BUSINESS INCENTIVES AND REFORMS

WHEREAS, There is a need to improve the overall climate for
business and industry in the Philippines in order to accelerate economic growth
and promote the well-being

especially of the masses of our people;

WHEREAS, although the various incentives already
provided in existing laws to encourage investment, both local and
foreign, in desirable industries and projects have actually induced their
establishment in preferred areas, there is still a need to re-examine their
precise impact and relevance not only to increased productivity but to the
improvement of the living standards of the people;

WHEREAS, in order to achieve the foregoing objectives, it is
necessary to update and rationalize existing incentives and provide new ones
that can help optimize the rate of economic development by giving priority to
export-oriented industries especially those utilizing indigenous raw materials
and which can generate more employment and income opportunities in keeping with
the escalating demands of our people for the basic essentials that make for
decent existence;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the
Philippines, by virtue of the powers in me vested by the Constitution as
Commander-in-Chief of the Armed Forces of the Philippines and pursuant to
Proclamation No. 1081, dated September 21, 1972, and General Order No. 1, dated
September 22, 1972, as amended and in order to effect the desired changes and
reforms in the social, economic and political structure of our society, do
hereby order and decree amendments to Republic Act Numbered Fifty-one hundred
eighty-six, otherwise known as the Investment Incentives Act, and complementary
laws such as Republic Act Numbered Sixty-one hundred thirty-five, otherwise
known as the Export Incentives Act and Republic Act Numbered Fifty-Four hundred
fifty-five, as follows:

SECTION 1. Section seven of Republic Act Numbered Fifty-one
hundred eighty-six is hereby amended by adding a new subsection and amending
paragraphs (d), (e) and (h) hereof, to read as follows:

“SEC. 7. Incentives to a Registered Enterprise. — A
registered enterprise, to the extent
engaged in a preferred area of
investment, shall be granted the following
incentive
benefits:

*          *          *          *          *          *          *

“(d) Tax Exemption on Imported Capital Equipment. Within seven years from the
date of registration of the enterprise, importation of machinery and equipment,
and spare parts shipped with such machinery and equipment, shall not be subject
to tariff duties and compensating tax: Provided, That said machinery,
equipment, and spare parts: (1) are not manufactured domestically in reasonable
quantity and quality at reasonable prices; (2) are directly and actually needed
and will be used exclusively by the registered enterprise in the manufacture of
its products, unless prior approval of the Board is secured for the part-time
utilization of said equipment in non-registered operations to maximize usage
thereof; (3) are covered by shipping documents in the name of the registered
enterprise to whom the shipment will be delivered direct to customs authorities;
(4) the prior approval of the Board was obtained by the registered enterprise
before the importation of such machinery, equipment and spare parts; and (5) the
registered enterprise chooses not to avail of the privileges granted by Republic
Act Numbered Thirty-one hundred twenty-seven, as amended. If the registered
enterprise sells, transfers or disposes of these machinery, equipment and spare
parts without the prior approval of the Board within five (5) years from the
date of acquisition, the registered enterprise shall pay twice the amount of the
tax exemption given it. However, the Board shall allow and approve the sale,
transfer, of the disposition of the said items within the said period of five
(5) years if made: (1) to another registered enterprise; (2) for reasons of
proven technical obsolescence; (3) for purpose of replacement to improve and/or
expand the operations of the enterprise.

“(e) Tax Credit on Domestic Capital Equipment. — A tax credit
equivalent to one hundred per cent (100%) of the value of the compensation tax
and customs duties that would have been paid on the machinery, equipment and
spare parts had these items been imported shall be given to the registered
enterprise who purchases machinery, equipment and spare parts from a domestic
manufacturer, and another tax credit equivalent to fifty per cent (50%) thereof
shall be given to the said manufacturer: Provided, (1) That the said
machinery, equipment and spare parts are directly and actually needed and will
be used exclusively by the registered enterprise in the manufacture of its
products, unless prior approval of the Board is secured for the part-time
utilization of said equipment in non-registered operations to maximize usage
thereof; (2) that the prior approval of the Board was obtained by the local
manufacturer concerned; and (3) that the sale is made within seven years from
the date of registration of the registered enterprise. If the registered
enterprise sells, transfers or disposes of these machinery, equipment and spare
parts without the prior approval of the Board within five (5) years from the
date of acquisition, then it shall pay twice the amount of the tax credit given
it. However, the Board shall allow and approve the sale, transfer, or
disposition of the said items within the said period of five (5) years if made
(1) to another registered enterprise; (2) for reasons of proven technical
obsolescence; or (3) for purposes of replacement to improve and/or expand the
operations of the enterprise.”

“(h) Deduction for Expansion Reinvestment. — When a registered
enterprise reinvests its undistributed profit or surplus, whether from
registered operations or not, by actual transfer thereof to the capital stock of
the corporation for procurement of machinery, equipment and spare parts
previously approved by the Board under subsections ‘ d ‘ and ‘ e ‘ hereof or for
the expansion of machinery and equipment used in production or for the
construction of the buildings, improvements or other facilities for the.
installation of the said machinery and equipment, the amount so reinvested, to
the extent of twenty-five per cent (25%), thirty-seven and one-half per cent
(37½%), fifty per cent (50%), in case of non-pioneer projects and to the extent
of fifty per cent (50%), seventy-five per cent (75%), one hundred per cent
(100%) in the case of pioneer projects, the appropriate percentage to be
determined by the Board for each industry taking into account the relative risk,
technology, transfer and fall-out, export potential,, incremental labor, use of
locally manufactured machinery and equipment and domestic raw materials, shall
be allowed as a deduction from its taxable income in the year in which such
reinvestment was made: Provided, (1) That prior approval of the Board
of such reinvestment was obtained by the registered enterprise planning such
reinvestment and (2) that the registered enterprise does not reduce its capital
stock represented by the reinvestment within seven (7) years from the date such
reinvestment was made. In the event the registered enterprise does not order the
machinery and equipment within two (2) years from the date the reinvestment was
made or reduces its capital stock represented by the reinvestment within a
period of seven (7) years from the date of reinvestment, a recomputation of the
income tax liability therefor shall be made for the period when the deduction
was made, and the proper taxes shall be assessed and paid with interest.”

“(k) Deduction for Labor Training Expenses. — An additional
deduction from taxable income of one half of the value of labor training
expenses incurred for upgrading the productivity and efficiency of unskilled
labor shall be granted to a registered enterprise: Provided, That such
training program is duly approved by the appropriate government agency or in the
absence thereof by the Board: And provided, further, That such
deduction shall not exceed ten per cent (10%) of direct labor
wage.”

SEC. 2. Subsection (a) of Section Eight of the same Act is
hereby amended as follows:

“SEC. 8. Incentives to a Pioneer Enterprise. — In
addition to the incentives provided in the preceding section, pioneer
enterprises shall be granted the following incentive benefits:

“(a) Tax Exemption. — Exemption from all taxes under the National
Internal Revenue Code, except income tax, from the date the area of investment
is included in the Investment Priorities Plan to the following extent:

(1) One hundred per cent (100%) for the first five years;
(2) Seventy-five
per cent (75%) for the sixth through the eighth year;
(3) Fifty per cent
(50%) for the ninth and tenth year;
(4) Twenty per cent (20%) for the
eleventh and twelfth years; and
(5) Ten per cent (10%) for the thirteenth
through the fifteenth year.

Provided, That the above schedule shall apply only to enterprises
registered in areas included for the first time in the sixth or subsequent
Investment Priorities Plan or therein carried over from the previous Investment
Priorities Plan: Provided, however, That in areas previously declared
preferred and/or carried over the sixth or subsequent Investment Priorities Plan
and wherein enterprises have already registered, the exemption herein
provided shall be as follows:

(1) One hundred per cent (100%) up to December 31, 1972;
(2) Seventy-five
per cent (75%) up to December 31, 1975;
(3) Fifty per cent (50%) up to
December 31, 1977;
(4) Twenty per cent (20%) up to December 31, 1979;
(5)
Ten per cent (10%) up to December 31, 1981;

Provided, further, That subject to the approval of the National
Economic Development Authority, the Board may extend the duration of the tax
exemption provided in any bracket for pioneer projects whose total
costs would exceed one hundred million pesos (P100,000,000) subject to the
condition that in no case shall the total period of exemption herein exceed
twenty (20) years.”

SEC. 3. Section Nine of the same Act is hereby repealed in
toto, any provision of law to the contrary notwithstanding and in lieu thereof,
the following special export incentives, may be availed of by a registered
enterprise.

“SEC. 9. Special Export Incentives for Registered
Enterprises. — Registered enterprises may be entitled to the following
special incentives for exports of their registered products and commodities:
“(a) Special Tax Credit. — A tax credit equivalent to the sales, compensating
and specific taxes and duties on the supplies, raw materials and
semi-manufactured products used in the manufacture, processing or production of
its export products and forming part thereof, whether exported directly by the
registered enterprise or sold to another export producer which uses such sold
product as a direct input in export products manufactured or processed by it and
subsequently exported, or to an export trader: Provided, That the tax
credit shall accrue to the registered enterprise only after the export producer
or export trader has in fact exported the products of the export producer or
those in the manufacture or processing of which such inputs were used.

“(b) Reduced Income Tax. — Registered enterprises shall be entitled
for the first five years from its registration, to deduct from its taxable
income an amount equivalent to the sum of the direct labor cost and local raw
materials utilized in the manufacture of its completely finished export
products: Provided, however, That such deduction shall in no case
exceed twenty-five per centum (25%) of its total export revenue.

“Before registered enterprises may avail themselves of the foregoing export
incentives benefits, they shall apply first with the Board, which shall approve
the application upon proof: (1) that the enterprise proposes to engage in good
faith in creating a market for its products abroad; (2) that the product to be
exported is one included in the government priorities plan as suitable for
export, or if not so included, that its export will not adversely affect the
needs of the domestic market for the finished product to be exported or for the
domestic raw materials used in its manufacture; (3) that the enterprise has or
will set up an adequate accounting system to segregate revenues, purchases and
expenses of its export market operations from those of its domestic market
operations; and (4) that the exported products and commodities meet the
standards of quality established by the Bureau of Standards or, in default
thereof, by the Board.

“The Board may suspend or cancel wholly or partially the above deduction
under this section whenever any action is threatened or taken by an
international association or foreign nation which would nullify the purposes of
said incentive and would impair or threaten to impair the export trade of the
Philippines or its relations with other nations.”

SEC. 4. Section Thirteen of the same Act is hereby amended,
as follows:

“SEC. 13. Board of Investments. — The Board of
Investments shall be composed of five full-time members to be appointed by the
President of the Philippines with the consent of the Commission on Appointments,
from a list of nominees submitted by the Chamber of Commerce of the Philippines,
the Chamber of Industries, Base Metals Producers Association, Gold Producers
Association, Chamber of Agriculture and Natural Resources of the Philippines,
the Bankers Association of the Philippines and other similar business
organizations as well as from duly organized and existing labor confederations,
federations and other organizations of national standing in the Philippines from
which the President may request nominees: Provided, That each
association shall submit a list of not less than three (3) but not more than
five (5) nominees and that no association shall have more than one member in the
Board at any particular time: And Provided, further, That the President
may appoint as members of the Board qualified persons who have not been so
nominated. The Board shall elect a Chairman and a Vice-Chairman from among
themselves. The tenure of office of each member shall be six. (6) years:
Provided, however, That the members of the Board first appointed
shall

hold office for two (2) years; three (3) years, four (4) years, five (5)
years and six (6) years as fixed in their respective appointments: Provided,
further, That upon the expiration of his term, a member shall serve as such
until his successor shall have been appointed and qualified: Provided,
furthermore, That no vacancy shall be filled except for the unexpired
portion of any term, and that no one may be designated to be a member of the
Board in an acting capacity, but all appointments shall be ad interim or
permanent: Provided, finally, That a member of the Board may serve as
director of government owned or controlled corporation.”

SEC. 5. Section Fourteen of the same Act is hereby amended
by deleting the last sentence thereof and shall read as follows:

“SEC. 14. Qualifications of Members of the Board.—
The members of the Board shall be citizens of the Philippines, at least thirty
(30) years old, of good moral character and of recognized competence in the
field of economics finance, banking, commerce, industry agriculture, engineering
management, law or labor, such competence to be certified by the association
making the nomination or by the association whole members belong to the same
profession, calling or occupation as the person appointed.” Act is hereby
amended to read as follows:

SEC. 16. Powers and Duties of the Board. — The
Board shall meet as often as may be necessary, but not than once each week on
such day as it may fix. Notice of special meeting shall be given all members of
the Board and proof of such notice shall be spread upon the minutes. The
presence of three (3) members shall constitute a quorum; and the affirmative
vote of (3) members in a meeting validly held shall be necessary to exercise its
powers and perform its duties, which shall be as follows:

