BACTEL2X

Strategic Tax Management

1TAY2324

Preferential Taxation

CREATE Law
Tax Incentives
 STRATEGIC INVESTMENT PRIORITIES PLAN
The Board of Investments, in coordination with the Fiscal Incentives Review Board, Investment Promotion Agencies, other
government agencies administering tax incentives, and the private sector, shall formulate the Strategic Investment Priority Plan
to be submitted to the President for approval, which may contain recommendations for types of non-fiscal support needed to
create high-skilled jobs to grow a local pool of enterprises, particularly micro, small and medium enterprises (MSMEs), that can
supply to domestic and global value chains, to increase the sophistication of products and services that are produced and/or
sourced domestically, to expand domestic supply and reduce dependence on imports, and to attract significant foreign capital
or investment. The Strategic Investment Priority Plan shall be valid for a period of three (3) years, subject to review and
amendment every three (3) years thereafter unless there would be a supervening event that would necessitate its review.

The Strategic Investment Priority Plan shall contain the following:

a. Priority projects or activities that are included in the Philippine Development Plan or its equivalent, or other government
programs
b. Scope and coverage of location and industry tiers
c. Terms and conditions on the grant of enhanced deductions
All sectors or industries that may be included in the Strategic Investment Priority Plan shall undergo an evaluation process to
determine the suitability and potential of the industry or the sector in promoting long-term growth and sustainable

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 development, and the national interest. In no case shall a sector or industry be included in the Strategic Investment Priority Plan
unless it is supported by a formal evaluation process or report.
The projects or activities must comply with the specific qualification requirements or conditions for a particular sector or
industry and other limitations as set and determined by the Board of Investments, and in coordination with the Fiscal Incentives
Review Board.
In no case shall the Investment Promotion Agencies accept applications unless the project or activity is listed in the Strategic
Investment Priority Plan. Projects or activities not listed in the Strategic Investment Priority Plan shall be automatically
disapproved.
Subject to publication requirements and the criteria for investment priority determination, the Board of Investments may include
additional areas in the Strategic Investment Priority Plan, alter any of the terms of the declaration of an investment area, and
temporarily suspend projects or activities on the Strategic Investment Priority Plan if it considers that such project or activity is
no longer a priority within the effectivity of the Strategic Investment Priority Plan.

FISCAL INCENTIVES REVIEW BOARD

The power to grant tax incentives is. a function of the FIRB. However, where the investment capital equal to one billion pesos
or below, the FIRB shall delegate the power to grant tax incentives to concerned IPA.

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 The FIRB, upon the recommendation of the concerned IPA, shall approve or disapprove the grant of tax incentives to registered
projects or activities with investment capital of more than one billion pesos.

Splitting of the total amount of investment capital by breaking up the projects or activities into smaller projects or activities,
for the purpose of evading or circumventing the jurisdiction of the FIRB to approve, shall not be allowed. A finding that
splitting of investment capital occurred authorizes the FIRB to treat the separate application as a single project or activity.

REGISTRATION OF BUSINESS ENTERPRISE

Qualified Business Enterprise
Subject to the qualifications under the SIPP, every project or activity of the following may qualify for registration under the Act:
a. Export enterprises
b. Domestic market enterprises

Qualifications for Registration

Every applicant, as far as applicable, must comply with the following:
a. Every project or activity in which it is engaged or proposes to engage in is included in the SIPP and must satisfy the
qualifications set forth therein;

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 b. If the project or activity in which it is engaged or proposes to engage in is nationalized by the Constitution or by law, the
ownership requirement of the Constitution and/or such law has been complied with;
c. If there is a law requiring a minimum percentage of its directors to be Philippine citizens, the same has been complied with.
To determine compliance with the citizenship requirement for members of the Board of Directors, the basis shall be the
positions actually filled, exclusive of vacancies, unless there is a specific rule to the contrary; and
d. That the project or activity in which the applicant is engaged in is within its corporate powers and is not otherwise
prohibited by law.

