Policy and declared purposes
- Section 2 declares State policy to actively encourage, promote, and diversify exports of services and of manufactures utilizing domestic raw materials to the fullest extent possible.
- Section 2 directs the development of new markets for Philippine products.
- Section 2 aims to attain a rising level of production and employment, increase foreign exchange earnings, hasten economic development, and assure that benefits of development accrue to the Filipino people.
Key definitions
- “Board of Investments” (also called “Board”) means the Board of Investments created by Republic Act No. 5186, known as the Investment Incentives Act (Section 3).
- “Registered export producer” means a person, partnership, or other entity organized under Philippine laws that: (1) is registered with the Board under this Act; (2) is engaged or proposing to engage in manufacturing or processing export products as defined; and (3) directly exports, or sells export products to: (a) a registered export trader for subsequent export, or (b) other export producers that use the products as direct inputs in their own export products (Section 3).
- “Registered export trader” means a person/corporation/partnership/other entity organized under Philippine laws that: (1) is registered with the Board under this Act; and (2) derived at least 50% of its gross income for the year incentives are claimed from the sale abroad of export products purchased from two or more registered export producers not owned/controlled/managed by the same person/entity/group (Section 3).
- “Registered service exporter” means a person/corporation/partnership/other entity organized under Philippine laws that: (1) is registered with the Board under this Act; and (2) is engaged or proposing to engage in: (a) rendering technical, professional, or other services paid for in foreign currency (including the listed fields), or (b) exporting Philippine television and motion pictures and musical recordings, directly or through a registered export trader (Section 3).
- “Export products” means manufactured or processed products meeting all of the following (Section 3):
- Not more than 80% (initially) of whose individual F.O.B. Philippine port value is attributable to imported raw materials, with the maximum percentage to progressively decrease after three (3) years based on factors including technological advancement and availability of domestic raw materials;
- The total F.O.B. Philippine port value of which did not exceed US$ 5,000,000 in the calendar year 1968; and
- Which meet quality standards set by the Bureau of Standards, or in default, by the Board or a designated public/private organization (as the Board may designate) (Section 3).
- “Export sales” means the Philippine port F.O.B. value determined from specified commercial documents, for exports made directly by a registered export producer/trader or net selling price for sales by a registered export producer to a registered export trader, but sales to a registered export trader count only when actually exported by the latter evidenced by landing certificates or similar documents; consignment exportation does not count until the consignee actually sells the consigned export products (Section 3).
- “Export fees” means total foreign exchange charged or received by a registered service exporter for furnishing or performing services or permitting showing/playing television or motion pictures or musical recordings outside the Philippines (Section 3).
- “Production cost” means total cost of direct labor, raw materials, and manufacturing overhead determined under generally accepted accounting principles, incurred in manufacture or processing of a registered export producer’s export products (Section 3).
- “Processing” means converting raw materials into marketable form by special treatment or actions resulting in a change in nature or state; merely packing, packaging, sorting, or classifying does not, by itself, constitute processing (Section 3).
Export priorities plan and approvals
- Section 4 requires the Board to submit an export priorities plan to the President through the National Economic Council.
- The initial submission must be made within 120 days after the Act takes effect, and annually thereafter as part of the annual investment priorities plan under Section 18 of Republic Act No. 5186.
- The export priorities plan must set forth export products encouraged with priority, considering their comparative advantage, foreign exchange potential, and profitability to the national economy (Section 4).
- Section 4 provides that the export priorities plan is acted upon, takes effect, and may be amended following the procedure and with like effect as the investment priorities plan.
Registration conditions and eligibility
- Section 6 provides that no export producer, service exporter, or export trader is entitled to any incentive under this Act until registration is approved by the Board.
- Section 6 provides that Board approval retroacts to the date of filing of the application for registration.
- Section 6 requires registration applicants to satisfy these conditions (citizenship/capital; activity; reserved activities; accounting system) including:
- Citizenship rule: applicant is a natural person citizen of the Philippines, or at least 60% of capital is owned and controlled by Filipino citizens if a corporation/partnership/entity (Section 6).
- Export/service rule: the applicant is engaged or proposes to engage in manufacturing, processing, or exporting export products listed in the export priorities plan, or if not listed, at least 50% of sales are export sales; for service exporters, services are payable in foreign currency, or exporting Philippine television/motion pictures or musical recordings (Section 6).
- Reserved activities rule: the applicant is not engaged and will not engage in activities reserved by the Constitution or laws to Filipino citizens/citizens-owned and controlled corporations, unless and until requirements are fulfilled (Section 6).
- Accounting system rule: if engaged in activities other than export product manufacture/processing/exportation (or services other than export services), the applicant must install an adequate accounting system segregating investments and operational items listed (including revenues, sales, receipts, purchases, payrolls, costs, expenses, and profits/losses) (Section 6).
- Section 6 provides a special rule for pioneer enterprises registered under Republic Act No. 5186: nationality requirements follow Section 19 of Republic Act No. 5186 instead of the nationality provision stated in Section 6.
- Section 6 requires the Board, upon receipt of the application, to notify the applicant of all pertinent requirements not complied with within 30 days.
- Section 6 requires the Board to act on the application within 90 days after submission.
- Section 6 grants registration as an export trader and incentives for registered export traders (except exemption from export tax) to corporations/partnerships/entities organized under Philippine laws with at least 70% capital owned and controlled by citizens of the Philippines, if engaged/proposing to engage in exportation of export products whose total F.O.B. Philippine port value exceeded US$ 5,000,000 in calendar year 1968, subject to: (a) substantial exportation business in the hands of non-citizens/non-Filipino-controlled entities at the time of filing; and (b) fulfillment of other requirements set out in the paragraph and cross-referenced paragraphs in Section 3 (Section 6).
Incentives: registered producers, traders
- Section 7 states that registered export producers, unless already enjoying the same privileges under other laws, are entitled to the incentives in paragraphs (h) and (i) of Section 7 of Republic Act No. 5186, and pioneer registered export producers also entitled to incentives in paragraphs (a), (b), and (c) of Section 8 of Republic Act No. 5186.
- Section 7 grants in addition, and in lieu of other incentives under Sections 7 and 9 of Republic Act No. 5186, the following producer-specific incentives:
Tax credit
- Every registered export producer receives, for 10 years from registration, a tax credit equal to sales, compensating and specific taxes and duties on supplies, raw materials, and semi-manufactured products used in manufacturing/processing export products and forming part thereof, whether exported directly or sold to another registered export producer or a registered export trader that exports the product (Section 7).
- The tax credit accrues only after the other export producer/export trader in fact exports the products, or the products in whose manufacture/processing the supplies/inputs were used (Section 7).
- The tax credit is issued by the Secretary of Finance upon presentation of export documents and is issued in lieu of refunds (Section 7).
- The tax credit may be used to pay taxes, duties, charges, and fees due to the national government in connection with operations (Section 7).
- The tax credit is non-transferable, except by hereditary succession or operation of law; it can be used only while the person/entity enjoys benefits under this Act; and it cannot be used to result in a refund (Section 7).
Reduced income tax
- For the first five years from registration, a registered export producer deducts from taxable income an amount equivalent to a portion of total export revenue computed by formula: Total export revenue multiplied by the product of the labor component, the domestic raw material component, and 5 (Section 7).
- Total export revenue is the F.O.B. Philippine port value and is defined as the increment of export sales over the firm’s sale for 1968 (Section 7).
- The labor component equals total direct labor wage bill divided by total production cost of the firm (Section 7).
- The domestic raw material component is defined using the difference between one unit of production and the ratio of the total value of imported raw materials