1. Draw up annually an investment priorities plan in the manner prescribed in
   Section eighteen which shall be the basis for the implementation of this Act;
2. Promulgate such rules and regulations as may be necessary to implement the
   intent and provisions of this Act, which rules and regulations shall take effect
   thirty (30) days after their publication in two (2) newspapers of general,
   circulation in the Philippines;
3. Process and approve, imposing such terms and conditions as it may deem
   necessary to promote the objectives of this Act, including refund of incentives
   availed or to be availed by an enterprise in amounts to be determined by the
   Board, applications for registration under this Act, and issue the proper
   certificate of registration upon payment of the necessary fees, which shall not
   exceed two hundred pesos;
4. After due hearing, decide controversies concerning the implementation of
   this Act that may arise between registered enterprises or investors therein and
   government agencies within thirty (30) days after the controversy has been
   submitted for decision: Provided, That the investor or the registered
   enterprise may appeal the decision of the Board within fifteen (15) days from
   receipt thereof to the Court of First Instance of the City of Manila or of the
   city or province where the principal office of the registered enterprise is
   located, in the manner provided for by the Rules of Court in cases of
   this nature;
5. Recommend to the Commissioner of Immigration the entry into the Philippines
   for employment of foreign nationals as permitted in Sections seven and eight of
   this Act;
6. Periodically check and verify, either by inspection of the books or by
   requiring regular reports, the proportion of the participation of Philippine
   Nationals in a registered enterprise to ascertain compliance with its
   qualification to retain registration under this Act;
7. Periodically check and verify the compliance by registered enterprises with
   the provisions of this Act, with the rules and regulations promulgated under
   this Act and with the terms and conditions of registration;
8. After notice and hearing, cancel the registration or suspend the enjoyment
   of incentive benefits of any registered enterprise or require refund of
   incentives enjoyed by such enterprise including interest and monetary penalties,
   for (1) failure to maintain the qualifications required by this Act for
   registration, or (2) for willful or grossly negligent violation of any provision
   of this Act, of the rules and regulations issued under this Act, or the terms
   and conditions of registration, or of laws for the protection of labor or of the
   consuming public: Provided, That the registered enterprise affected by
   the order of cancellation or suspension may appeal within fifteen (15) days from
   the receipt of the order to the Court of First Instance of the City of Manila or
   of the city or province where the principal office of the registered enterprise
   is located;
9. Appoint, discipline and remove, and determine the compensation of its
   technical staff and other personnel: Provided, That except as to the
   technical staff and such other positions as the Board may declare to be highly
   technical or primarily confidential, all positions in the Board are subject to
   the provisions of the Civil Service Law and Rules, but are exempt from the
   regulations of the Wage and Position Classification Office;
10. Prepare or contract for the preparation of feasibility and other
    pre-investment studies for pioneer areas either upon its own initiative or upon
    the request of Philippine Nationals who commit themselves to invest therein and
    show the capability of doing so, and upon condition that in no case shall the
    expenditure of the Board exceed one hundred twenty-five thousand pesos
    (P125,000) per study: Provided, That if venture is implemented, then
    the amount advanced by the Board should be repaid within five (5) years from the
    date the commercial operation of said enterprise starts;
11. Require registered enterprises to list their shares of stock in any
    accredited stock exchange or directly offer a portion of their capital stock to
    the public and/or their employees;
12. Recommend to the National Economic Development Authority guidelines for the
    rationalization of certain industries whose continued operation will result in
    the dislocation of and/or overcrowding in said industries, thus retarding
    economic growth, and upon approval thereof, the Board shall have the power to
    implement the same and in appropriate cases, recommend to the President, after
    due hearing and notice, to restrict, either totally or partially, the
    importation of any equipment or raw materials for firms in the industry not
    conforming with the prescribed guidelines.
13. In appropriate cases and upon approval of the National Economic Development
    Authority, suspend the nationality requirement provided for in this Act
    or any other nationalization statute in case of international complementation
    arrangements for the manufacture of a particular product on a regional basis to
    take advantage of economies of scale;
14. Within four (4) months after the close of the fiscal year, submit annual
    reports to the President and Congress, with copies to each member thereof, which
    shall cover its activities in the administration of this Act, including
    recommendations
    on investment policies; and
15. Generally, exercise all the powers necessary or incidental to attain the
    purposes of this Act.”

SEC. 7. The first two paragraphs of Section Eighteen of the
same Act are hereby amended to read as follows:

“SEC. 18. Preferred and Pioneer Areas of
Investment. —The Board of Investments shall submit to the President not
later than the end of January of every year, through the National Economic
Development Authority, an Investment Priorities Plan, as defined in Section
three, paragraph (k) of this Act.

“In determining the preferred and pioneer areas of investment and their
corresponding measured capacities, the Board shall determine which areas of
investment best accomplish the policy declared in this Act, including those
which will economically produce goods for domestic use in substitution for goods
being imported in large quantities, and especially those which will process
further and thereby increase the value of agricultural, mining and timber
products already being produced for export or which will make products at costs
low enough to be sold competitively in export markets.”

SEC. 8. Paragraph (a) Section Nineteen of the same Act is
hereby amended to read as follows:

“SEC. 19. Qualification of Applicants. — To be
entitled to registration, an application
must satisfy the Board that:

(a) It possesses the qualifications prescribed for registered enterprises in
Section three, paragraph (b) of this Act; or if it does not possess the required
degree of ownership by Philippine Nationals, the following circumstances must be
satisfactorily established:

(1) That it is otherwise qualified under Section three, paragraph (b) of this
Act;
(2) That it proposes to engage in a pioneer project, as defined in
Section three, paragraph (h) of this Act which, considering the nature and
extent of capital requirements, processes, technical skills and relative
business risks involved, is in the opinion of the Board of such a nature that
the available measured capacity thereof cannot be readily and adequately filled
by Philippine Nationals;
(3) That it obligates itself to attain the status of
a Philippine National, as defined in Section three, paragraph (f) of this Act
within thirty (30) years from the date of registration by having its shares of
stock listed with a Philippine stock exchange within fifteen (15) years from the
date of registration and actually offering for sale the said shares to
Philippine Nationals immediately after the said period: Provided,
however, That in case of a registered enterprise exporting at least seventy
per cent (70%) of its total production, it shall attain the status of a
Philippine National within forty (40) years from the date of registration by
listing its shares of stock within twenty-five (25) years from the date of
registration and actually selling its shares after the said period:
Provided, further, That the Board may extend this period for another
ten (10) years, subject to such conditions as it may impose in the national
interest, and upon proof by the registered enterprise that it has exerted its
best efforts to sell the required number of shares to Philippine Nationals, as
required by this Section but Philippine Nationals have not bought the same and
for such other cause as the Board may deem sufficient to justify the extension
of the period;

“(4) That the pioneer area it will engage in is one that is not within the
activities reserved by the Constitution or other laws of the Philippines to
Filipino citizens or corporations owned or controlled by Filipino
citizens.”

SEC. 9. The last two paragraphs of Section Twenty of the
same Act are hereby amended to read as follows:

“SEC. 20. Application. —

*          *          *          *          *          *          *

A non-Philippine National may engage in non-pioneer areas of investment where
Philippine Nationals are already engaged only after three (3) years from the
date of declaration of the area as preferred if the measured capacity has not
been filled within the said period, except where such non-Philippine National
shall engage, without incentives, unless otherwise registered under Republic Act
Numbered Sixty-one hundred thirty-five in the manufacture of finished products
primarily for export. The Board shall fix the percentage of production that must
be exported by a non-Philippine National in order to be deemed to be engaged in
manufacture primarily for export, which percentage shall not be less than
seventy per cent (70%) of its total production.

Any order or decision of the Board under this Section may be appealed within
thirty (30) days from receipt of said order or decision to the National Economic
Development Authority. Upon failure on the part of the National Economic
Development Authority to act within a period of ninety (90) days, the decision
of the Board shall be deemed upheld. The Board or the enterprise applying for
registration under this Act may appeal the decision of the National Economic
Development Authority to the President within thirty (30) days from its
promulgation.”

SEC. 10. Paragraph (a) of Section Twenty-Five of the same
Act is hereby amended to read as follows:

“SEC. 25. Applicability and Interpretation. — In
interpreting and applying the provisions of this Act, the following rules shall
be observed:

“(a) Applicability to Existing Enterprises. — An enterprise which
satisfies the definition of a ‘Philippine National” engaged in a preferred area
of investment at the time of its declaration as such, shall be entitled to
registration as to its existing capacity, as well as to such an expansion or
enlargement thereof requiring new or additional machinery and equipment as shall
be within the unfilled measured capacity of the area; so also, an investor in
such an existing enterprise shall be entitled to benefits and incentives to the
extent of his present as well as new or additional investment therein:
Provided, That the application is filed while the area is still in the
Investment Priorities Plan: Provided, however, That the benefits of
this Act, so far as may be applicable to such existing enterprises and investors
in such existing enterprises, shall be given prospective effect only from the
date of registration.”

SEC. 11. The last paragraph of Section 4 of R.A. 5455 is
hereby amended and anew section to be designated as Section 9-A is hereby added:

“SEC. 4. Licenses to do Business.
—

The above requirement shall be in addition to those set forth in the
Corporation Law as amended, for licensing foreign corporations and a violation
of any of these requirements or of the terms and conditions which the Board may
impose shall be sufficient cause to cancel a licensed or permit issued pursuant
to this Act: Provided, however, That aliens or foreign firms,
associations, partnerships, corporations or other forms of business organization
or existing under the laws of the Philippines who may lawfully have been
licensed to do business in the Philippines prior to the effectivity of this Act
shall, with respect to the activities for which they were licensed and actually
engaged in prior to the effectivity of this Act, not to be subject to the
provisions of this section but shall be subject to the reporting requirements
prescribed by the Board: Provided, further, That where the issuance of
said license has been irregular or contrary to law, any person adversely
affected thereby may file an action with the Court of First Instance where said
alien or foreign business organization resides or has its principal office to
cancel the said license. In such cases, no injunction shall issue without notice
and hearing, and appeals and other proceedings for review shall be filed
directly with the Supreme Court.”

“SEC. 9-A. Periodic Reports. — The Board shall
periodically check and verify compliance with the provisions of this Act, either
by inspection of the books or by requiring reports from aliens or foreign firms,
domestic enterprises with foreign investments in excess of thirty per cent (30%)
and new entities licensed to do business under Section four of this Act. Nothing
herein shall be deemed to preclude the Board from requiring similar reports from
domestic firms with foreign investments of less than thirty per cent (30%).

