Definition of Gross Income
- For enterprises in the specified Special Economic Zones, "gross income" means gross sales or gross revenues from business activities within the zone.
- Gross income is computed net of sales discounts, sales returns, and allowances.
- Deducts costs of sales or direct costs but does not allow deductions for administrative, marketing, selling, or operating expenses, nor incidental losses.
- Specific allowable deductions for computing the 5% tax base vary by type of enterprise:
- Trading Enterprises:
- Cost of Sales (calculated as beginning inventory plus purchases minus ending inventory).
- Manufacturing Enterprises:
- Direct salaries, wages, and labor expenses.
- Production supervision salaries.
- Raw materials used in manufacturing.
- Decreases in goods in process and finished goods inventory.
- Supplies and fuels used in production.
- Depreciation of machinery, equipment, and portions of buildings used exclusively for production.
- Rent and utility charges related to production facilities.
- Financing charges for fixed assets used in production if not previously capitalized.
- Service Enterprises:
- Direct salaries, wages, and labor expenses.
- Service supervision salaries.
- Direct materials and supplies used.
- Depreciation of machinery, equipment, and portions of buildings used exclusively for services.
- Rent and utility charges for buildings and capital equipment used in service delivery.
- Financing charges for fixed assets used in the service business if not previously capitalized.
- Trading Enterprises:
Suspension of Certain Provisions of Revenue Regulations No. 2-2005
- Sections 3, 4, and 6 of Revenue Regulations No. 2-2005 are suspended concerning enterprises registered under R.A. 7922 and R.A. 7903.
- Suspension is effective pending issuance of new regulations addressing related matters.
Effectivity
- These Regulations took effect beginning March 5, 2005.
- Issued and adopted on April 25, 2005, by the Acting Secretary of Finance and Commissioner of Internal Revenue.