CHAPTER 15: TAX INCENTIVES
TAX INCENTIVES
• Tax incentives are government measures designed to encourage
certain behaviors or activities by providing tax benefits or
advantages to individuals or business. These incentives are
typically used to promote economic growth, investment, job
creation, innovation or specific policy objective.
Tax Incentives can takes various forms
including:
• Tax deduction
- These reduce the taxable income of individual or business, thereby lowering
their overall tax liability
• Tax Credits
-These directly reduce the amount of tax owned by individuals or business.
Tax credit can be either non refundable, meaningf they can only reduce tax
liability to zero, or refundable, where any excess credit can be refunded to tax
payer.
• Tax Exemption
- These exclude certain types of income or assets from taxation
Tax Incentives can takes various forms
including:
• Tax holiday
- These are temporary periods during which specific taxes are
waived or reduced to stimulate particular economic activities.
Governments may implement tax holidays for some industries.
• Investment tax incentives
- Governments may offer tax incentives to encourage investment
in a certain sectors.
TAXATION OF PEZA REGISTERED
ENTERPRISESS:
1. INCOME TAX HOLIDAY – exempt from taxes from start of commercial operations
6 years New projects w/ PIONEER status
4 years New status Projects w/ NONPIONEER
3 years Expansion projects
A. PIONEER ENTERPRISES:
• engaged in manufacture, processing or production of goods, products, commodities or raw materials
not been produced in PH on commercial scale
• uses transformation of raw materials into another or finished goods which is new and untried in PH
• engaged in agricultural, forestry, mining activities which is feasible and highly essential, for self
sufficiency and social benefits for project
• produces non-conventional fuels
B. NON-PIONEER ENTERPRISES – all registered producer enterprises other than pioneer
• Required to secure Certificate of Income Tax Holiday and Certificate of Incentives attached to
their Annual Income Tax Return w/ BIR
• Scope of ITR – exempt from RCIT, MCIT, and IAET from registered activities (Not Exempt: from
unregistered activities)
2. 5% SPECIAL TAX ON GROSS INCOME – in lieu of all taxes, national and local, except real
property tax
Gross Sales/Revenues Pxx
Less: Sales Discounts Pxx
Sales Returns and Allowances xx (xx)
Net Sales Pxx
Less: Cost of Sales/Direct Costs
(xx)
Gross sales
Pxx
• Allowable Deductions from Gross Income Earned for Purposes of Computing the 5% Tax
1) Ecozone Export Enterprises, Free Trade Enterprises, and Domestic Market Enterprises
(Production)
2) Ecozone Developer/Operator, Facilities, Utilities, Tourism Enterprises (Rendition of Registered
Services)
• Sharing of 5% Income Tax
1)3% - national government
2) 2% - treasurer’s office where enterprise is located (if more than 1 city: determined w/
regulations)
• Withholding Taxes – exempt for registered operations (but NOT exempted from being a
withholding agent)
• Exemption from LGU Permits and Local Taxes, Licenses and Fees – exempted from having to
secure all LGU permits and ITH incentives exempt from real property taxes during first 3 years of
use of machinery
Tax Treatment of Sales from Registered Operations Made by PEZA Registered Enterprises into
or outside of separate customs territory:
1) Made by a VAT registered supplier from Customs Territory to a PEZA Registered Enterprise
2) Made by a VAT exempt supplier from Customs Territory to a PEZA Registered Enterprise
3) Made by a PEZA Registered Enterprise
FISCAL INCENTIVES TO PEZA-REGISTERED ECONOMIC ZONE ENTERPRISES:
2) Economic Zone Export Manufacturing Enterprise
2) Information Technology Enterprise
3) Tourism Economic Zone Locator Enterprise
4) Medical Tourism Enterprise
5) Agro-Industrial Economic Zone Enterprise
6) Economic Zone Logistics Services Enterprise
7) Economic Zone Developer/Operator:
a. Manufacturing Economic Zone Developer/Operator
b. IT Park Developer/Operator
c. Tourism Economic Zone Developer/Operator
d. Medical Tourism Economic Zone Developer/Operator
e. Agro-Industrial Economic Zone Developer/Operator
f. Retirement Economic Zone Developer/Operator
8) Facilities Enterprises
b. Economic Zone Facilities Enterprise
b. IT Park Facilities Enterprise
c. Retirement Economic Zone Facilities Enterprise
9) Economic Zone Utilities Enterprise
NON-FISCAL INCENTIVES:
1) Simplified Import-Export Procedures
2) Non-resident foreign nations employed by PEZA-Registered Economic Zone Enterprises in supervisory,
technical, or advisory positions
3) Special Non-Immigrant Visa with Multiple Entry Privileges for non-resident foreign nationals (extends
Visa Facilitation Assistance)
BUREAU OF INVESTIMENT (BOI) REGISTERED
ENTERPRISES FISCAL INCENTIVES
A. Tax Exemption, Tax Credit, Additional Deduction from Gross Income
1) Income Tax Holiday – BOI-RE subject to regular taxes after ITH period
• ITH extension may be granted if complies w/ ff. criteria (1 criterion = 1 ITH extension year but shall
not exceed 8 years)
• New Registered Firms may avail BONUS YEAR:
a. at least 50% of total cost of raw materials
b. not exceed $10,000 to 1 worker
c. at least $500,000 annually during first 3 years
2) Exemption from taxes and duties on imported spare parts
3) Exemption from wharf age dues and export tax, duty, impost and fees – given a 10-year period
from registration to avail exemption
4) Tax exemption on breeding stocks and genetic materials – within 10 years from registration
5) Tax credits – on tax and duty of domestic breeding stocks and genetic materials, and on raw
materials and supplies
6) Additional deduction from taxable gross income– additional deductions for labor expense and
additional deduction additional deduction for necessary major infrastructure work
7) Import capital equipment, spare parts and accessories at 1% duty rate
B. Zero-rated Value Added Tax (0% VAT)
1) For purchases of raw materials and supplies used in the manufacture and which form part of the
registered export product
2) For purchases of goods, services, or properties of firms exporting 100% of their product
NON-FISCAL INCENTIVES
2) Employment of foreign nationals for 5 years from registration shall not be subject to limitations
2) Simplification of customs procedures for the importation of equipment
3) Importation of consigned equipment for 10 years
4) Privilege to operate a bonded manufacturing/trading warehouse subject too customs rules and
regulations
INVESTMENT PRIORITIES PLAN – issued by BOI not later than the end of March of every
year, and submitted to the President (deadline of submission may be extended by President)
• Shown to be economically, technically and financially sound after thorough investigation and
analysis by the Board
• Board shall take into account:
1. Economic soundness by economic internal rate of return
2. 2. Extent of contribution
3. Other indicators of comparative advantage 4. Measured capacity
5. Market and technical aspects
Tax Incentives
Tax incentives were granted to registered business enterprises by different agencies like the
Philippine economic zone authority(PEZA) and board of investments(BOI) under different sets of special
laws such as the special economic zone act or PEZA law.
SCOPE AND COVERAGE
The implementing rules and regulations(IRR) of the title XIII of the tax code as amended,provides that the
IRR shall cover or apply to:
[Link] existing ivestment promotion agencies (IPAs) as defined in the act or related laws with respect to
administration and grant tax incentives.
[Link] newly registered projects or activities including qualified expansion projects or activities of export
eterprises and domestic market enterprises under the strategic investment priority plan (SIPP).
[Link] enterprises ,projects, or activities currently registered with IPAs and enjoying incentives prior to
the effectively of the act;
[Link] government agencies administering tax incentives with respect to the administration and grant tax
incentives and other registered enterprises.
[Link] –owned and/or controlled(GOCCs),government instrumentalities(GIs),government
commissaries and state universities and colleges(SUCs)
TAX INCENTIVES
• It is important that tax incentives can vary significantly across
countries and jurisdiction. Governments use them as a tools to
achieve specific policy goals. Attract investment and drive
economic development. The effectiveness and impact of tax
incentives defend on a various factor, including the design of the
incentives, the economic and social context and the compliance
and enforcement mechanism in place.
Thank You!