“ A summary of said reports shall be annually submitted by the Board to
Congress not later than January fifteen. For this purpose, the Board may require
other government agencies licensing and/or regulating foreign enterprises of
domestic firms with foreign equity, to furnish the Board with reports on such
foreign investments.”

SEC. 12. Paragraphs (b), (c), (d), (f) and (g) of Section
Three of Republic Act Numbered Sixty-one hundred and thirty-five are hereby
amended to read as follows:

“SEC. 3. Definition of Terms. — For purposes of this
Act:

“(a)

“(b) ‘Registered Export Producers’ shall mean any person, corporation,
partnership or other entity organized and existing under Philippine laws, (1)
registered with the Board in accordance with this Act, (2) engaged or proposing
to engage in the manufacture or processing of export products as hereinbelow
defined, and (3) directly exporting its export products, or selling them (a) to
a registered export trader that subsequently exports said products, or (b) to
other export producers who utilize said products as direct inputs in
subsequently manufactured or processed by them and thereafter exported, or (c)
to foreign tourists and foreign travelers in areas covered by Tourism Priorities
Plan and subject to the guidelines prepared by the Philippine Tourist Commission
and the Board.

“(c) ‘ Registered Export Trader’ shall mean any person, corporation,
partnership or other entity organized and existing under Philippine laws.

(1) Registered with the Board in accordance with this Act and (2) which
derived at least twenty per cent (20%) of its gross income for the year in which
the incentives are claimed, from the sale abroad of export products bought by it
from one or more export producers or from domestic sale to foreign tourists and
foreign travelers in areas covered by the Tourism Priorities Plan and subject to
the guidelines prepared by the Philippine Tourist Commission and the Board.”

“(d) ‘Registered Service Exporter’ shall mean a person, corporation,
partnership or other entity organized and existing under Philippine laws, (1)
registered with the Board in accordance with this Act and (2) engaged or
proposing to engage (a) rendering technical, professional or other services
which are paid for in foreign currency including, but not limited to, the fields
of law, medicine, accounting, management, valuation and appraisals, engineering,
construction, geodetics, surveying, teaching, pharmacy, nursing, cultural
presentations or promotions, works of arts, and entertainments; (b) in exporting
television and motion pictures and musical recordings made or produced in the
Philippines, either directly or through a registered export trader; or (c) in
rendering services for foreign tourists and foreign travelers covered by the
Tourism Priorities Plan and subject to the guidelines prepared by the Philippine
Tourist Commission and the Board.”

“(f) ‘ Export Sales ‘ shall mean the Philippine port F.O.B. value, determined
from invoices, bills of lading, inward letters of credit, landing certificates,
and other commercial documents, of export products exported directly by a
registered export producer or registered export trader, or the net selling price
of export products sold by a registered export producer to another export
producer, or registered export trader who subsequently exports the same, or the
net selling price of export products in acceptable foreign currencies sold by a
registered export producer or registered export trader to foreign tourists and
foreign travelers under certain conditions to be prescribed by the Board, but
sales of export products to another registered export producer or to a
registered export trader shall only be deemed export sales when actually
exported by the latter, as evidenced by landing certificates or similar
commercial documents. Exportation of goods or consignment shall not be deemed
export sales until the export products consigned are in fact sold by the
consignee.

“(g) ‘ Export Fees ‘ shall mean the total foreign exchange which is charged
or received by a registered service exporter for furnishing or performing
services, or permitting the showing or playing, outside of the Philippines, of
television or motion pictures or musical recordings. It shall also include fees
in acceptable foreign currencies received by service exporters catering to
foreign tourists and foreign travelers under certain conditions to be prescribed
by the Board.”

SEC. 13. Section Four of Republic Act Numbered Sixty-one
hundred and thirty-five is hereby amended to read as follows:

“SEC. 4. Export Priorities Plan. — Not later than
the end of January of every year the Board shall submit to the President,
through the National Economic Development Authority, an export priorities plan
setting forth the export products that should be encouraged with priority,
considering:

(a) the comparative advantage they enjoy or could be made to enjoy;
(b)
their potential for earning foreign exchange; and
(c) their profitability to
the national economy.

“Within the same period, the Philippine Tourist Commission shall submit to
the President through the National Economic Development Authority, a Tourism
Priorities Plan setting the required tourism facilities in various regions which
can qualify for incentives. The Export Priorities Plan and the Tourism
Priorities Plan shall be acted upon and take effect, and may be amended,
following the procedure for, and with like effect as, the investments priorities
plan.”

SEC. 14. Section Six, paragraph (b) of Republic Act Numbered
Sixty-one hundred thirty-five is hereby amended to read as follows:

“SEC. 6. Conditions for Availment of Incentives.

“(a) * * *

“(b) To be entitled to registration, an applicant must satisfy the Board that
(1) he is a citizen of the Philippines, in case the applicant is a natural
person, or that at least sixty per cent (60%) of its capital is owned and
controlled by citizens of the Philippines, in case the applicant is a
corporation, partnership or other entity; (2) that it is engaged or proposes to
engage in manufacturing, processing or exporting export products listed in the
export priorities plan or tourism priorities plan, or if not so listed in the
export priorities plan, that at least fifty per cent (50%) of its sales are
export sales; or in case of a service exporter, that it is engaged or proposes
to engage in rendering services payable in foreign currency, providing services
to foreign currency, providing services to foreign tourists and foreign
travelers in areas with the Tourism Priorities Plan and subject to the
guidelines prepared by the Philippine Tourism Commission and the Board, or in
exporting television or motion pictures or musical recordings produced or made
in the Philippines; (3) that it is not engaged and will not engage in any of the
activities reserved by the Constitution or the laws of the Philippines to
Filipino citizens or corporations owned and controlled by Filipino citizens,
unless and until the applicant can fulfill the requirements of the Constitution
or said laws; and (4) that if the applicant is engaged or proposes to engage in
activities other than the manufacture, processing and exportation of export
products, or in rendering services other than export services, it has installed
or undertakes to install an adequate accounting system to segregate the
investments, revenues, sales, receipts, purchases, payrolls, costs, expenses,
and profits and losses of its export operations from those of its domestic
operations: Provided, That in the case of: (i) a pioneer enterprise
herein registered, as defined under Section 3 (h) of Republic Act Numbered
Fifty-one hundred eighty-six, (ii) a service exporter primarily engaged in the
business of catering to foreign tourists and foreign travelers, and (iii) an
export producer seventy per cent (70%) of whose total production is to be
exported, the nationality requirement shall be in accordance with Section
nineteen of the said Act instead of Section six, paragraph (b) of this Act:
Provided, further, That in the latter case, the Board may increase the
seventy per cent (70%) export requirement in the event of an adverse effect on
the domestic producers of the export product: Provided, furthermore,
That upon receipt of the application for registration, the Board shall, within
thirty (30) days, notify the applicant of all pertinent requirements not
complied with: And Provided, finally, That the Board of Investments
shall act on said application within ninety (90) days after submission thereof.”

SEC. 15. Section Seven, excluding paragraphs (c) and (d),
Republic Act Numbered
Sixty-One hundred Thirty-Five is hereby amended to read
as follows:

“SEC. 7. Incentives to Registered Export Producers.
— Registered export producers, unless they already enjoy the same privileges
under other laws, shall be entitled to the incentives set forth in paragraphs
(g), (h), (i), (j) and (k) of Section seven of Republic Act Numbered Fifty-one
hundred eighty-six, known as the Investment Incentives Act; and registered
export producers that are pioneer enterprises shall be entitled also to the
incentives set Forth in paragraphs (a), (b) and (c) of Section eight of the said
Act. In addition to the said incentives, and in lieu of other incentives
provided in Sections seven and nine of that Act, registered export
producers shall be entitled to benefits and incentives as enumerated
hereunder:

1. Tax Credit. — Every registered export producer shall enjoy a tax
   credit equivalent to the sales, compensating and specific taxes and duties on
   the supplies, raw materials and semi-manufactured products used in the
   manufacture, processing or production of its export products and forming part
   thereof, whether exported directly by the registered export producer or sold to
   another export producer, which uses such sold product as a direct input in
   export products manufactured or processed by it and subsequently exported or to
   a registered export trader: Provided, That the tax credit shall accrue
   to the registered export producer only after the other export producer or
   registered export trader has in fact exported the products of the export
   producer or those in the manufacture or processing of which such inputs were
   used. The tax credit shall be issued by the Secretary of Finance, upon
   presentation of the export documents, and shall be in lieu of refunds. It may be
   used to pay taxes, duties, charges, and fees due to the National Government in
   connection with its operations. A tax credit shall be non-transferrable, except
   when such transfer is by hereditary succession or occurs by operation of law; it
   may be used by the person or entity to whom it is issued only for as long as it
   enjoys the benefits and incentives provided for in this Act; and may
   not be used so as to result in a refund.
2. Reduced income tax. — Every registered export producer, except
   those registered under Section six, paragraph (b), subsection (iii) of this Act,
   shall be entitled for the first five (5) years from the registration, to deduct
   from its taxable income an amount equivalent to the sum of the direct labor cost
   and local raw materials utilized in the manufacture of its export products:
   Provided, however, That such deduction shall in no case exceed
   twenty-five per centum (25%) of its total export revenue.
3. Exemption from Export Tax. — The provisions of law to the contrary
   notwithstanding, exports by a registered export producer, of its registered
   export product shall be exempted from the export tax, impost or fee, including
   the stabilization tax under Republic Act Numbered Sixty-one hundred
   twenty-five.”

