MINDANAO STATE UNIVERSITY - GENERAL SANTOS CITY

COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY

DEPARTMENT OF ACCOUNTANCY

ACT184: Business Taxes

Preferential Taxation

LESSON OBJECTIVES
At the end of this module, you will be able to:
1. Know the policy and incentives to PEZA - registered economic zone enterprises
2. Identify the following:
A. Policy and the BOI
B. Preferred areas of investment
C. Investment Policy Plan
D. Fiscal incentives to BOI registered enterprises
3. Identify how to register as BMBE
4. Identify the fiscal incentives to BMBE’s

ABSTRACTION
SPECIAL ECONOMIC ZONE ACT
The Philippine Economic Zone Authority (PEZA) is created by the Special Economic Zone Act of
1995 (RA No. 7916)

The operation of the PEZA and the ECOZONE is maintained and managed by the PEZA Board
composed of the following:
I. Chairman – Secretary of Trade and Industry
II. Vice Chairman – the Director General
III. Members of the Board – undersecretaries of 9 key government departments

Fiscal Incentives:
1. Four-year income tax holiday for non-pioneer projects
2. Six-year income tax holiday for pioneer projects
3. Three years income tax holiday for expansion projects
4. Upon expiry of income tax holiday, 5% special tax on gross income and exemption from
all national and local taxes
5. Tax- and duty-free importation of raw materials, capital equipment, machineries and spare
parts
6. Exemption from wharfage dues and export tax, import and fees
7. VAT-zero rating for local purchases subject to compliance with BIR and PEZA
requirements
8. Exemption from payment of any and all local government taxes
9. Exemption from expanded withholding tax

All PEZA-registered economic zone locator enterprises, which are entitled to any or all 3 fiscal
incentives:
a) Income tax holiday
b) Option to pay 5% Tax on Gross Income, in lieu of all national and local taxes except real
property taxes on land owned by developers (5% GIT incentive)
c) Tax- and duty-free importation of machinery and equipment, raw materials, supplies,
spare parts and other production inputs,

are exempted from having to secure all LGU permits.

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 MINDANAO STATE UNIVERSITY - GENERAL SANTOS CITY
COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY
DEPARTMENT OF ACCOUNTANCY

PEZA-registered economic zone enterprises availing of the Income Tax Holiday Incentive are
exempted from payment of all local taxes, licenses, imposts and fees, except real estate taxes;
provided that these enterprises shall also be exempted from payment of real property taxes on
machineries and equipment they acquire for use in their production operations, during the first 3
years use of such machinery and equipment.

PEZA-registered economic zone enterprises availing 5% GIT incentive are exempted from
payment of all national and local taxes, except real property tax on land owned by developers.

Special economic zones or ECOZONES are selected areas with highly developed or which have
potential to be developed into agro-industrial, tourist/recreational, commercial, banking,
investment and financial centers. An ECOZONE may contain any or all of the following: industrial
estates, export processing zones, free trade zones, and tourist recreational centers.

Business establishments operating within the ECOZONE are not subject to local and national
taxes. In lieu of paying taxes, 5% of the gross income earned by all businesses within the
ECOZONE is remitted to the national government.

All income derived by personal and all service establishments in the ECOZONE are subject to
taxes under the NIRC.

OMNIBUS INVESTMENT CODE

The Board of Investments, an attached agency of the DTI, is the lead government agency
responsible for the promotion of investments in the Philippines.

The BOI is compose of seven governors to be appointed by the President of the Philippines:
I. Chairman – Secretary of Trade and Industry
II. Three undersecretaries of Trade and Industry (Vice Chairman and Managing Head – DTI
undersecretary for Industry and Investments)
III. Three representatives from other government agencies and the private sector who will
serve a term of four years.

