Publishing Presidential Decree No. 1353, dated April 21, 1978, Amending Section 30 of the Tax Code to Allow Accelerated Deduction Under Certain Conditions of Exploration and Development Expenditures

May 9, 1978 REVENUE MEMORANDUM CIRCULAR NO. 039-78 SUBJECT : Publishing Presidential Decree No. 1353, dated April 21, 1978, Amending Section 30 of the Tax Code to Allow Accelerated Deduction Under Certain Conditions of Exploration and Development Expenditures TO : All Internal Revenue Officers and Others Concerned For the information and guidance of all concerned, published hereunder is the full text of Presidential Decree No. 1353, viz.: "MALACAANG Manila "PRESIDENTIAL DECREE NO. 1353 "AMENDING SECTION 30 OF THE TAX CODE TO ALLOW ACCELERATED DEDUCTION UNDER CERTAIN CONDITIONS OF EXPLORATION AND DEVELOPMENT EXPENDITURES WHEREAS, it is vital to the national development program to encourage the mining industry to pursue continuous exploration and development of our natural resources; NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in me by the Constitution, do hereby decree: SECTION 1. Section 30(g) of the National Internal Revenue Code is hereby amended by adding a new subparagraph to read as follows: "(3) Election to deduct exploration and development expenditures . In computing taxable income, the taxpayer may, at his option, deduct exploration and development expenditures accumulated as cost or adjusted basis for cost depletion as of January 1, 1978, as well as exploration and development expenditures paid or incurred during the taxable year: Provided , That the total amount deductible for exploration and development expenditures shall not exceed twenty-five percent (25%) of the net income from mining operations computed without the benefit of any tax incentives under existing laws. This subparagraph shall not apply to expenditures for the acquisition or improvement of property of a character which is subject to the allowance for depreciation under Section 30(f)(1) of this Code but the allowance for depreciation thereon shall be treated as expenditures. "The election by the taxpayer to deduct the exploration and development expenditures is irrevocable and shall be binding in succeeding taxable years. "In no case shall this paragraph apply with respect to amounts paid or incurred for the exploration and development of oil and gas. The term 'exploration expenditures' means expenditures paid or incurred for the purpose of ascertaining the existence, location, extent, or quality of any deposit of ore or other mineral, and paid or incurred before the beginning of the development stage of the mine or deposit. The term 'development expenditures' means expenditures paid or incurred during the development stage of the mine or other natural deposits. The development stage of a mine or other natural deposit shall begin at the time when deposits or ore or other minerals are shown to exist in sufficient commercial quantity and quality and shall end upon commencement of actual commercial extraction." SECTION 2. Effectivity . This Decree shall take effect on January 1, 1978. DONE in the City of Manila, this 21st day of April in the year of Our Lord, nineteen hundred and seventy-eight. "(SGD.) FERDINAND E. MARCOS President of the Philippines By the President: "(SGD.) JACOBO C. CLAVE Presidential Executive Assistant Features of the Amendment Under the present law, exploration and development expenditures are deductible only through depletion when the productive stage is reached or when such exploration is abandoned. This decree allows taxpayer, at his option, to deduct exploration expenditures accumulated as of January 1, 1978, as well as exploration and development expenditures paid or incurred during the taxable year, provided that the total amount deductible for exploration and development expenditures shall not exceed 25% of the net income from mining operations computed without the benefit of any tax incentive under existing laws. Once this option is elected by the taxpayer, the election is irrevocable and shall be binding in succeeding taxable years. The definition of exploration expenditures as well as development expenditures are now spelled out. All internal revenue officers and others concerned with the enforcement of internal revenue laws are hereby enjoined to be guided accordingly and to give the decree a wide publicity as possible. aisa dc EFREN I. PLANA Acting Commissioner of Internal Revenue TAN-P4519-F2828-A-8