RR No. 13-2005: Defines “Gross Income Earned” to implement the tax incentive provision of Republic Act No. 7227, otherwise known as “The Bases Conversion Development Act of 1992”

Key points

1. Meaning of gross income earned. It means gross sales or gross revenues from business activity within the Zone, net of sales discounts, sales returns and allowances, and minus costs of sales or direct costs. No deduction is made for administrative, marketing, selling or operating expenses or incidental losses in the taxable period.
2. Financial enterprises. Gross income includes interest income, gains from sales, and other income, net of costs of funds.
3. Deductions by enterprise type. For the total five percent (5%) tax rate, trading enterprises deduct cost of sales (beginning inventory plus purchases minus ending inventory). Manufacturing and service enterprises deduct listed direct costs such as direct labor, supervision salaries, materials or supplies, depreciation, rent and utilities, and uncapitalized financing charges on fixed assets. Financial institutions have no listed deductions.
4. Suspension of RR No. 2-2005 sections. Sections 3, 4, and 6 of Revenue Regulations (RR) No. 2-2005 are suspended for enterprises registered under paragraph (c) of Section 12 of RA No. 7227. The suspension lasts until new regulations are issued.
5. Rule in the meantime. Until the new regulations are issued, RR No. 1-95 applies as long as it does not conflict with these Regulations.

Who is affected

• Trading, manufacturing, service and financial enterprises registered under paragraph (c) of Section 12 of RA No. 7227

Deadlines and effectivity

• Issued June 23, 2005
• Suspension of Sections 3, 4, and 6 of RR No. 2-2005 lasts pending new regulations