House Bill No. 5877 "An Act Amending Section 39(A), Title II of Executive Order No. 226, Otherwise Known as the Omnibus Investment Code of 1987

September 6, 1999 BIR RULING [DA-518-99] MEMORANDUM FOR : Hon. Benjamin S. Lim Representative 4th District, Pangasinan FROM : Beethoven L. Rualo Commissioner of Internal Revenue SUBJECT : HOUSE BILL NO. 5877 "An Act Amending Section 39(A), Title II of Executive Order No. 226, Otherwise Known as the Omnibus Investment Code of 1987." SECTION 2. Amendment . Section 39 of Title III of Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987 is hereby amended to read as follows: "Sec. 39. Incentives to Registered Enterprises . All registered enterprises shall be granted the following incentives to the extent engaged in a preferred area of investment; cdll (a) Income Tax Holiday. (1) For [six years] TEN (10) YEARS from commercial operation for pioneer firms and [four (4) years] EIGHT (8) YEARS for non-pioneer firms, new registered firms shall be fully exempt from income taxes levied by the National Government. Subject to such guidelines as may be prescribed by the Board, the income tax exemption will be extended for another year in each of the following cases; (i) the project meets the prescribed ratio of capital equipment to number of workers set by the Board; (ii) utilization of indigenous raw materials at rates set by the Board; (iii) the net foreign exchange savings or earnings amount to at least US$700,000.00 annually during the first [three (3) years] FIVE (5) YEARS of operation. The preceding paragraph notwithstanding, no registered [pioneer] firm may avail of this incentive for a period exceeding [eight (8) years] TWELVE (12) YEARS, IN CASE OF A PIONEER FIRM, AND TEN (10) YEARS, IN CASE OF A NON-PIONEER FIRM. (2) For a period of [three (3) years] FIVE (5) YEARS from commercial operation, registered expanding firms shall be entitled to an exemption from income taxes levied by the National Government proportionate to their expansion under such terms and conditions as the Board may determine; Provided, however, That during the period within which this incentive is availed of by the expanding firm it shall not be entitled to additional deduction for incremental labor expense. xxx xxx xxx" COMMENTS: This proposed bill seeks to extend the income tax holiday of BOI-registered enterprises from six (6) to ten (10) years for pioneer firms and from four (4) to eight (8) years for non-pioneer firms as an incentive to potential investors in establishing their businesses in the Philippines. The proposal to grant such extension is deemed unconscionable, since the income tax holiday given to pioneer and non-pioneer firms respectively for six (6) and four (4) years are deemed sufficient to obtain a return of their investments. Moreover, such extension is unfair to other taxpayers who would be required to shoulder the burden of taxation even after the BOI-registered enterprises had already enjoyed the said incentives and had recovered from their investment. Finally, it would create a negative collection on the part of the BIR as there is no other source from which the BIR can compensate for the loss of such revenue as a result of said extension. In view thereof, this Office does not recommend the passage of this bill. (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue