RR No. 12-2005: Defines “Gross Income” to implement the tax incentive provision of Republic Act No. 7922, otherwise known as “Cagayan Special Economic Zone Act of 1995” and of Republic Act No. 7903, otherwise known as “Zamboanga City Special Economic Zone Act of 1995”

Key points

1. Meaning of gross income. 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. Use in the five percent tax. The allowed deductions below apply when computing the total five percent (5%) tax rate.
3. Trading enterprises. The deduction is cost of sales, which is beginning inventory plus purchases minus ending inventory of goods.
4. Manufacturing enterprises. Allowed deductions include direct labor, production supervision salaries, raw materials, decrease in Goods in Process and Finished Goods accounts, production supplies and fuels, depreciation of production machinery and of the building portion used exclusively in production, rent and utilities for production facilities, and uncapitalized financing charges on production fixed assets.
5. Service enterprises. Allowed deductions include direct labor, service supervision salaries, direct materials and supplies, depreciation of equipment and of the building portion used exclusively for registered services, rent and utilities for those services, and uncapitalized financing charges on service fixed assets.
6. Suspension of RR No. 2-2005 sections. Sections 3, 4, and 6 of Revenue Regulations No. 2-2005 are suspended for enterprises registered under RA No. 7922 and RA No. 7903. The suspension lasts until new regulations are issued.

Who is affected

• Trading, manufacturing and service enterprises registered under RA No. 7922 and RA No. 7903

Deadlines and effectivity

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