SEC. 16. Section Eight of Republic Act Numbered Sixty-One
hundred thirty-five is hereby amended to read as follows:

“SEC. 8. Incentives to Registered Export Traders.
—A registered export trader shall be entitled to (a) exemption from export tax
provided in paragraph (e) of Section seven of this Act, for export
products bought by it from registered export producer/s qualified to avail of
such exemption from export tax; (b) to a tax credit equivalent to the amount of
specific and sales taxes on the registered export products bought by it from
export producers and subsequently exported; and (c) for the first five (5) years
from registration, to deduct from its taxable income, in addition to the normal
deductions allowed by the National Internal Revenue Code, an amount equivalent
to ten per cent (10%) of its total export sales. For a period of five (5) years
after registration, an additional deduction of one per cent (1%) shall be
allowed a registered export trader who extends financial assistance to a
registered export producer or producers in an amount equivalent to not less than
twenty per cent (20%) of the registered export trader’s total export sales
during the year in which the incentive is claimed.”

SEC. 17. Section Ten of Republic Act Numbered Sixty-one
hundred and thirty-five is hereby amended to read as follows:

“SEC. 10. Incentives to Registered Service
Exporters. — Every registered service exporter shall, for the first five
(5) years from registration, be entitled to deduct from its taxable income an
amount equivalent to fifty per cent (50%) of its total export fees during the
year in which the incentive is claimed: Provided, That to be entitled
to this deduction, the registered service exporter must have remitted or
repatriated to the Philippines in acceptable foreign currencies its total export
fees earned during the year in which the incentive is claimed, less reasonable
costs and expenses incurred or payable in foreign currencies, under such rules
and regulations as the Monetary Board may prescribe. In addition, for a period
of five (5 ) years from registration, a registered service exporter who produces
television or motion pictures, or musical recordings, in the Philippines, and
exports the picture or recording directly or through a registered export trader
shall also be entitled (a) to a tax credit equivalent to the amount of specific,
compensating and sales taxes and duties paid by it on the raw materials and
supplies used in producing the picture or recording that is exported; and (b) to
exemption from payment of customs duties and compensating taxes on importations
of equipment, machinery or spare parts shipped with such machinery and equipment
that (1) are not manufactured domestically in reasonable quantity and quality or
sold at reasonable prices; (2) are directly and actually needed and will be used
by the registered service exporter in producing or making the pictures or
recordings that it exports; (3) are covered by shipping documents in the name of
the registered service exporter to whom the shipment will be delivered direct by
customs authorities; (4) have the approval of the Board of Investments obtained
by the registered service exporter before placing the order for the importation;
and (5) are the subject of international bidding, under the supervision of the
Board, unless the Board dispenses with this condition for any of the reasons set
forth in Section seven, paragraph (c) of this Act. If the registered service
exporter does not bring into the Philippines export fees equivalent to at least
the cost of the imported machinery, equipment, and spare parts within five
(5)years after delivery of the same to it, or if it sells, transfers, or
disposes of the same or any part thereof, without prior approval of the Board,
within said five (5) years, it shall pay twice the amount of the exemption given
it, together with the penalty and interest thereon, computed from the date of
delivery, fixed by the Tariff and Customs Code and the National Internal Revenue
Code for delinquency in the payment of duties and taxes. However, the Board
shall allow and approve the sale, transfer or disposition within the said period
of five (5) years, if the registered service exporter has brought into the
Philippines export fees during the period it has held the equipment which amount
to twenty per cent (20%) of the cost of the equipment for each year in which it
has held the equipment; and if made (1) to another registered service exporter
of pictures and recordings; (2) for reasons of proven technical obsolescence; or
(3) for purposes of replacement to improve or expand the operations of the
registered service exporter. A similar incentive of tax and duty-free
importation of equipment, machinery and spare parts shipped with such machinery
and equipment under the same conditions as above enumerated shall be granted to
service exporters engaged primarily in catering to foreign tourists and foreign
travelers in preferred areas covered by the Tourism Priorities Plan and within
the guidelines prescribed by the Philippine Tourist Commission and the Board.

SEC. 18. All acts, executive orders, administrative orders,
rules and regulations or
parts thereof inconsistent with the provisions of
this Decree are hereby repealed or modified accordingly.

SEC. 19. Effectivity. — This Decree shall take
effect from its approval.

Done in the City of Manila, this 6th day of January, in the year of Our Lord,
nineteen hundred and seventy-three.

			(Sgd.) FERDINAND E. MARCOS President Republic of the Philippines
	By the President:
	(Sgd.) ALEJANDRO MELCHOR
		Executive Secretary