ACC 178: Updates in Tax and Business Regulations

Module #7 Teacher’s Guide

Lesson title: (1) Bases Conversion and Development Act Materials:

(BCDA) for purposes of determining tax liabilities and tax Pen, paper, calculator
incentives and (2) Special Economic Zone Act for purposes of
determining tax liabilities and tax incentives References:
Learning Targets: Tax Reviewer by Enrico Tabag
At the end of the module, students will be able to: Taxation Reviewer by Manuel, Soriano
Recall and apply learnings in PEZA and Bases Conversion and and Laco
Development Act REO Reviewer

A. LESSON PREVIEW/REVIEW

Hello students! You are now in your module 6 of your review subject. Your topic in this module is Local
Government Taxation and Real Property Taxation Under Local Government Code. You already finish this
during your lower years. This time, you need to recall and apply your learnings with the topic.

“Enjoy the little things, for one day you may look back and realize they were the big things.”

B.MAIN LESSON
Content and Skill-Building

Bases Conversion and Development Act of 1992 (RA 7227), as amended

What is the objective of the Bases Conversion and Development Act of 1992?
RA 7227, otherwise known as the Bases Conversion and Development Act of 1992, was enacted into law on 13
March 1992. The objective of the Act is to accelerate the sound and balanced conversion and development of
the former United States military bases into special economic zones in order to promote the economic and social
development of Central Luzon in particular, and the country in general.

What are the agencies created to take charge in converting the former US Bases and administering incentives
to locators?
RA 7227 created two administrative bodies for the purpose of adopting, preparing, and implementing a
comprehensive development program for the conversion of the Clark and Subic military reservations and their
surrounding communities into special economic zones: (1) the Bases Conversion and Development Authority
(BCDA) and (2) the Subic Bay Metropolitan Authority (SBMA).
a. The BCDA is mandated to oversee and implement the conversion and development of Clark, John Hay
Air Station, Wallace Air Station, O’Donnell Transmitter Station, Mt. Sta. Rita Station, and those portions of Metro
Manila Military Camps which may be transferred to it through Presidential Proclamations.
b. The SBMA is mandated to oversee the implementation of the development programs of the Subic Bay
Naval Station, its environs and surrounding communities.
The Clark Development Corporation (CDC) is the operating and implementing arm of the BCDA to manage the
Clark Special Economic Zone and the Clark Freeport Zone (CFZ).

What are the applicable incentives to registered special economic zone enterprises under RA 7227?
The fiscal and non-fiscal incentives granted under either BCDA, SBMA, or CDC
are basically the same, as follows:

Fiscal Incentives
a. A final tax of five percent (5%) on gross income earned shall be paid in lieu

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 ACC 178: Updates in Tax and Business Regulations
Module #7 Teacher’s Guide

of all local and national taxes.

(Gross income refers to gross sales or gross revenues derived from the business activity within the zone, net of
sales discounts and sales returns and allowances and less cost of sales, cost of production or direct cost of
services.)
b. Tax and duty-free importation of raw materials and capital equipment

Non-fiscal Incentives
a. Permanent residency status for investors, their spouses and dependent children under twenty one (21)
years of age, provided they have continuing investments of not less than US$250,000.
b. Employment of foreign nationals.

What are the latest provisions amending RA 7227?

On 23 October 2003, the Philippine Supreme Court ruled on the exclusivity of the benefits granted under RA
7227 to the Subic Special Economic Zone which put the incentives granted to CSEZ companies as well as other
ecozone locators outside Subic in question. However, these gaps in the tax incentives were addressed by the
following laws that were enacted on 20 March 2007:
a. RA 9399 granted one-time tax amnesty to locators in CSEZ and other special economic zones such as
Poro Point Special Economic Zone and Freeport Zone, John Hay Special Economic Zone, and Morong
Special Economic Zone by making these locators pay an amnesty tax of PHP25,000; and
b. RA 9400 granted tax and duty incentives to the registered enterprises within the special ecozones of
John Hay, Poro Point, Morong, and Clark, similar to those enjoyed by the Subic Bay Freeport. It also declared
the 4,400 hectares under the CDC as a Freeport Zone.

The Special Economic Zone Act of 1995 (RA 7916), as amended

What is the Special Economic Zone Act of 1995 or RA 7916, as amended?

RA 7916 was enacted on 24 February 1995 to encourage and promote the establishment and development of
economic zones or “ecozones” in identified and selected areas in the country as a means to achieve sound and
balanced industrial, economic, and social development.
It also created the Philippine Economic Zone Authority (PEZA) as the agency mandated to enforce the provisions
and objectives of the law.

