Supplemental Rules and Regulations to Implement Sec. 16 (D) of Republic Act No. 7844

May 9, 1996

SUPPLEMENTAL RULES AND REGULATIONS TO IMPLEMENT SEC. 16(D),THE TAX CREDIT FOR INCREASE IN CURRENT YEAR'S EXPORT REVENUES, UNDER THE EXPORT DEVELOPMENT ACT OF 1994 (R.A. 7844)

Pursuant to the provisions of Republic Act 7844, otherwise known as the "Export Development Act of 1994", the following supplemental rules and regulations are hereby adopted.

RULE I

DEFINITION OF TERMS

For purposes of these Rules the terms used shall be construed to have the following meanings:

1. "Current rate" shall mean the prevailing exchange rate at the time when the application for the tax incentive is filed; cd

2. "Inputs" shall mean all consumables utilized and/or forming part in the manufacture, processing, production or packaging of export products that can be subjected to a standard formula of manufacture or the formula of manufacture duly certified by the Industrial Technology Development Institute (ITDI) of the Department of Science and Technology (DOST),and

3. "Local value-added" shall mean gross export revenues minus the value of imported inputs.

RULE II

TAX INCENTIVE FOR INCREASE IN CURRENT YEAR'S EXPORT REVENUES

SECTION 1. Coverage. — The rules on the entitlement to a tax credit for increase in current year's export revenues shall only be applicable to direct merchandise exporters.

SECTION 2. Eligibility Requirements.— The incentive for the increase in export revenues shall be granted to a direct merchandise exporter who is duly accredited by the Bureau of Export Trade Promotion (BETP) and has been in actual export operations for at least two (2) consecutive years at the time his application for the tax incentive is made. In addition, he should be an income taxpayer and a registered VAT taxpayer.

SECTION 3. Exclusion from the Coverage of the Tax Incentive.— The tax incentive on the export performance shall not extend to the following:

1. Exporters enjoying an income tax holiday under existing incentive laws;

2. Exporters who are exempt from VAT;

3. Exporters whose exports have local value-added of ten percent (10%) and below;

4. Exporters engaged in the re-exportation of imported goods;

5. Exports which have been channeled through third parties with the primary purpose of increasing incremental export revenues as in the case when a firm stops exporting directly and sells its output to a third party for exportation, and

6. Passive income and foreign-source income as defined under the National Internal Revenue Code.

SECTION 4. Determination of Incremental Export Revenues. — Incremental export revenues shall refer to the difference between export revenues for the current calendar year and the immediately preceding calendar year which shall serve as the base year; Provided, however, That the costs of consigned raw materials shall be excluded from the computation of export revenues.

In the case of an exporter adopting a fiscal year accounting, he must have been accredited with the BETP, or any of its deputized agencies, by June 1995 so he can avail of the incentive using 1994 (FY ending January 1, 1995 to June 30, 1995) as the base year.

In the case of two or more related exporting firms, incremental export revenues shall be computed on the basis of their consolidated export revenues.

In cases where two or more companies merge, the incremental export revenues shall be based on the aggregate of their base year exports.

The export revenues of a firm which has been dissolved or liquidated for the purpose of circumventing the Export Development Act shall not form part of the incremental export revenues of any firm.

Exports which are eventually re-imported to the Philippines shall not form part of the export revenues which are entitled to the incentive.

SECTION 5. Export Revenues as Part of Gross Revenues Reported for Income Tax and VAT .— The application for incentive shall be given due course only if the export revenues have been reported as part of the gross revenues of the applicant for income tax and value-added tax purposes. The increase in current year's export revenues of the applicant shall be reported as part of his gross income. For this purpose, the taxpayer should have filed his income tax return for the current year and in the immediately preceding year with the Bureau of Internal Revenue (BIR).The BIR should verify and certify, via and audit, that the increase in export revenues on which the tax incentive shall be based is genuine and accurate.