FISCAL INCENTIVES
Start of Period of Availment
The period of availment of the following income tax-based incentives shall commence from the actual start of commercial
operations with the RBE availing of the tax incentives within three years from the date of registration, unless otherwise provided
in the Strategic Investment Priority Plan and its corresponding guidelines.

Income Tax Holiday

Exemption from corporate income tax may availed which may be from four to seven years starting from the start of commercial
operations depending on the location and kind of industry of export and domestic market enterprises. The basic ITH is four
years which is available to registered activities under the Tier I classification and operating in National Capital Region. An

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 additional of one-year ITH is given if it is located in Metropolitan areas or areas adjacent to NCR. Two additional ITH years is
available if it is to operate in other areas of the Philippines. An additional one year is also available for each step higher in the
Tier classification. The total ITH period, however, must not exceed seven years.

Incentives granted shall apply only to registered operations enterprise and only during the period its registration.

The industry of the registered project or activity shall be prioritized according to national industrial strategy specified in the
Strategic Investment Priority Plan. The Strategic Investment Priority Plan shall define the coverage of the tiers and provide the
conditions for qualifying the activities.
Tier I Activities Tier II Activities Tier III Activities
• have high potential for job creation • produce supplies, parts and • research and development resulting in
• take place in sectors with market components, and demonstrably significant value-added, higher
failures resulting in underprovision of intermediate services that are productivity, improved efficiency,
basic goods and services not locally produced but are breakthroughs in science and health, and
• generate value creation through critical to industrial high-paying jobs
innovation, upgrading or moving up development and import- • generation of new knowledge and intellectual
the value chain substituting activities, property registered and/or licensed in the
including crude oil refining Philippines

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 • provide essential support for sectors • commercialization of patents, industrial
that are critical to industrial designs, copyrights and utility models owned
development or co-owned by a registered business
• emerging owing to potential enterprise
comparative advantage • highly technical manufacturing
• critical to the structural transformation of the
economy and require substantial catch-up
efforts
• Those provided under the 2020 • Green Ecosystems • Research and Development and activities
Investment Priorities Plan. • Health-Related Services adopting advanced digital production
• Defense-Related Services technologies of Industrial Revolution 4.0
• Industrial Value-Chain Gaps • Highly technical manufacturing and
• Food Security-Related production of innovative products and
Activities services
• Establishment of innovation support facilities

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 Extension ITH for Areas Recovering from Armed Conflicts or Major Disasters
In addition, projects or activities of registered business enterprises located in areas recovering from armed conflict or a major
disaster shall be entitled to two (2) additional years of ITH, subject to the following:
a. Declaration of the President or his/her authorized representatives of the existence of an armed conflict or a major disaster,
including pandemic, epidemic, super typhoon, or other analogous circumstances; or
b. The issuance of a presidential directive for the implementation of recovery programs of the affected area or areas.
Relocation ITH
A project or activity registered that will completely relocate from NCR during the period of their incentives, shall be entitled to
three (3) additional years of ITH which will commence:

after the expiration of the period of incentives granted under the

Existing project or activity registered under CREATE Law
Certificate of Registration issued to the RBE
Existing project or activity under the transition period after the expiration of the transition period

The concerned IPA shall issue a CETI to the concerned RBE as proof of its entitlement to the additional three (3) years of ITH.

Complete relocation shall mean the total physical relocation of the facilities outside of NCR, including the transfer of the full
operations of the registered project or activity to the new area of operation.

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 Illustration 1.1 INCOME TAX HOLIDAY
A Tier 2 registered export enterprise commenced its operations on January 1, 2022 in Bulacan. Following are its operating
financials during 2026.
Sales
Direct Export Sales 7,400,000
Sales to Export Traders 3,400,000
Domestic Sales 1,200,000 12,000,000
Less: Cost of Sales
Export Sales (Purchases of P4,700,000) 4,800,000
Domestic Sales (Purchases of P550,000) 520,000 5,320,000
Gross Profit 6,680,000
Other Income: Sale of Scraps 170,000
Gross Income 6,850,000
Less: Expenses
Administrative Expenses 2,400,000
Expenses related to Sale of Scraps 50,000 2,450,000
Net Income 4,400,000