What are the types of enterprises/activities that will be eligible for incentives under RA 7916?
Under the current PEZA policies, the following may be eligible for incentives:
• Export manufacturing
• IT Service export
• Tourism
• Medical tourism
• Agro-industrial export manufacturing
• Agro-industrial bio-fuel manufacturing
• Logistics and warehousing services1
• Ecozone development/operation
– Manufacturing economic zone development/operation
– IT park development/operation2
– Tourism economic zone development/operation
– Medical tourism economic zone development/operation
– Agro-industrial economic zone development/operation3
– Retirement economic zone development/operation3
• Facilities providers
– Facilities for manufacturing enterprises
– Facilities for IT enterprises2

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 ACC 178: Updates in Tax and Business Regulations
Module #7 Teacher’s Guide

– Retirement facilities3
• Utilities

What are the incentives available to PEZA-registered enterprises?

PEZA-registered enterprises located within the ecozones administered by PEZA
may avail of the following incentives and benefits:
• All incentives under EO 226 which include ITH;
• Preferential final tax of five percent (5%) of gross income in lieu of all national and local taxes, after the
ITH period; (Alternatively, this incentive may be waived by the registered enterprise subject to certain conditions.)
• Tax and duty-free importation of capital equipment, spare parts, raw materials, and supplies which are
needed in the registered activity; and
• Tax credits for exporters using local materials as inputs under RA 7844 or the Export Development Act
of 1994.
An amount equivalent to one-half (1/2) of the value of training expenses incurred in developing skilled or unskilled
labor or for managerial or other management development programs incurred by a PEZA firm can be deducted
from the national government’s share of 3% (out of 5%) final tax.

Check for Understanding

Encircle the Correct Answer.
1. Statement 1: BOI-registered enterprises have the right to remit earnings from the investment in the
currency in which the investment was originally made.
Statement 2: There shall be no expropriation by the government of the property represented by
investments or of the property of the enterprise except for public use or in the interest of national welfare
or defense and upon payment of just compensation.
a. Only Statement 1 is true.
b. Only Statement 2 is true.
c. Both statements are true.
d. Both statements are not true.
2. The tax incentives of BOI-registered enterprises are governed primarily by:
a. Omnibus Investments Code
b. Tax Code, as amended by CREATE Act
c. Special Economic Zone Act
d. Ease of Doing Business Act
3. The Philippine Economic Zone Authority is an agency under:
a. Department of Trade and Industry
b. Department of Finance
c. Department of Tourism
d. Department of Taxation
4. How many are the members of the Board of the Philippine Economic Zone Authority?
a. Five
b. Seven
c. Thirteen
d. Fifteen
5. In order to avail of the incentives afforded to PEZA-registered entities, an applicant must be:
a. 100% owned by Filipinos
b. At least 75% owned by Filipinos
c. At least 60% owned by Filipinos
d. None of the above. There is no ownership requirement for PEZA registered entities.
6. It is the final agreement executed by the PEZA and the ECOZONE Enterprise setting forth the terms and
conditions for the latter's operation of business or engaged of economic activity within the ECOZONE
a. Certificate of Registration

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 ACC 178: Updates in Tax and Business Regulations
Module #7 Teacher’s Guide

b. Registration Agreement
c. Project Feasibility Study
d. PEZA Prospectus
7. Which of the following are eligible activities under PEZA?
I. Export manufacturing
II. Medical tourism
III. Logistics and warehousing services
a. I and II only.
b. I and III only.
c. II and III only.
d. I, II, and III.
8. In order to qualify as a barangay micro-business enterprise, the total assets of the enterprise:
a. Must not exceed P1,500,000
b. Must not exceed P2,000,000
c. Must not exceed P2,500,000
d. Must not exceed P3,000,000
9. In the computation of the assets of an enterprise for purposes of determining whether such qualifies as a
barangay micro-business enterprise, which of the following is excluded?
a. Those arising from loans
b. Land where the particular business entity's office, plant and equipment are situated
c. Those purchased with foreign currency
d. Business entity's office, plant and equipesert directly and exclusively used in the enterprise's
registered activity.