All BOI registered enterprises are granted fiscal and non-fiscal incentives

Fiscal Incentives:
1. Tax exemptions:
a. Income tax holiday
b. Exemption from taxes and duties on imported spare parts
c. Exemption from wharfage dues and export tax, duty, imposts and fees
d. Tax and duty-free importation of breeding stocks and genetic materials

2. Tax Credits
a. Tax credits on the purchase of domestic breeding stocks and genetic materials
b. Tax credit on raw materials and supplies

3. Additional deductions
a. Additional deduction for labor expense
b. Additional deduction necessary and major infrastructure work
c. Zero-rate value added tax

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 MINDANAO STATE UNIVERSITY - GENERAL SANTOS CITY
COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY
DEPARTMENT OF ACCOUNTANCY

Non-fiscal Incentives
1. Employment of foreign nationals
2. Simplification of customs procedures
3. Importation of consigned equipment for a period of 10 years
4. The privilege to operate a bonded manufacturing or trading warehouse subject to customs
rules and regulations

Registered Enterprise means any individual, partnership, cooperative, corporation or other entity
incorporated and/or organized and existing under Philippine law, registered with the BOI.

The term “registered enterprise” shall not include:

1. Commercial banks
2. Savings and mortgage banks
3. Rural banks
4. Savings and loan associations
5. Building and loan associations
6. Development banks
7. Trust companies
8. Investment banks
9. Finance companies
10. Brokers and dealers in securities
11. Consumers cooperatives and credit unions
12. Other business organizations whose principal purpose or principal source of income is to
receive deposits, lend/borrow money, buy and sell or, trade or invest in common or
preferred stocks, debentures, bonds or other marketable instruments generally
recognized as securities, or discharge other similar intermediary, trust or fiduciary
functions.

For 6 years from commercial operation for pioneer firms and 4 years for non-pioneer firms,
new registered firms are exempt from income tax levied by the National Government.
Registered firms are not entitled to extension.

For 3 years from commercial operations, registered expanding firms are entitled to an
exemption from income taxes levied by the National Government. Registered firms are not
entitled to extension.

BARANGAY MICRO BUSINES ENTERPRISE (BMBE)

BMBEs refers to any business entity or enterprise engaged in the production, processing or
manufacturing of products or commodities, including agro-processing, trading and services,
whose total assets including those arising from loans but exclusive of the land on which the
particular business entity’s office, plant and equipment are situated, shall not be more than
P3,000,000

Registered BMBEs can avail of the following incentives:

1. Income tax exemption from income arising from the operations of the enterprise
2. Exemption from the coverage of the Minimum Wage Law
3. Priority to a special credit window set up specially for the financing requirements of
BMBEs
4. Technology transfer, productions and management training, and marketing assistance
program for BMBE beneficiaries.

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 MINDANAO STATE UNIVERSITY - GENERAL SANTOS CITY
COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY
DEPARTMENT OF ACCOUNTANCY

Any person, cooperative or association owning an enterprise that fits the description of a
BMBE may register for the first time or renew it registration with the Office of the Treasurer
of the city or municipality where the business is located.

Certificate of Authority is a certificate issued granting the authority to the registered BMBE to
operate and be entitled to the benefits and privileges accorded thereto. It is effective for a
period of two years, renewal for a period of two years for every renewal.

In order to be exempt from income tax, a BMBE is required to register with Revenue District
Office of the BIR where the principle office or place of business is located.

The following documents are required to be submitted to the BIR to avail of Income Tax
Exemption:
1. Copy of BMBE’s Certificate of Authority
2. Sworn Statement of Assets of the BMBE and/or affiliates, supported by pertinent
documents
3. Certified list of branches, sales outlets, places of production, warehouses and storage
facilities
4. Certified list of affiliates
5. Latest audited financial statements or account information form or its equivalent

In lieu of an income tax return, an income tax exempt BMBE is require to file an annual
information return on or before the 15th day of the 4th month after the close of the taxable
year.

The income tax exemption of a BMBE may be revoked for any of the following reasons:
1. Transfer of place of business
2. Value of its total assets exceeds P3,000,000
3. Voluntary surrender of the Certificate of Authority
4. Death of the registered individual owner of the BMBE
5. Violation or non-compliance with the provisions of RA no. 9178
6. Merger or consolidation with an entity which is not eligible to be a BMBE
7. Sale or transfer of the BMBE, if it is a sole proprietorship without prejudice to the
transferee applying for registration
8. Submission of fake or falsified documents
9. Retirement from business, or cessation or suspension of operations for one year
10. Making false or omitting required declarations or statements.