SECTION 6. Tax Credit for Incremental Export Performance.— The incentive for the increase in export revenues shall be computed as follows:

For the first five percent (5%) increase in annual
export revenues over the previous year	—	2.5%
For the next 5% increase	—	5%
For the next 5% increase	—	7.5%
In excess	—	10%

The foregoing maximum rates of tax credit shall be applied on the incremental export revenues computed in each bracket measured in terms of US dollars, and converted into Philippine pesos at the current exchange rate, and in accordance with the following schedule:

Local Content Degree of Availment (% of Maximum Rate)
or LVA (%)	1995	1996	1997	1998	1999
					and beyond
11-20	60	50	40	30	20
21-30	70	60	50	40	30
31-40	80	70	60	50	40
41-50	90	80	70	60	50
51-60	100	90	80	70	60
61-70	100	100	90	80	70
Above 70	100	100	100	100	100

SECTION 7. Determination of Local Value-Added or Local Content.— An Inter-agency Committee is hereby created to estimate the local value-added or local content for each export product category considering, among others, the Committee shall be chaired by the Department of Finance (DOF) and shall be composed of representatives from the Department of Trade and Industry DTI),the National Economic Development Authority (NEDA),the Department of Science and Technology (DOST),and the Philippine Institute of Development Studies (PIDS).The attached estimates shall be reviewed by the Committee and the rates for the initial year of implementation shall be formulated not later than June 10, 1996. The list of products and the rates thereat shall be expanded and updated by the Committee and shall serve as the rate of local content or local value-added. The Committee shall also serve as an oversight function in the accreditation of exporters and the determination of incremental export revenues which are entitled to a tax credit.

SECTION 8. Filing of the Application for Incentive.— The application for incentive due to increase in the export revenues shall be filed at the One-Stop Shop Center for Tax Credits and Duty Drawback not later than sixty (60) working days from the filing of the income tax return. The One-Stop-Shop Center shall comply with the decisions of the Inter-agency Committee created under Section 7. The application shall be subject to verification and the corresponding Tax Credit Certificate shall be issued within sixty (60) working days from the date the complete application has been filed.

SECTION 9. Tax Credit Certificate.— The incentive for the increase in export revenues shall be given to direct merchandise exporters by way of a Tax Credit Certificate (TCC).The TCC issued can be utilized for payment of taxes and duties, except withholding taxes and taxes payable to local government units. The said TCC can only be utilized after securing a Tax Debit Memo (TDM) which is officially used by the Center. Without such TDM, no TCC can be utilized nor honored as payment for duties or taxes to the National Government.

SECTION 10. Validity and Transferability of the TCC.— The TCC shall be valid for three (3) years from the time of its issuance but its transfer shall be limited to two (2) transfers. The TCC may be transferred to any person, natural or juridical, except to local government units. Within a period of thirty (30) days from the date of the transfer of the TCC, the holder thereof shall notify the Center for purposes of recording and monitoring. A TCC which is not utilized within a three-year period shall be considered invalid and shall be subsequently cancelled. The proceeds from the sale or transfer of a TCC issued for the increase in export revenues shall be reported as taxable income by the transferor and shall be subject to income tax during the year of the sale. IaAScD

RULE III

Verification of Export Revenues

SECTION 1. The Department of Finance shall systematically verify export transactions and revenues in connection with the implementation of the tax incentive based on incremental export performance. It may require third party verification of export transactions.

SECTION 2. A reasonable amount of processing fee to cover the costs of administration and supervision of the implementation of the tax incentive on incremental export performance shall be collected.

SECTION 3. Starting July 1996 and thereafter, applications for the export incentive should be filed quarterly, as an attachment to the firm's quarterly income tax return.

SECTION 4. Any firm which is found to have made false entries, records or reports in connection with his application for a tax incentive for incremental export performance shall, in addition to other penalties provided by other laws, be subject to a penalty equivalent to three (3) times the value of the tax credit being claimed. He shall also be perpetually banned from receiving any incentive granted under existing laws.

RULE IV

Transitory Provision

For the initial year of implementation of the tax incentive, the prescriptive period for the filing of the application shall commence sixty (60) days after the effectivity of these rules and regulations.

RULE V

Repealing Clause

All administrative orders, circulars, rules and regulations or parts thereof which are inconsistent with these rules and regulations are hereby repealed, amended or modified accordingly.

RULE VI

Effectivity

These rules and regulations shall take effect immediately. HESAIT

DONE in Manila, Republic of the Philippines, this 9th day of May, 1996.

(SGD.) RIZALINO S. NAVARRO	(SGD.) ROBERTO F. DE OCAMPO
Department of Trade and Industry	Department of Finance

 

ANNEX A

INDICATIVE LOCAL VALUE-ADDED

The following table shows the indicative value-added on a sectoral basis for reference purposes:

EXPORT WINNERS	INDICATIVE SECTOR-WIDE
	LOCAL VALUE-ADDED
Electronics	25%
Garments/Textiles	40%
Metals	60%
Marble	90%
Jewelry	65%
Carrageenan/Seaweeds	90%
Shrimps & Prawns	75%
Processed Food	60%
Furniture	60%
Ceramics	70%
Household Decors	95%