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 The entity is granted a six-year income tax holiday. The year 2026 is still within said period. The entity shall only be liable to
income tax on the net gain on sale of scraps computation of which would be as follows:
Sale of Scraps 170,000
Related Expenses 50,000
Net Gain 120,000
Regular Income Tax Rate 25%
Regular Income Tax Due 30,000
Special Corporate Income Tax
A special income tax rate equivalent to five percent (5%) effective July 1, 2020, based on the gross income earned, in lieu of all
national and local taxes is available for registered export enterprises. The period that this will be available for ten years. Since
REEs have the option to choose this in lieu of the enhanced deductions, said option is irrevocable for the duration of the project
or activity.
Deductions Allowed
Only the following shall be considered as direct costs for purposes of computing the gross income earned to be imposed the five
percent (5%) SCIT rate:
a. Direct salaries, wages or labor expenses;
b. Production supervision salaries;

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 c. Raw materials used in the manufacture of products;
d. Goods in process (Intermediate goods);
e. Finished goods;
f. Supplies and fuels used in production;
g. Depreciation of machinery, equipment, and building directly and exclusively used in the rendition/production of
registered activity;
h. Rent and utility charges associated with building, equipment, and warehouses, or handling of goods used directly and
exclusively in the rendition/production of registered activity;
i. Financing charges associated with fixed assets used directly and exclusively in the registered activity;
j. Service supervision salaries; and
k. Direct materials and supplies used.
Illustration 1.2 SPECIAL CORPORATE INCOME TAX
During 2029, an RBE reported the following a year after expiration of its income tax holiday:
Registered Unregistered
Gross Receipts 9,600,000 200,000
Cost 4,200,000 20,000
Gross Income 5,400,000 180,000

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 Expenses 1,900,000 -
Net Income 3,500,000 180,000
The total income tax will be computed and allocated as follows:
Tax Base Tax Rate Tax Amount
Gross Income Tax 5,400,000 5% 270,000
Regular Income Tax 180,000 25% 45,000
Total Income Tax 5,580,000 315,000

Illustration 1.3 YEARS NOT COINCIDING

A Tier 1 export enterprise in Manila started its commercial operations on July 1, 2022. Following are the quarterly financial
performance for the year 2026:
Q1 Q2 Q3 Q4
Sales 900,000 1,000,000 1,400,000 1,200,000
Less: Cost of Sales 400,000 450,000 600,000 550,000
Gross Income 500,000 550,000 800,000 650,000
Less: Operating Expenses 200,000 300,000 350,000 250,000
Net Income 300,000 250,000 450,000 400,000

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 The entity shall be covered by the 5% GIT starting the third quarter of 2020, thus, still will enjoy the income tax holiday for the
first two quarters. The income tax due shall be computed as follows:
Q1 Q2 Q3 Q4
Tax Base 0 0 800,000 650,000
Tax Rate 25% 25% 5% 5%
Income Tax Due 0 0 40,000 32,500
Enhanced Deductions
For export enterprise and critical domestic market enterprise, the following may be allowed as deductions.

10% Qualified Capital Expenditure

for The depreciation allowance of the assets acquired for the entity's production of goods and services (qualified capital
buildings, expenditure) shall be allowed for assets that are directly related to the registered enterprise's production of goods
20% and services other than administrative and other support services.
for
machineries
& equipment

Labor Expense
50% The additional deduction on the labor expense shall not include salaries, wages, benefits, and other personnel costs
incurred for managerial, administrative, indirect labor, and support services.

