export producers whose 1968 FOB value was below US$5M but exceed that threshold within 5 years from registration.
Within 120 days after effectivity and annually thereafter, BOI submits to the President through the National Economic Council an export priorities plan specifying export products to be encouraged with priority. BOI must consider: (1) comparative advantage (or potential comparative advantage), (2) potential for earning foreign exchange, and (3) profitability to the national economy.
BOI may grant any, some, or all of: (1) allow use of amount equivalent to double direct labor cost in the reduced income tax formula; (2) use constant factor of 6 instead of 5; and (3) allow application of amounts equivalent to 100% of necessary infrastructure works (portworks, waterworks, aircraft landing facilities, roads/bridges, etc.) to pay taxes due, subject to approvals and conditions, with title to infrastructure works transferred to the government upon completion.
For first five years, they may deduct from taxable income an amount equivalent to 50% of the increment of export fees over 75% of export fees in 1969; thereafter and until the 10th year, a similar deduction based on increment over average annual total export fees during the preceding five years. To be entitled, the service exporter must have remitted/repatriated to the Philippines its total export fees earned in the year, less reasonable costs/expenses incurred or payable in foreign currencies, subject to Monetary Board rules.
BOI may suspend/cancel wholly or partially whenever: (1) there is violation of the Act or labor protection laws; (2) actions are threatened or taken by an international association or foreign nation that would nullify/impair export trade or relations with other nations; or (3) the enterprise with paid-up capital at least PHP 500,000 earns for at least two years profits from exports in excess of 33 1/3% of equity even without incentives.
Violation of any provision/terms/conditions or aiding violations is punishable by fine up to PHP 50,000 or imprisonment up to 3 years (discretion). If the offender is a government official, maximum penalty is imposed and includes perpetual disqualification from public office. In cases of clear favoritism or abuse of discretion, BOI members and Chairman are liable for PHP 50,000 fine and imprisonment of not less than 3 years. For juridical entities, the president and/or responsible officials are liable. If offender is an alien, deported after serving sentence without further proceedings; if naturalized citizen, automatically denaturalized upon finality. Payment of tax due after apprehension is not a valid defense.