Question & AnswerQ&A (BIR REVENUE REGULATIONS NO. 12-2005)
The regulations define "gross income" to implement the tax incentive provision under Paragraph (c) of Section 4 of Republic Act No. 7922 (Cagayan Special Economic Zone Act of 1995) and Paragraph (f) of Section 4 of Republic Act No. 7903 (Zamboanga City Special Economic Zone Act of 1995).
Section 7 of Revenue Regulations No. 2-2005 is revoked by these regulations.
Gross income refers to gross sales or gross revenues derived from business activities within the Zone, net of sales discounts, sales returns and allowances, minus costs of sales or direct costs but before deductions for administrative, marketing, selling, operating expenses or incidental losses during a taxable period.
For trading enterprises, the cost of sales, which equals inventory beginning plus purchases minus inventory of goods ending, is allowed as a deduction.
Manufacturing enterprises can deduct direct salaries, wages, production supervision salaries, raw materials used, decreases in goods in process and finished goods accounts, supplies and fuels used in production, depreciation of machinery, equipment, and portion of building used, rent and utility charges for production assets, and financing charges related to fixed assets if not previously capitalized.
Service enterprises may deduct direct salaries and wages, service supervision salaries, direct materials and supplies used, depreciation of machinery and equipment used in rendering services, rent and utilities for buildings and capital equipment used, and financing charges related to fixed assets if not previously capitalized.
Sections 3, 4, and 6 of Revenue Regulations No. 2-2005 are suspended as they apply to enterprises registered under RA 7922 and RA 7903, pending new regulations.
The regulations took effect beginning March 5, 2005.
They were promulgated pursuant to Sections 244 and 245 of the National Internal Revenue Code of 1997, as amended.
Defining "gross income" ensures proper implementation of the tax incentive provisions for registered enterprises operating within the Cagayan and Zamboanga City Special Economic Zones, facilitating accurate tax computations based on statutory guidelines.