Effect of RA 8424 on Laws Granting Preferential Tax on Enterprises Operating Within Economic Zones

September 17, 1999 BIR RULING NO. 149-99 149-99 Philippine National Bank PNB Financial Center Roxas Boulevard Metro Manila Attention: Ms . Ligaya R . Gagolinan Vice President Gentlemen : This refers to your letter dated November 24, 1998 requesting confirmation of your opinion on the following issues: "1. Whether the provisions of R.A. No. 7227, otherwise known as the Bases and Conversion Development Act of 1992, Revenue Regulations No. 1-95 and Executive Order No. 80, which, among others, grants a preferential tax in the aggregate rate of 5% based on the gross income earned in lieu of local and national taxes being imposed upon these enterprises have not been repealed by the R.A. 8424, otherwise known as the Tax Code of 1997; and "2. If reply to item No. 1 is in the affirmative, whether interest income earned by registered enterprises from their peso and Foreign Currency Deposit Unit (FCDU) deposits are subject to 5% and not to the 20% or 7.5% final withholding tax, respectively." llcd In reply, please be informed that the following issues are answered as follows: 1. Section 291 of the Tax Code of 1997 provides that all laws, decrees, executive orders, rules and regulations or parts thereof which are contrary to or inconsistent with the said Code are hereby repealed, amended or modified accordingly. While E.O. 80 and R.A. No. 7227, as implemented by Revenue Regulations No. 1-95, and as further implemented by Revenue Regulations No. 12-97, were approved and made effective prior to January 1, 1998, the date of effectivity of R.A. No. 8424, otherwise known as the Tax Code of 1997, the same are not covered by the above-cited repealing provision of the said Code. Since it is settled that a special and local statute, providing for a particular case or class of cases, is not repealed by a subsequent statute, general in its terms, provisions and application, unless the intent to repeal or alter is manifest, although the terms of the general act are broad enough to include the cases embraced in the special law. It is a canon of statutory construction that a later statute, general in its terms and not expressly repealing a prior special statute, will ordinarily not affect the special provisions of such earlier statute. (Steamboat Company vs. Collector, 18 Wall (US)., 478; Cass County vs. Gillet, 100 US 585; Minnesota vs. Hitchcock, 185 US 373, 396) Such being the case, the special income tax regime or tax incentives granted to enterprises registered within the secured area of Subic and Clark Special Economic Zones have not been repealed by the provisions of R.A. 8424. 2. Sec. 6(f) of Revenue Regulations No. 1-95 provides that interest from any Philippine currency bank deposits and yield or any other monetary benefit from deposit substitutes, and from trust fund and similar arrangements received by a registered enterprise engaged in business within the Secured Area shall be subject to the preferential tax rate. All other interests, yield or monetary benefit from deposit substitutes, trust funds and similar arrangements and royalties derived from sources within the Philippines by a person other than a registered enterprise operating within the Secured Area in the zone shall be subject to the appropriate tax law rates of the Customs Territory. It is clear from the above-cited section that enterprises registered within the secured area of Subic and Clark Special Economic Zones are liable to the preferential tax treatment of 5% of the gross income earned which shall be in lieu of local and national taxes pursuant to Section 12(c) of R.A. 7227, they are therefore exempt from the final tax of 20% and 7.5% respectively imposed on the amount of interest from currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements and royalties from sources within the Philippines and the interest income they will derive from a depository bank under the expanded foreign currency deposit system as prescribed under Section 27(D)(1) of the Tax Code of 1997. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue