Publishing Republic Act No. 5326, Amending Sections 11 & 16 of Republic Act No. 3470, Otherwise Known as the NACIDA LAW

May 5, 1969 REVENUE MEMORANDUM CIRCULAR NO. 09-69 SUBJECT : Publishing Republic Act No. 5326, Amending Sections 11 & 16 of Republic Act No. 3470, Otherwise Known as the NACIDA LAW TO : All Internal Revenue Officers and Others Concerned For the information and guidance of all concerned, there is quoted hereunder Republic Act No. 5326, viz: cdta "Section 1.Section eleven of Republic Act Numbered Three thousand four hundred seventy is hereby amended to read as follows: "SEC. 11. Definition . The term 'cottage-industry' as used in this Act shall mean an economic activity in a small scale carried on mainly in the homes or in other places for profit and mainly done with the help of the members of the family with capitalization not exceeding fifteen thousand pesos. The term shall also include economic activities carried on by students of public and private schools, within school premises, as a cooperative effort, under supervision of a teacher or other person approved by and acting under the supervision and control of school authorities, either as part of or in addition to ordinary vocational training, provided all profits shall accrue to the students working therein. It shall include the following: (1) fiber crafts, such as making of abacca ropes and twines, buntal fiber extracting and buri leaf braiding; (2) woodcraft such as making of wooden shoes, wooden fans, walking sticks (canes) and wood carvings; (3) hat weaving such as calasiao, buri, rafia, karagonoy, buntal and bamboo hats, salakots and helmets; (4) mat weaving such as doormats, sleeping mats made of buri, pandan, balilan, and sabutan and other similar materials; (5) metal crafts such as making of jewelries, knives, bolocs, scissors, razors, silverwares, and brass-works; (6) ceramics such as making of potteries, hollow blocks, tiles, firebricks, clay stoves and other ceramic products; (7) shell craft such as making of sea shell butters and coconut shell products; (8) bamboo and rattan crafts such as making of hammocks, basketry, making of sawali and other bamboo and rattan furniture and articles; (9) small agricultural hand tools such as plow points; (10) toy crafts such as making of dolls and toys; (11) embroidery, dressmaking and tailoring industries; (12) needle craft (including knitting and crocheting); (13) loom weaving such as making of fish nets, making of mosquito nets, weaving of Ilocano cloth, Igorot weaving, pia 'barong Pilipino', jusi and sinamay; (14) machine parts manufacture such as wheels and stone mortars; (15) poultry including duck raising and 'balut' making; (16) piggery; (17) home cigar making; (18) food preservation and canning, including the making of dried and/or smoked fish or meat, vinegar wine, lambanog, 'bagoong', pili or peanuts confectionary or coconut candy (bucayo); (19) other related crafts such as making of brooms, pandan, nito and buri bags, 'karagonoy' bags, bead making, guitar and other musical instruments; and (20) such other industries done in the home with the aid of electrical gadgets and/or by hand manipulation. All cottage industries shall be owned and operated by Filipino citizens, or by a corporation, partnership or cooperative, at least seventy-five per cent of the capital or investment of which is owned by Filipino citizens. All members of the Board of Directors shall be Filipino citizens. cdti "The word capitalization as used in this section shall mean the total current assets and fixed assets, excluding the value of the land and building if the same are the residence of the owner, but including machinery and equipment, land and building leased, rented and/or used at least six months of each year. For purposes of this Act, any and all branches, agencies, outlets or divisions of a licensed cottage industry shall be collated to determine the capitalization thereof." "The term 'cottage industry products' shall mean products produced by cottage industries and shall be labeled, if feasible as Cottage Industry Products Made in the Philippines, together with the identity of the producer. "SEC. 2.Section sixteen of the same Act is also amended to read as follows: "SEC. 16.The production, manufacture and sale of cottage industry products shall be exempt from all taxes, except specific and income taxes, for a period of five years from the date of registration of the person or firm engaged in the production or manufacture of cottage industry products with the Board: Provided, That seventy-five per cent of the total cost of raw materials in the production or manufacture of cottage industry products consists of raw materials of Philippine origin: Provided, further, That the latter requirements as to raw materials shall not apply to embroidery, piggery, poultry, livestock and metal craft industries: Provided, furthermore, That no exemptions from the percentage taxes on sales shall be enjoined for all sales in excess of two hundred thousand pesos each year: Provided, finally, That the provisions of the law on cooperatives shall not be affected by this Act. "Any individual or corporation, partnership or association who or which subsequently sells, leases, pledges or otherwise transfers any machinery and equipment imported and exempted from the tax as provided for in this Act, to another likewise engaged in the cottage industry, shall pay the corresponding duties and taxes thereon: Provided, however, That if the transfer is made in favor of another not engaged in the cottage industry, the duties and taxes shall be double the rates provided for under existing laws, all such transactions shall be made with the knowledge of the NACIDA and the Commissioner of Customs. cdt "Any person or firm duly registered and engaged in the promotion, manufacture and sale of cottage industry products prior to the approval of this Act, whose capitalization is more than fifteen thousand pesos shall continue to enjoy the tax exemptions provided herein only for a period not exceeding three months from the date of the approval of this Act or until the expiration of five years from the date such person or firm was registered to the Board whichever period comes first." "SEC. 3. Submission of Report . The Secretary of Commerce and Industry shall submit an annual report on the amount of taxes waived for each fiscal year for each of the different registered cottage industries of the NACIDA to the Presiding Offices of both Houses of Congress thirty days before the opening of its regular session. "SEC. 4.This Act shall take effect upon its approved. "Approved, June 15, 1968." Features of the Amendment The term "cottage industry" has been broadened so as to include the economic activities carried on by students within the school premises as a cooperative effort under the supervision of a teacher or other person, approved by and acting under the supervision or control of school authorities, either as part of or in addition to ordinary vocational training, provided all profits shall accrue to the students working therein. There were some additions in the enumeration of cottage industries, but "small mining operations" formerly included in Republic Act No. 3470 was deleted. The capitalization of those engaged in "cottage industries" is now limited to P15,000.00 in order to qualify for tax exemptions. The term "capitalization" as defined in the amendatory law includes: (1)The total current assets and fixed assets, excluding the value of the land and building used as residence of the owner or operator of the cottage industry. (2)Machinery and equipment. (3)Land and building, leased, rented and/or used at least six months of each year. In determining the capitalization of a licensed cottage industry, any and all its branches, agencies, outlets or divisions, shall be taken into account. cdll Cottage industries are exempt from the following taxes: 1.The fixed and privilege tax on business; 2.The percentage tax on sales of cottage products not exceeding P200,000.00 each year; 3.The taxes and duties on machinery and equipment imported directly by operators of cottage industries to be used exclusively in the production or manufacture of cottage industry products, to wit: a.Customs duties; b.Compensating tax; and c.Special import tax provided seventy-five percent of the total cost of raw materials utilized in the production or manufacture of cottage industry products consists of raw materials of Philippine origin. This requirement, however, shall not apply to embroidery, piggery, poultry, livestock and metal craft industries. Under the amendment, sales made by a cottage industry in excess of P200,000.00 each year are subject to the percentage taxes on sales. However, the P200,000.00 maximum sales each year shall not include export sales. Cottage industries are now subject to the payment of specific taxes. Machinery and equipment imported tax-free by those engaged in any cottage industry registered under the NACIDA shall be subject to the payment of taxes and duties if sold, leased, pledged or transferred to another engaged in the same venture. If the machinery were transferred to another not engaged in that venture, the duties and taxes to be paid shall be double the rates prescribed under existing laws. With respect of those cottage industries already registered under the NACIDA prior to the approval of Republic Act No. 5326 with a capitalization exceeding P15,000.00, a terminal period of three months from the date of approval of Republic Act No. 5326 or until the expiration of five years from the date of their registration with the NACIDA, whichever period comes first, within which they could continue enjoying the tax exemptions, has been provided for. Effectivity Republic Act No. 5326 took effect on June 15, 1968, the date of its approval by the President of the Philippines. aisadc Enforcement All internal revenue officers and other concerned are hereby enjoined to be guided accordingly and to give this circular as wide a publicity as possible. (SGD.) MISAEL P. VERA Commissioner of Internal Revenue