MINDANAO STATE UNIVERSITY - GENERAL SANTOS CITY

DEPARTMENT OF ACCOUNTANCY
ACCTG163: REVIEW IN TAXATION
Special Economic Zone Act
The Philippine Economic Zone Authority (PEZA) is created by the Special Economic Zone Act of 1995 (RA
No. 7916). The operation of the PEZA and the ECOZONE is maintained and managed by the PEZA Board
composed of the following:
I. Chairman- Secretary of Trade and Industry:
II. Vice Chairman - the Director General;
III. Members of the Board - under secretaries of 9 key government departments

Fiscal incentives:
I. Four years income tax holiday for non-pioneer projects wit
II. Six years income tax holiday for pioneer projects
III. Three years income tax holiday for expansion projects
IV. Upon expiry of income tax holiday, 5% special tax on gross income and exemption from all
national and local taxes.
V. Tax and duty free importation of raw materials, capital equipment, machineries and spare parts.
VI. Exemption from wharfage dues and export tax, impost and fees
VII. VAT-zero rating of local purchases subject to compliance with BIR and PEZA requirements
VIII. Exemption from payment of any and all local government taxes
IX. Exemption from expanded withholding tax
All PEZA-registered economic zone locator enterprises, which are entitled to any or all 3 fiscal Incentives:
a) income tax holiday incentive; b) option to pay 5% Tax on Gross Income, in lieu of all national and local
taxes except real property taxes on land owned by developers (5% GIT incentive); and/or tax and duty-free
importation of machinery and equipment, raw materials, supplies, spare parts and other production inputs,
are exempted from having to secure all LGU permits. (PEZA MC No. 2004-024)
PEZA-registered economic zone enterprises availing of the Income Tax Holiday incentive are exempted
from payment of all local taxes, licenses, imposts and fees, except real estate taxes, provided that these
enterprises shall also be exempted from payment of real property taxes on machineries and equipment
they acquire for use in their production operations, during the first 3 years of use of such machineries and
equipment. (PEZA MC No. 2004-024)
PEZA-registered economic zone enterprises availing of the 5% GIT incentive are exempted from payment
of all national and local taxes, except real property tax on land owned by developers. (PEZA MC No. 2004-
024)
Special economic zones or ECOZONES are selected areas with highly developed or which have potential
to be developed into agro-industrial, tourist/recreational, commercial, banking, investment and financial
centers. An ECOZONE may contain any or all of the following: industrial estates, export processing zones,
free trade zones, and tourist recreational centers.
Business establishments operating within the ECOZONE are not subject to local and national taxes. In lieu
of paying taxes, 5% of the gross income earned by all businesses within the ECOZONE is remitted to the
national government.
All income derived by persons and all service establishments in the ECOZONE are subject to taxes under
the National Internal Revenue Code.

Omnibus Investment Code

The Board of Investments, an attached agency of the Department of Trade and Industry, is the lead
government agency responsible for the promotion of investments in the Philippines.
The Board of Investments is composed of seven governors to be appointed by the President of the
Philippines:
I. Chairman - Secretary of Trade and Industry,
II. Three under secretaries of Trade and Industry (Vice Chairman and Managing Head - DTI
undersecretary for Industry and Investments);
III. Three representatives from other government agencies and the private sector who will serve term
of four years.
All BOI registered enterprises are granted fiscal and non-fiscal incentives.

Fiscal incentives:
I. Tax exemptions:
Income tax holiday:
Exemption from taxes and duties on imported spare parts:
Exemption from wharfage dues and export tax, duty, Impost and fees
Tax and duty free importation of breeding stocks and genetic materials

II. Tax credits

Tax credit on the purchase of domestic breeding stocks and genetic materials;
Tax credit on raw materials and supplies

III. Additional deduction from income

Additional deduction for labor expense
Additional deduction for necessary and major infrastructure work
Zero-rate value added tax

Non-fiscal incentives:
I. Employment of foreign nationals
II. Simplification of customs procedures
III. Importation of consigned equipment for a period of 10 years
IV. The privilege to operate a bonded manufacturing or trading warehouse subject to customs rules and
regulations

Registered Enterprise means any individual, partnership, cooperative, corporation or other entity
incorporated and/or organized and existing under Philippine law, registered with the Board of Investments.

The term "registered enterprise" shall not include commercial banks, savings and mortgage banks, rural
banks, savings and loan associations, building and loan associations, developmental banks, trust
companies, investment banks, finance companies, brokers and dealers in securities, consumers
cooperatives and credit unions, and other business organizations whose principal purpose or principal
source of income is to receive deposits, lend or borrow money, buy and sell or, trade or invest in common
or preferred stocks, debentures, bonds or other marketable instruments generally recognized as securities,
or discharge other similar intermediary,trust or fiduciary functions.
For 6 years from commercial operation for pioneer firms and 4 years for non-pioneer firms, new registered
firms are exempt from income tax levied by the National Government. Registered firms are not entitled to
extension.
For 3 years from commercial operation, registered expanding firms are entitled to an exemption from
income taxes levied by the National Government. Registered firms are not entitled to extensions.

BARANGAY MICRO BUSINESS ENTERPRISE (BMBE) - RA 9178

Any business enterprise engaged in production, processing, or manufacturing of products, including agro-
processing, as well as trading and services, with total assets of not more than P3 million. Such assets shall
include the loans but not the land on which the plant and equipment are located.

REGISTRATION AND OPERATION OF BMBES

1. The Office of the Treasurer of each city or municipality shall register the BMBEs and issue a Certificate
of Authority to enable the BMBE to avail of the benefits under this Act.
2. Any such application shall be processed within fifteen (15) working days upon submission of complete
documents. Otherwise, the BMBEs shall be deemed registered.
3. The Municipal or City Mayor may appoint a BMBE Registration Officer who shall be under the Office of
the Treasurer.
4. Local government units (LGUs) are encouraged to establish a One-Stop-Business Registration Center
to handle the efficient registration and processing of permits/licenses of BMBEs. Likewise, LGUs shall make
a periodic evaluation of the BMBEs' financial status for monitoring and reporting purposes.
5. The LGUs shall issue the Certificate of Authority promptly and free of charge. However, to defray the
administrative costs of registering and monitoring the BMBEs, the LGUs may charge a fee not exceeding
One Thousand Pesos (P1,000.00).
6. The Certificate of Authority shall be effective for a period of two (2) years, renewable for a period of two
years for every renewal
7. As much as possible, BMBEs shall be subject to minimal bureaucratic requirements and reasonable fees
and charges.
WHO CAN REGISTER?
Any person natural or juridical, or cooperative, or association, having the qualifications as defined in Sec.
3(a) hereof may apply for registration as BMBE.
The BMBE shall report to the city or municipality of any change in the status of its ownership structure and
shall surrender the original copy of the BMBE Certificate of Authority for notation of the transfer.

INCENTIVES TO BMBES
1. Income tax exemption from income arising from the operations of the enterprise, but shall not apply to:
A. Interest, including those from any currency bank deposit and yield or any other monetary benefit from
deposit substitutes and from trust funds and similar arrangements;
B. Royalties
C. Prizes and other winnings
D. Cash and/or property dividends
E. Capital gains from the sale of shares of stock not traded through the stock exchange
F. Capital gains from the sale or other disposition of real property.
G. The share of an individual in the net income after tax of an association, a joint account, or a joint venture
or consortium
H. The share of an individual in the distributable net income after tax of a taxable partnership of which he
is a partner
I. Income from the practice of profession received directly from the clients or from the professional
partnership which the individual is a partner
J. Compensation
K. All other forms of passive income and income from revenues not effectively connected with or arising
from operations of the BMBE as such.

2. Exemption from the coverage of the Minimum Wage Law (BMBE employees will still receive the same
social security and health care benefits as other employees);
3. Priority to a special credit window set up specifically for the financing requirements of BMBEs, and
4. Technology transfer, production and management training, and marketing assistance programs for
BMBE beneficiaries.
5. The LGUs are also encouraged to either reduce the amount of local taxes, fees, and charges imposed
or exempt the BMBEs from local taxes, fees, and charges.

The following entities shall be exempt from gross receipts tax on interest, commissions and discounts
derived from loans to BMBES:
 Land Bank of the Philippines
Development Bank of the Philippines
People's Credit and Finance Corporation
Small business Guarantee and Finance Corporation
GSIS and SSS, on loans extended to their respective members

OPERATIONS:
Engaged in the production, processing or manufacturing of products or commodities, including agro-
processing trading and services, and which activities are barangay-based and micro-business in nature
and scope:
"Services" shall exclude those rendered by:
1. PRC Licensed professionals
2. Juridical persons such as partnerships or corporations engaged in consultancy, advisory and similar
services where the performance of such services are essentially carried out through licensed professionals

BARANGAY BASED
A business enterprise shall be considered "barangay based" if:
- the majority of its employees are residents of the municipality where its principal place of business is
located; or
- its principal activity consists in the application/use of a particular skill peculiar to the locality or of raw
materials predominantly sourced from the area; or
- its business operations are confined within the territorial jurisdiction of the municipality or LGU in which its
principal place of business is located.

SENIOR CITIZENS LAW

Who is a SENIOR CITIZEN?

A resident citizen, at least 60 years old. It may also apply to senior citizens with “dual citizenship” and have
at least 6 months residency in the Philippines.

Privileges granted to businesses:

1. 20% discount given, may be claimed as a deduction for income tax purposes,and VAT exemption are
applicable to the charges on the following goods and services only:

A. Medicines, including the purchase of Influenza and pneumococcal vaccines and such other essential
medical supplies, accessories, and equipment to be determined by Department Health.

B. Professional fees of attending physician in all private hospitals, medical facilities, outpatient clinics, and
home health care services
C. Professional fees of licensed professional health providing home health care services as endorsed by
private hospitals or employed through home health care employment agencies

D. Medical and dental services, diagnostic and laboratory fees in all private hospitals, medical facilities,
outpatient clinics, and home health care services, in accordance with the rules and regulations to be Issued
by the DOH, in coordination with PHIC.

E. Actual fare for land transportation travel in public utility buses, public utility Jeepneys, taxis, AUVs, train

F. In actual transportation fare for domestic air transport services and sea shipping vessels and the like
based on the actual fare and advanced booking

G. Utilization of services in hotels and similar lodging establishments, restaurants, and recreation centers

H. Admission fees charged by theaters, cinema houses, and concert halls, circuses, leisure and
amusement, and

I. Funeral and burial services for the death of the senior citizen

2. 5% discount for the monthly utilization of water and electricity supplied by the public utilities, provided
that

The individual meters are registered in the name of the senior citizen

Maximum utilization for electricity of 100kWh

Maximum utilization for water of 30 cubic meters

The benefit is granted per household regardless of the number of senior citizens residing therein.

3. Education assistance to senior citizens to pursue secondary. tertiary, post tertiary, vocational and
technical education, as well as short-term courses for retooling in both public and private schools through
provision of scholarship grants, financial aids, subsidies and other incentives to qualified senior citizens.

4. Discount and VAT exemption on restaurant should only be given for purchases of Senior Citizen for
"EXCLUSIVE USE AND ENJOYMENT". The VAT exemption does not apply to children's meals and pre-
contracted part packages or bulk orders.

5. The 20% Senior Citizen discount is not applicable on grocery items, but the SC may demand for the 5%
discount for certain grocery purchases that fall under the basic necessities and prime commodities"
category. According to DTI-DA Administrative Order No. 10-02, SCs are entitled to a special discount of
5% of the regular retail price, without exemption from VAT, of basic necessities, such as

A. Rice

B. Corn

C. Bread (any shape and name, excluding pastries and cakes)

D. Fresh, dried, and canned fish and other marine products

E. Fresh pork, belly, and poultry meat

F. Fresh eggs

G. Fresh and processed milk

H. Fresh vegetables including root crops

 I. Coffee and creamer

J. Sugar

K. Cooking oil

L. Salt

M. Powdered, liquid, bar laundry and detergent soap

N. Firewood and Charcoal

O. Candles

P. Fresh fruits

Q. Flour

R. Dried, processed and canned pork, beef and poultry meat

S. Dairy products

T. Noodles

U. Onions and Garlic

V. Geriatric diapers

W. Herbicides

X. Poultry, swine and cattle feeds

Y. Veterinary products of poultry, swine and cattle

Z. Nipa shingle, plyboard and construction nails

AA. Batteries

BB. Electrical supplies and light bulbs

CC. Steel wire

Note: The maximum amount of purchase is One Thousand Three Hundred Pesos (P1,300) per calendar
week after combining set limits under basic commodities without carry over of unused amount

6. Additional deduction of 15 of total salaries paid to senior citizen employees. For example, a business
gives P30,000 monthly salary to Senior Citizen employee, the business can claim additional P 4.500, or a
total of P34,500 allowable deduction Provided that:

Such employment shall continue for a period of at least 6 months

Annual income of the senior citizen does not exceed the latest poverty threshold as determined
by NEDA for the year.

7. In the purchase of goods and services which have promotional discount, the senior citizen can avail of
the promotional discount or the senior citizen discount, whichever is higher.

8. The senior citizen may present the following identification to avail the discount:
ID issued by OSCA, Passport, or Other document that establish that the senior citizen of the Republic and
is at least sixty years of age

Treatment of Discount:

1. Income tax - only the actual amount of the discount granted or a sales discount not less than the statutory
rate, whichever hither can be deducted from gross income, net of VAT

2. VAT - same amount shall be deducted from gross sales/receipts of the business enterprise concerned

Note:

1. If the business establishment is a non VAT taxpayer, the sales shall be subject to percentage tax. Senior
citizens and PWDs are not exempt to the percentage tax and excise tax

2. If senior citizens and PWDs own businesses, they are subject to business taxes on their sales or receipts
similar to other regular business taxpayers.

MAGNA CARTA FOR DISABLED PERSONS (RA 9442)

Who is a PWD?

A. A person with disability, whether minor or of legal age

B. Filipino citizen, who may or may not be related to his benefactor

C. Individual suffering from restriction or different abilities a result of mental, physical, or sensory impairment
to perform activity in a manner or within the range considered normal for human being

Tax Incentives for Qualified Establishments Selling Goods and Services to Disabled Persons:

A. 20% discount on the sale of goods and services to PWD. This discount may be claimed as a deduction

B. 5% discount can be granted to PWDs for the purchase of basic necessities and prime commodities
(Same list enumerated above). In order to avail of the 5 special discount, the person with disability shall
purchase the above mentioned commodities from a retailer who may be a natural or juridical person
engaged in the business of selling consumer products directly to consumers, which shall include among
others, supermarkets, grocery stores, convenience and mini-convenience stores and shops but excluding
stalls in food courts, food carts, food vendors and sari-sari stores with a capitalization of less than P100,000,
public and private wet market, talipapa and cooperative stores. The total amount of purchase shall not
exceed the amount of P1300 per calendar week without carry over of the unused amount

C. Additional deduction of 25% of total salaries paid to disabled employees. For example, a business gives
P 30,000 monthly salary to disabled employee, the business can claim additional P7,500, or a total of
P37,500 allowable deduction

D. Additional deduction of 50% of direct cost of modification of physical facilities.

E. No 12% VAT imposition on sale to PWD.

F. In the purchase of goods and services which have promotional discount, the PWD can avail of the
promotional discount or the PWD discount, whichever is higher
Treatment of Discount:

1. Income tax - only the actual amount of the discount granted or a sales discount not less than the statutory
rate, whichever is higher can be deducted from gross income, net of VAT

2. VAT - same amount shall be deducted from gross sales/receipts of the business enterprise concerned

The PWD may present the following identification to avail the discount:

1. ID issued by the city of municipal mayor or the barangay captain of the place of residence

2. Passport

3. Transportation discount fare ID issued by National Council for the Welfare of Disabled Person

END