The LGU are only encouraged either to reduce the amount of local taxes, fees and charges
imposed or to exempt the BMBE’s local taxes, fees, and charges

A qualified BMBE is only exempt from income tax.

Only the loans granted to a qualified BMBE by the following are exempt from gross receipts
tax:
1. Land Bank of the Philippines
2. Development Bank of the Philippines
3. People’s Credit and Finance Corporation
4. Small Business Guarantee and Finance Corporation

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 MINDANAO STATE UNIVERSITY - GENERAL SANTOS CITY
COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY
DEPARTMENT OF ACCOUNTANCY

SENIOR CITIZENS LAW

Who is a SENIOR CITIZEN?
A resident citizen, at least 60 years old. It may also apply to senior citizens with “dual citizenship”
and have at least 6 months residency in the Philippines.

Privileges granted to businesses:

1. 20% discount given, may be claimed as a deduction for income tax purposes,and VAT
exemption are applicable to the charges on the following goods and services only:
A. Medicines, including the purchase of Influenza and pneumococcal vaccines and such other
essential medical supplies, accessories, and equipment to be determined by Department of
Health.
B. Professional fees of attending physician in all private hospitals, medical facilities, outpatient
clinics, and home health care services
C. Professional fees of licensed professional health providing home health care services as
endorsed by private hospitals or employed through home health care employment agencies
D. Medical and dental services, diagnostic and laboratory fees in all private hospitals, medical
facilities, outpatient clinics, and home health care services, in accordance with the rules and
regulations to be issued by the DOH, in coordination with PHIC.
E. Actual fare for land transportation travel in public utility buses, public utility jeepneys, taxis,
AUVs, train
F. In actual transportation fare for domestic air transport services and sea shipping vessels and
the like based on the actual fare and advanced booking.
G. Utilization of services in hotels and similar lodging establishments, restaurants, and recreation
centers.
H. Admission fees charged by theaters, cinema houses, and concert halls, circuses, leisure and
amusement, and
I. Funeral and burial services for the death of the senior citizen

2. 5% discount for the monthly utilization of water and electricity supplied by the public utilities,
provided that
The individual meters are registered in the name of the senior citizen
Maximum utilization for electricity of 100kWh
Maximum utilization for water of 30 cubic meters
The benefit is granted per household regardless of the number of senior citizens residing therein.
3. Education assistance to senior citizens to pursue secondary. tertiary, post tertiary, vocational
and technical education, as well as short-term courses for retooling in both public and private
schools through provision of scholarship grants, financial aids, subsidies and other incentives to
qualified senior citizens.
4. Discount and VAT exemption on restaurant should only be given for purchases of Senior Citizen
for "EXCLUSIVE USE AND ENJOYMENT". The VAT exemption does not apply to children's
meals and pre-contracted part packages or bulk orders.
5. The 20% Senior Citizen discount is not applicable on grocery items, but the SC may demand
for the 5% discount for certain grocery purchases that fall under the basic necessities and prime
commodities" category. According to DTI-DA Administrative Order No. 10-02, SCs are entitled to
a special discount of 5% of the regular retail price, without exemption from VAT, of basic
necessities, such as
A. Rice
B. Corn
C. Bread (any shape and name, excluding pastries and cakes)
D. Fresh, dried, and canned fish and other marine products

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 MINDANAO STATE UNIVERSITY - GENERAL SANTOS CITY
COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY
DEPARTMENT OF ACCOUNTANCY

E. Fresh pork, belly, and poultry meat

F. Fresh eggs
G. Fresh and processed milk
H. Fresh vegetables including root crops
I. Coffee and creamer
J. Sugar
K. Cooking oil
L. Salt
M. Powdered, liquid, bar laundry and detergent soap
N. Firewood and Charcoal
O. Candles
P. Fresh fruits
Q. Flour
R. Dried, processed and canned pork, beef and poultry meat
S. Dairy products
T. Noodles
U. Onions and Garlic
V. Geriatric diapers
W. Herbicides
X. Poultry, swine and cattle feeds
Y. Veterinary products of poultry, swine and cattle
Z. Nipa shingle, plyboard and construction nails
AA. Batteries
BB. Electrical supplies and light bulbs
CC. Steel wire
Note: The maximum amount of purchase is One Thousand Three Hundred Pesos (P1,300) per
calendar week after combining set limits under basic commodities without carry over of unused
amount