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 Research and Development Expense
The additional deduction on research and development expense shall only apply to research and development
100% directly related to the registered project or activity of the entity and shall be limited to local expenditure incurred
for salaries of Filipino employees and consumables and payments to local R&D organizations.
Training Expense
The additional deduction on training expense shall only apply to trainings, as approved by the Investment
100% Promotion Agencies based on the Strategic Investment Priority Plan, given to the Filipino employees engaged
directly in the registered business enterprise's production of goods and services.
Domestic Input Expense
50% The additional deduction on domestic input expense shall only apply to domestic input that are directly related to
and actually used in the registered export project or activity of the registered business enterprise.
Power Expense
50% The additional deduction on power expense shall only apply to power utilized for the registered project or activity.
Reinvestment Allowance
50% When a manufacturing registered business enterprise reinvests its undistributed profit or surplus in any of the
projects or activities listed in the Strategic Investment Priority Plan, the amount reinvested to a maximum of fifty

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 percent (50%) shall be allowed as a deduction from its taxable income within a period of five (5) years from the time
of such reinvestment.
Enhanced Net Operating Loss Carryover
5 The net operating loss of the registered project or activity during the first three (3) years from the start of commercial
years operation, which had not been previously offset as deduction from gross income, may be carried over as deduction
from gross income within the next five (5) consecutive taxable years immediately following the year of such loss.

Summary of Income Tax Regimes

Export Tier I Tier II Tier III Domestic Tier I Tier II Tier III
4 ITH + 5 ITH + 6 ITH + 4 ITH + 5 ITH + 6 ITH +
NCR NCR
10 ED/SCIT 10 ED/SCIT 10 ED/SCIT 5 ED 5 ED 5 ED
Metro Metro
5 ITH + 6 ITH + 7 ITH + 5 ITH + 6 ITH + 7 ITH +
Areas/NCR Areas/NCR
10 ED/SCIT 10 ED/SCIT 10 ED/SCIT 5 ED 5 ED 5 ED
Adjacents Adjacents
6 ITH + 7 ITH + 7 ITH + 6 ITH + 7 ITH + 7 ITH +
All other areas All other areas
10 ED/SCIT 10 ED/SCIT 10 ED/SCIT 5 ED 5 ED 5 ED

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 Duty Exemption
The duty exemption shall only apply to the importation of capital equipment, raw materials, spare parts, or accessories directly
and exclusively used in the registered project or activity by registered business enterprises: Provided, That the following
conditions are complied with:
a. The capital equipment, raw materials, spare parts, or accessories are directly and reasonably needed and will be used
exclusively in and as part of the direct cost of the registered project or activity of the registered business enterprise and are
not produced or manufactured domestically in sufficient quantity or of comparable quality and at reasonable prices.
b. The approval of the Investment Promotion Agency was obtained by the registered business enterprise prior to the
importation of such capital equipment, raw materials, spare parts, or accessories.
Sale, Transfer or Disposition
Within the first five (5) years from date of Importation, the RBE shall secure the approval of the concerned IPA before the sale,
transfer, or disposition of the capital equipment, raw materials, spare parts, or accessories which were granted customs duty
exemption provided the payment of duties based on the net book value of the capital equipment, raw materials, spare parts, or
accessories. The sale, transfer, or disposition thereof shall be allowed only under the following circumstances:
a. If made to another enterprise availing customs duty exemption on imported capital equipment, raw materials, spare
parts, or accessories for its direct and exclusive use;

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 b. If made to another enterprise not availing of duty exemption on imported capital equipment, raw materials, spare
parts, or accessories, upon payment of any taxes and duties due on the net book value of the capital equipment, raw
materials, spare parts, or accessories to be sold;
c. Exportation of capital equipment, raw materials, spare parts, accessories, source documents, or those required for
pollution abatement and control;
d. Proven technical obsolescence of the capital equipment, raw materials, spare parts, or accessories; or
e. If donated to the TESDA, SUCs, or DepEd and CHED accredited schools; provided, that the donation shall be exempt
from import duties and taxes, including donor's tax.
If the RBE sells, transfers, or disposes the aforementioned imported items without prior approval of the concerned IPA, the RBE
and the vendee, transferee, or assignee shall be solidarily liable to pay twice the amount of the duty exemption that should have
been paid during its importation, without prejudice to any penalties or sanctions the concerned IPA may impose.

VAT Exposure
Sales made to registered business enterprises are in general subject to 12% VAT, except when such sales are made to registered
export enterprises on their purchases of goods or services directly and exclusively used in their registered activity. In such case,
it shall be subject to zero-rating for a maximum period of 17 years from the date of registration indicated in its Certificate of
Registration.

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 REE RDME
Directly for Registered Activity 0% VAT 12% VAT
Other Purposes 12% VAT 12% VAT

Local purchases of goods and services relating to the following shall not be considered as "directly and exclusively used" in the
registered project or activity of a registered export enterprise, to wit:
1. janitorial services; 3. financial services; 5. marketing and promotion; and
2. security services; 4. consultancy services; 6. administrative services
This notwithstanding, the registered export enterprise is not precluded from further proving, with supporting evidence, to the
concerned Investment Promotion Agency (IPA) that any of these local purchase of goods and/or services are indeed directly
and exclusively used in its registered project or activity. In all instances, in issuing the VAT zero-rating certification, the
concerned IPA shall be guided by the rule that such local purchases are directly attributable to the registered project or activity
without which such registered project or activity cannot be carried out. These are costs that are indispensable to the project or
activity, i.e., without which the project or activity cannot proceed, and these include expenses that are necessary or required
depending on the nature of the registered project or activity of the export enterprise.

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 If the purchased goods and/or services are used in both the registered project or activity and administrative operations, the
registered export enterprise shall adopt a method to best allocate the same. If a proper allocation could not be determined, the
purchase of such goods shall be subject to twelve percent (12%) VAT.
Health maintenance organization (HMO) plans acquired by registered export enterprise for its employees who are directly and
exclusively involved in the operations of their registered projects or activities and forming part of their compensation package
shall be considered as "directly and exclusively used" in the registered project or activity of a registered export enterprise subject
to the conditions provided under the existing laws, rules and regulations regarding the availment thereof.
The VAT treatments on the sale, transfer, or disposition of an RBE on the previously VAT-exempt importation of capital
equipment, raw materials, spare parts, or accessories are as follows with non-registered export enterprises included as RDMEs
for this purpose:

Seller (up) / Buyer (left) Registered Export Enterprise
Registered Export Enterprise 0% VAT
Exempt is buyer is also exempt,
Registered Domestic Market Enterprise
otherwise, 12% VAT
Registered Domestic Market Enterprise
0% VAT
Exempt if seller is on 5% GIT,
otherwise, 12% VAT

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 Other Incentives
Importation of COVID-19 Vaccines
The importation of COVID-19 vaccines by RBEs shall be exempt from import duties, taxes and other fees, subject to the approval
or licenses issued by the Department of Health (DOH) or the Food and Drug Administration (FDA). The COVID-19 vaccines
must not be intended for resale or other commercial use and shall be distributed without any consideration from persons to be
vaccinated. RBEs availing duty and tax exemption must declare that the vaccines shall be for the sole and exclusive use of such
entities.
Importation of Petroleum Products
Crude oil that is intended to be refined at a local refinery, including the volumes that are lost and not converted to petroleum
products when the crude oil actually undergoes the refining process, shall be exempt from payment of applicable duties and
taxes upon importation, provided:
a. applicable duties and taxes on petroleum products shall be payable only upon lifting of the petroleum products produced
from the imported crude oil, subject to rules and regulations that may be prescribed by the Bureau of Customs and the
Bureau of Internal Revenue, to ensure that crude oil shall not be lifted from the refinery without payment of appropriate
duties and taxes.

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 b. in case of withdrawal of the petroleum products produced from the imported crude oil, for introduction into the customs
territory, all applicable duties, taxes and other charges shall be paid to the Bureau before release from custody subject to
the prior requirement of authority to release imported goods (ATRIG).

CANCELLATION, SUSPENSION, OR WITHDRAWAL OF THE ENJOYMENT OF TAX

INCENTIVES
The FIRB may cancel, suspend, or withdraw, on its own initiative or upon the recommendation of the IPA after due process, the
enjoyment of fiscal incentives granted to qualified recipients in the following instances:
a. Non-compliance with the agreed performance targets or material violation of any of the conditions imposed in the grant of
fiscal incentives or tax;
b. Material misrepresentation of information for the purpose of availing more incentives than what it is entitled to under the
Code; or
c. Non-compliance of the registered business enterprise with the reportorial requirements.

