ASIDE from amending provisions in the National Internal Revenue Code (“Tax Code”) on value-added tax zero rating and incentives, Republic Act (RA) 12066 (Create More) added incentives to registered business enterprises (RBEs).
Create More empowered Investment Promotion Agencies (IPAs) to grant incentives directly to investors, provided their capital is at least P15 billion. IPAs will no longer operate under a delegated authority from the Fiscal Incentives and Review Board (FIRB). The FIRB, however, retains the power to approve the grant of incentives to investments higher than P15 billion, exercising regulatory and quasi-judicial functions, in addition to oversight and policy-making functions, over IPAs. The FIRB may impose sanctions such as suspension or cancellation of the IPAs’ authority to grant tax incentives.
As to the other incentives, Create More made the following amendments to the Tax Code:
Enhancement of the EDR incentive
Additional allowable deductions for power expenses were increased to 100 percent (from 50 percent). The reinvestment allowance of up to 50 percent of the reinvested surplus now applies to tourism industries aside from manufacturing. This includes expenses incurred in promoting the export of goods or provision of services to foreign markets. A new allowable deduction of 50 percent of expenses related to exhibitions, trade missions, or trade fairs was added. The net operating loss can now be carried over as a deduction following the last year of the Income Tax Holiday (ITH) period instead of following the year of the loss.
Expansion of duty exemption
The duty exemption on importations was expanded to cover goods used for administrative purposes, in addition to capital equipment, raw materials, spare parts, or accessories, so long as the goods are “directly attributable” to the registered activity or project of the RBE.
Flexibility in availing of incentives
RBEs in the export sector, whether registered with IPAs or the FIRB, are now granted three options, namely: (a) availment of the ITH, followed by Special Corporate Income Tax (SCIT) or Enhanced Deductions Regime (EDR); (b) availment of the SCIT or EDR immediately. RBEs need not wait for the expiration of their ITH before they can appreciate the SCIT or the EDR.
Accordingly, the RBE can enjoy the ITH period (which ranges from four to seven years, depending on its location and industry as specified in the Strategic Investment Priority Plan or SIPP), followed by 10 years of EDR or SCIT. Alternatively, the RBE can immediately avail of the SCIT or EDR for 14 to 17 years, depending on its location and industry specifications.
On the other hand, registered domestic market enterprises can either choose to avail of the ITH followed by EDR or EDR immediately. Thus, they can enjoy ITH for a period ranging from four to seven years, followed by 10 years of EDR. Alternatively, such domestic enterprises can enjoy 14 to 17 years of EDR, depending on their location and industry, as specified in the SIPP.
Longer periods are available (up to 27 years) for enterprises registered with the FIRB.
Cyber-security, artificial intelligence, and data center facilities are now considered Tier III priority activities. RBEs engaged in Tier III activities are entitled to a longer period of incentives. Tier III activities are entitled to a longer availment period.
Clearer exemption on local charges and fees
Export-oriented RBEs enjoying 5-percent SCIT, which is in lieu of all taxes and fees, are now exempt from local fees and charges. Previously, enterprises enjoying the 5-percent SCIT have been imposed local charges and fees by local government units (LGUs).
Create More also added a new provision to allow LGUs to impose an RBE Local Tax of up to 2 percent of the gross income of RBEs with ITH or EDR, and such tax shall be in lieu of all local taxes and fees imposed under the LGU. It should be noted that once an RBE is on ITH or EDR, it becomes subject to all fees and taxes imposed by LGUs. Now, LGUs can impose the 2 percent RBE Local Tax, and such tax shall be in lieu of all other fees and charges. LGUs may reduce their rates of tax or waive taxes, or their share thereof, in case two or more LGUs cover the same enterprise.
Extension of period of availment
RBEs registered with the FIRB and any of the IPAs may have incentives for another five years if they have projects that employ at least 10,000 local employees and maintain such a number of employees during registration.
Projects registered prior to the effectivity of Create More may qualify to register on or before Dec. 3 and avail of the incentives, subject to certain conditions.
Speedy processing of tax incentive application
FIRB and IPAs are mandated to issue decisions on applications for tax incentives within 20 working days from receipt of all required documents. Also, the BIR is mandated to create a separate service to support end-to-end tax compliance of RBEs.
Euney Marie J. Mata-Perez is a CPA lawyer and managing partner of Mata-Perez, Tamayo & Francisco (MTF Counsel). She is ranked as one of the top 100 lawyers of the Philippines by Asia Business Law Journal and is the incoming chair of the Tax Committee of the Management Association of the Philippines. She acknowledges the contributions of Elaisha Nelle C. Espinosa and Rey Christian M. Guintibano to this column. Email the author at [email protected] or visit the MTF website at www.mtfcounsel.com.
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