Question & AnswerQ&A (Republic Act No. 1407)
The Act declares the policy to encourage, assist, and foster the development of a well-balanced Philippine merchant marine that is sufficient for international trade, serves as a naval auxiliary during emergencies, is owned and operated under the Philippine flag by Filipino citizens or corporations with at least 60% Filipino ownership, and is composed of modern, well-equipped vessels manned by trained Filipino officers and crew.
Corporations must be organized under Philippine laws with at least sixty percent of their capital owned by Filipino citizens and engaged exclusively in the overseas shipping business or in the construction of modern boats for overseas service.
Eligible citizens or corporations are exempt from paying income tax on income derived from their shipping business for a period of ten years from the approval of the Act, provided that all net profits earned during this term are reinvested in constructing, purchasing, or acquiring additional vessels and equipment or maintaining existing ones.
The Act appropriates twenty million pesos annually for five fiscal years to be used by the National Development Company for the construction, purchase, or acquisition of ocean-going vessels for resale, lease, or charter, and to provide loans up to 75% of the vessels' cost to qualified citizens or corporations.
Loans must be secured by a preferred mortgage on the vessel, including its equipment and certificates for operation. Loans should be self-liquidating within twenty years and bear interest not exceeding three and one-half percent per annum.
During the contractual agreement's existence, no rights acquired under the loans by vendee, lessee, or charterer can be transferred or encumbered in favor of third parties without the consent of the National Development Company.
It can administer appropriated funds, acquire vessels, make loans, conduct investigations and studies for loan advisability, purchase vessels at foreclosure sales, lease or charter vessels, sell vessels to responsible Filipino entities, issue rules and regulations to implement the Act, and present annual activity reports to Congress.
The President may take possession of any vessels of Philippine registry for naval or military purposes temporarily or permanently. The government must pay the fair actual value or fair charter value of such vessels, with disputes settled by appointed appraisers, whose decision is final.
Such vessel is engaged in international trade when it carries goods and/or passengers from the Philippines to a foreign port or from a foreign port to another foreign port or a Philippine port.
Dollars needed for vessel purchase, repair, engines, parts, supplies, and other operating expenses in foreign ports are to be made available free of exchange tax upon recommendation by the National Economic Council. Engines, parts, accessories, and materials used for repair or construction are exempt from special import tax, provided certification is issued that they cannot be supplied locally by the National Shipyards and Steel Corporation.