RULES ON TRANSITION
Registered business enterprises with incentives granted prior to the effectivity of the Act shall be subject to the following rules:

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 Allowed to continue with the availment of the income tax
Granted an income tax holiday only
holiday for the remaining period of the income tax holiday
Currently availing of the 5% gross income tax on gross
Allowed to continue availing the 5% GIT for ten years
income earned
Granted an income tax holiday and entitled to the five
Allowed to exhaust unused income tax holiday and continue
percent (5%) tax on gross income earned incentive after the
availing the 5% GIT, both for a total of ten years
income tax holiday

A qualified expansion, entirely new project, or existing registered projects or activities prior to the effectivity of this Act, may
register and avail of the incentives granted under the Act for the prescribed period, subject to the criteria and conditions set
forth in the SIPP in effect at the time of application, and performance review by the FIRB, provided that after the expiration of
the transitory period, export enterprises registered prior to the effectivity of this Act shall have the option to reapply and avail
of the incentives granted under the Act.
For this purpose, RBEs who avail of the transitory provision and incentives on reapplication will not be eligible to apply for new
incentives under the Act for their existing activities unless there is qualified expansion, entirely new project or additional
investments.

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 Qualified expansion projects or activities may be granted an ITH for three (3) years, Provided, That the application for tax
incentives for a qualified expansion project or activity shall be approved by the FIRB or concerned IPA, as the case may be,
based on the amount of investment capital of the expansion project or activity.

PROHIBITION ON REGISTERED ACTIVITIES

A qualified registered project or activity under an Investment Promotion Agency administering an economic zone or freeport
shall be exclusively conducted or operated within the geographical boundaries of the zone or freeport being administered by
the Investment Promotion Agency in which the project or activity is registered, provided;
a. registered business enterprise may conduct or operate more than one qualified registered project or activity within the
same zone or freeport under the same Investment Promotion Agency
b. any project or activity conducted or performed outside the geographical boundaries of the zone or freeport shall not be
entitled to the incentives provided in this Act, unless such project or activity is conducted or operated under another
Investment Promotion Agency

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 Self-Check!
Basing on your readings, answer the following questions.
1. What are the contents of the Strategic Investment Priorities Plan?
2. What are the qualifications of eligible enterprise for tax incentives?
3. What are the tax incentives under the CREATE Law?
4. What are the rules on the registered activities of eligible enterprises?
5. What are the transitory rules for enterprises enjoying preferential taxes before the effectivity of CREATE Law?

Exercise 1.1 IDENTIFICATION

Identify the terminologies best described by the following statements.
1. Any enterprise registered with Investment Promotion Agencies to engage in manufacturing, assembling or processing
activity and IT services resulting to direct exportation
2. Any enterprise registered with Investment Promotion Agencies other than export enterprise
3. An isolated and policed area adjacent to a port of entry which shall be operated and managed as a separate customs
territory to ensure free flow or movement of goods
4. Purchases of capital goods with a useful life of more than one year acquired for an entity’s production of goods and
services to be directly used in its registered activity
5. A special incentive providing additional special deductions to registered enterprises on specific types of expenses

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 6. Document serving as proof of entitlement for tax and duty free importation
7. Document serving as proof of entitlement for incentives
8. Government entities created to grant, administer incentives and oversee operation in ecozones
9. Plan prepared by BOI containing the priority projects, scope and coverage of location and industry tiers wherein
investments are encouraged
10. The value of investment that shall be used to carry out a registered project

Exercise 4.2 MULTIPLE CHOICE

Choose the best answer from the choices provided.
1. Which of the following is not an investment promotion agency?
a. Philippine Economic Zone Authority
b. Board of Investments
c. Bases Conversion and Development Authority
d. National Irrigation Authority
2. Enterprises enjoying both income tax holiday and 5% GIT prior to the effectivity of the CREATE Law are
a. to exhaust the remaining unused ITH only
b. to exhaust the remaining unused ITH and be subject to 5% GIT, both for a total of ten years