6. Additional deduction of 15% of total salaries paid to senior citizen employees. For example, a
business gives P30,000 monthly salary to Senior Citizen employee, the business can claim
additional P 4.500, or a total of P34,500 allowable deduction Provided that:
Such employment shall continue for a period of at least 6 months
Annual income of the senior citizen does not exceed the latest poverty threshold as determined
by NEDA for the year.
7. In the purchase of goods and services which have promotional discount, the senior citizen can
avail of the promotional discount or the senior citizen discount, whichever is higher.
8. The senior citizen may present the following identification to avail the discount:
ID issued by OSCA, Passport, or Other document that establish that the senior citizen of the
Republic and is at least sixty years of age

Treatment of Discount:
1. Income tax - only the actual amount of the discount granted or a sales discount not less than
the statutory rate, whichever can be deducted from gross income, net of VAT
2. VAT - same amount shall be deducted from gross sales/receipts of the business enterprise
concerned
Note:
1. If the business establishment is a non VAT taxpayer, the sales shall be subject to percentage
tax. Senior citizens and PWDs are not exempt to the percentage tax and excise tax.

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 MINDANAO STATE UNIVERSITY - GENERAL SANTOS CITY
COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY
DEPARTMENT OF ACCOUNTANCY

2. If senior citizens and PWDs own businesses, they are subject to business taxes on their sales
or receipts similar to other regular business taxpayers.

MAGNA CARTA FOR DISABLED PERSONS (RA 9442)

Who is a PWD?
A. A person with disability, whether minor or of legal age
B. Filipino citizen, who may or may not be related to his benefactor
C. Individual suffering from restriction or different abilities a result of mental, physical, or sensory
impairment to perform activity in a manner or within the range considered normal for human being

Tax Incentives for Qualified Establishments Selling Goods and Services to Disabled Persons:

A. 20% discount on the sale of goods and services to PWD. This discount may be claimed as a
deduction
B. 5% discount can be granted to PWDs for the purchase of basic necessities and prime
commodities (Same list enumerated above). In order to avail of the 5% special discount, the
person with disability shall purchase the above mentioned commodities from a retailer who may
be a natural or juridical person engaged in the business of selling consumer products directly to
consumers, which shall include among others, supermarkets, grocery stores, convenience and
mini-convenience stores and shops but excluding stalls in food courts, food carts, food vendors
and sari-sari stores with a capitalization of less than P100,000, public and private wet market,
talipapa and cooperative stores. The total amount of purchase shall not exceed the amount of
P1300 per calendar week without carry over of the unused amount
C. Additional deduction of 25% of total salaries paid to disabled employees. For example, a
business gives P 30,000 monthly salary to disabled employee, the business can claim additional
P7,500, or a total of P37,500 allowable deduction
D. Additional deduction of 50% of direct cost of modification of physical facilities.
E. No 12% VAT imposition on sale to PWD.
F. In the purchase of goods and services which have promotional discount, the PWD can avail of
the promotional discount or the PWD discount, whichever is higher

Treatment of Discount:
1. Income tax - only the actual amount of the discount granted or a sales discount not less than
the statutory rate, whichever is higher can be deducted from gross income, net of VAT
2. VAT - same amount shall be deducted from gross sales/receipts of the business enterprise
concerned

The PWD may present the following identification to avail the discount:
1. ID issued by the city of municipal mayor or the barangay captain of the place of residence
2. Passport
3. Transportation discount fare ID issued by National Council for the Welfare of Disabled Person

- END-

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 MINDANAO STATE UNIVERSITY - GENERAL SANTOS CITY
COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY
DEPARTMENT OF ACCOUNTANCY

REFERENCES
Tabag, E. D. (2019). Transfer and Business Taxation. Manila: Info Page.
Valencia, E. G. (2017). Transfer and Business Taxation. Baguio City: Valencia Educational Supply.