10. Statement 1: A doctor's clinic may qualify as a barangay micro-business

Statement 2: A subsidiary of a large-scale enterprise may qualify as a enterprise micro-business
enterprise.
a. Only Statement 1 is true.
b. Only Statement 2 is true.
c. Both statements are true.
d. Both statements are not true.
11. The application for registration to become a barangay micro-business enterprise is submitted to:
a. Barangay Councilor
b. Barangay Treasurer
c. City or Municipal Treasurer
d. Sangguniang Panlungsod or Bayan
12. All of the following are grounds for cancellation of registration of a barangay micro-business enterprise,
except:
a. The BMBE transfers its place of business to another locality
b. Acquisition of a land with a fair market value exceeding P3,000,000
c. The BMBE voluntarily surrenders its Certificate of Authority
d. Submission of fake or false or falsified documents
13. A barangay micro-business enterprise is
I. Exempt from income tax on its income derived from operations.
II. Exempt from percentage tax on gross receipts derived from operations.
b. I only.
c. II only.
d. Both I and II.
e. Neither I nor II.
14. A barangay micro-business enterprise is:
I. Exempt from the payment of the annual registration fee to the BIR.

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 ACC 178: Updates in Tax and Business Regulations
Module #7 Teacher’s Guide

II. Exempt from the obligation to remit taxes withheld on compensation of their employees
b. I only.
c. II only.
d. Both I and II.
e. Neither I nor II.
15. Which of the following is true regarding barangay micro-business enterprise?
a. A BMBE shall always be a non-VAT registered taxpayer.
b. A BMBE is exempt from the payment of excise tax.
c. A BMBE is exempt from the payment of documentary stamp tax.
d. A BMBE is exempt from the coverage of the minimum wage law.
16. Which of the following is prohibited?
a. Direct double taxation
b. Indirect double taxation
c. Double taxation in the broad sense
d. International double taxation
17. Domestic double taxation arises when:
a. The same taxes are imposed by the local and national government
b. The same taxes are imposed by the two States
c. The same taxes are imposed by a single ordinance
d. The same taxes are imposed over the same subject
18. It is an agreement under international law entered into by actors in international law, namely sovereign
states and international organizations.
a. Pact
b. Truce
c. Treaty
d. Executive agreement
19. The Most Favored National Clause
a. Allows the taxpayer of different states to avail of the best possible tax avoidance schemes
available in all treaties
b. Allows the application of reduced tax rates on the basis of international reciprocity
c. Allows the taxpayer in one state to avail of more liberal provisions granted in another tax treaty to
which the country of residence of such taxpayer is also a party
d. Allows the Philippines to negotiate the most favorable tax rates available in various tax legislations
in foreign countries
20. Failure to file a Tax Treaty Relief Application:
a. Invalidates once claim of tax treaty benefits.
b. Is a criminal tax offense punishable under the National Internal Revenue Code.
c. May still allow a taxpayer to avail of the benefits of a tax treaty.
d. Is not subject to any fine or penalty.

For items 21-24, refer to the following information:

Tayrina Batumbakal is a resident of Brgy. Bactad East, Urdaneta City, Pangasinan. Tayrina is engaged in general
merchandise and is operating a sari-sari store with an annual income of P200,000. Tayrina owns a parcel of
land, where her residence and her sari-sari store stands. The parcel of land has a fair market value of
P2,500,000. Tayrina also owns shares in Minamina Corporation, a domestic corporation with principal office in
the same barangay. Details regarding Minamina Corporation are as follows:
Assets P 2,500,000
Gross receipts 1,500,000
Net income 350,000
21. How much is Tayrina's community tax?
a. 200

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 ACC 178: Updates in Tax and Business Regulations
Module #7 Teacher’s Guide

b. 205
c. 2,000
d. 2,005
22. Tayrina should pay the community tax on or before.
a. January 20
b. February 28
c. March 15
d. April 15
23. How much is Minamina Corporation's community tax?
a. 1,600
b. 1,640
c. 2,100
d. 2,240
24. Minamina Corporation's community tax should be paid with which local government unit?
a. Barangay Bactad East
b. Urdaneta City
c. Province of Pangasinan
d. Barangay Bactad East, Urdaneta City, or Province of Pangasinan, at the option of Minamina
Corporation
C. LESSON WRAP-UP

Thinking about Learning

Congratulations for finishing this module! Shade the number of module that you finished.

Did you have challenges learning the concept in this module? If none, which parts of the module helped
you learn the concepts?
____________________________________________________________________________________
___________________________________________________
Some question/s I want to ask my teacher about this module is/are:
________________________________________________________________________________
_________________________________________________________

Key to Corrections
1-10: CBACD BDDBC
11-20: CBADD AACCC
21-24: BBCB

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