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 c. subject to the 5% GIT for ten years only
d. should re-register as an eligible enterprise
3. Which of the following is not a fiscal incentive specifically identified under Title XIII of the CREATE Law?
a. Income tax holiday
b. Exemption from expanded withholding tax
c. 5% SCIT or enhanced deductions
d. VAT zero-rating on local purchases
4. The maximum ITH for domestic market enterprise is
a. 5 years
b. 6 years
c. 7 years
d. 8 years
5. The maximum years that the 5% SCIT or enhanced deductions may be availed by export enterprises is
a. 5 years
b. 7 years
c. 8 years
d. 10 years

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 6. Jackie Palubos is an employee of a pioneer PEZA enterprise. How will her compensation income be taxed?
a. Exempt due to income tax holiday
b. 5% income tax
c. 35% fringe benefit tax
d. Progressive tax table
7. The reckoning date of the income tax holiday is
a. Date of filing registration
b. Date of approval of registration
c. Date of release of Certificate of Registration
d. Date of start of commercial operation
8. A Tier II enterprise in Bulacan applied for registration status on January 10, 2022. Its Certificate of Registration was
dated March 18, 2022, ten days after it was approved by PEZA Board. It started its commercial operation on June 19,
2022. When will its income tax holiday expire?
a. March 8, 2026
b. June 19, 2026
c. March 8, 2028
d. June 19, 2028

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 9. Income derived from unregistered activities are taxed at, except
a. Final withholding tax
b. Regular income tax
c. 5% Gross income tax
d. Capital gains tax
10. The following types of tax incentives, except one, may be granted to domestic market enterprises
a. Special Corporate Income Tax
b. Enhanced Deductions
c. Income Tax Holiday
d. Duty Importation

Problem 1.1 INCOME TAX HOLIDAY AND SPECIAL CORPORATE INCOME TAX
Stand Company started its commercial operations on June 30, 2022 registered to avail tax incentives. Following is its financial
performance for the year 2028.
Jan-Jun Jul-Dec
Gross Sales 15,600,000 18,700,000
Cost of Sales 6,200,000 7,500,000

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 Operating Expenses 2,900,000 3,700,000
Compute the Income Tax Payable under each of the following scenarios:
a. It is a Tier-I domestic enterprise operating in NCR
b. It is a Tier-II export enterprise operating in Bulacan
c. It is a Tier-III export enterprise operating in Isabela
d. It is a Tier-I domestic enterprise operating in Cavite (with declaration of a major disaster in the area)
e. It is a Tier-I domestic enterprise operating in Bicol (relocated from NCR during 2028)

Problem 1.2 ENHANCED DEDUCTIONS

A registered export enterprise whose ITH is already expired chose to be taxed at the regular corporate tax rate with enhanced
deductions. Following is its financial performance during the year.
Gross Sales 68,000,000
Cost of Sales 23,500,000
Regular Deductions 10,600,000
Included in the deductions to gross sales are P800,000 depreciation of qualified capital expenditure on machineries, P200,000
power expenses, P1,500,000 direct labor expense and P300,000 training expenses.
Compute the amount of income tax payable.

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 Problem 1.3 TRANSITION
A qualified enterprise started its commercial operations on April 1, 2019. Following is its 2025 financial performance.
Q1 Q2 Q3 Q4
Sales 8,000,000 11,000,000 9,000,000 9,600,000
Cost of Sales 4,400,000 5,000,000 4,600,000 4,600,000
Gross Profit 3,600,000 6,000,000 4,400,000 5,000,000
Expenses 3,000,000 2,400,000 2,800,000 2,400,000
Net Income 600,000 3,600,000 2,400,000 2,600,000
Compute the income tax payable under each of the following scenarios:
a. It is a pioneer BOI-registered enterprise
b. It is non-pioneer BOI-registered enterprise
c. It is a pioneer PEZA-registered enterprise
d. It is a non-pioneer PEZA-registered enterprise
e. It is a BCDA-registered enterprise
f. A non-pioneer BOI-registered enterprise relocating from Manila in 2024

Preferential Taxation CREATE Law Tax Incentives page 12 BACTEL2X