MALACAŅANG
M a n i l a
PRESIDENTIAL DECREE No. 1158-A
AMENDING CERTAIN SECTIONS OF THE NATIONAL INTERNAL REVENUE CODE OF 1939 FOR INCORPORATION IN THE CONSOLIDATION AND CODIFICATION OF ALL EXISTING REVENUE LAWS UNDER A PRESIDENTIAL DECREE NO. 1158
WHEREAS, the national government is in due need of funds to finance its socio-economic program designed to upgrade the living standards of our people;
WHEREAS, it is necessary to amend further certain provisions of the said Code to make it more responsive to current conditions;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Republic of the Philippines, by virtue of the powers in me vested by the Constitution, do hereby order and decree:
Section 1. Section 24 of the National Internal Revenue Code is hereby amended to read as follows:
"Sec. 24. Rates of tax on corporations. (a) Tax on domestic corporations. A tax is hereby imposed upon the taxable net income received during each taxable year from all sources by every corporation organized in, or existing under the laws of the Philippines, and partnerships, no matter how created or organized but not including general professional partnerships in accordance with the following:
"Twenty-five per cent upon the amount by which the taxable net income does not exceed one hundred thousand pesos; and
"Thirty five per cent upon the amount by which the taxable net income exceeds one hundred thousand pesos.
"Private educational institutions, whether stock or non-stock shall pay a tax of ten per cent of their taxable net income from the operation of the school, related school activities, and on their passive investment income consisting of interest, dividends, royalties, and the like: Provided, however, that dividends received by a private educational institutions, whether stock or non-stock, from a domestic or resident foreign corporation shall be subject to the inter-corporate dividends tax under subsection (e) hereof.
"(b) Tax on foreign corporations. (1) Non-resident corporations. A foreign corporation not engaged in trade or business in the Philippines shall pay a tax equal to thirty-five per cent of the gross income received during each taxable year from all sources within the Philippines, as interest, dividends, rents, royalties, salaries, premiums, annuities, remunerations for technical services, emoluments or other fixed or determinable annual, periodical or casual gains, profits and income, and capital gains: Provided, however, That
(I) Premiums shall not include reinsurance premiums;
(II) Interest on foreign loans shall be subject to fifteen per cent tax;
(III) On dividends received from domestic corporation liable to tax under this Chapter, the tax shall be 15% of the dividends received, which shall be collected and paid as provided in Section 53 (d) of this Code, subject to the condition that the country in which the non-resident foreign corporation is domiciled shall allow a credit against the tax due from the non-resident foreign corporation taxes deemed to have been paid in the Philippines equivalent to 20% which represents the difference between the regular tax (35%) on corporations and the tax (15%) on dividends as provided in this Section;
(IV) Cinematographic film owners, lessors, or distributors shall pay a tax of twenty-five per cent of their gross income from all sources within the Philippines. For purposes of this paragraph, the gross income of cinematographic film owners, lessors, or distributors shall include film rentals and all items of gross income under Section 29 (a);
(V) Rentals, lease and charter fees payable to non-resident owners of vessels chartered by Philippine nationals as the term is defined under Section 3 (c) of Presidential Decree No. 474, and which charter or lease has been duly approved by the Maritime Industry Authority, shall be subject to 4.5% final tax, the return and payment of which shall be in accordance with Sections 53 and 54 of this code;
(VI) Regional or area headquarters established in the Philippines by multinational corporations and which headquarters do not earn or derived income from the Philippines and which act as supervisory, communications and coordinating centers for their affiliates, subsidiaries, or branches in the Asia-Pacific Region shall not be subject to tax.
"(2) Resident corporations. A corporation organized, authorized, or existing under the laws of any foreign country, engaged in trade or business within the Philippines, shall be taxable as provided in subsection (a) of this section upon the total net income received in the preceding taxable year from all sources within the Philippines: Provided, however, That international carriers shall pay a tax of two and one half per cent on their gross Philippine billings: Provided, further, That any profit remitted abroad by a branch office to its mother company shall be subject to tax of fifteen per cent (except those registered with the Export Processing Zone Authority).
"(c) Rate of tax on certain dividends. Dividends received by a domestic or resident foreign corporation from a domestic corporation liable to tax under this Code
"(1) Shall be subject to a final tax at 10%, on the total amount thereof, which shall be collected and paid as provided in Section 53 and 54 of this Code; and
"(2) Shall not be included in the determination of the gross income of the recipient corporation: Provided, however, That interest paid or incurred on indebtedness abroad by a domestic or resident foreign corporation, which indebtedness was incurred to provide funds for investment in a domestic corporation shall be allowed as a deduction from the intercorporate dividends before computing the 10% final tax. Any excess of the interest herein allowed as deduction from intercorporate dividends may be deducted from the other gross income of the recipient corporation, subject to the provisions of Section 30(b) of this Code.
"The above deduction of interest from intercorporate dividends shall be allowed only if the recipient domestic or resident foreign corporation submits an authenticated copy of the foreign loan agreement stipulating the end-use of the loan proceeds and such other information as may be required for its determination.
"The Secretary of Finance, upon recommendation of the Commissioner of Internal Revenue, shall promulgate rules and regulations to implement the provisions of this paragraph.
"(d) Tax on mutual life insurance companies. Mutual life insurance companies organized in and existing under the laws of the Philippines shall pay a tax of 10% of their gross investment income consisting of interest, dividends, rents, net capital gains and income from any other business than life insurance derived from all sources. Foreign mutual life insurance companies authorized to carry business in the Philippines shall pay the same rate of tax on the same items of gross investment income derived from sources within the Philippines.
"(e) Corporate development tax. In addition to the tax imposed in subsection (a) of this Section, an additional tax in an amount equivalent to 5% of the same taxable net income shall be paid by a domestic or a resident foreign corporation: Provided, That this additional tax shall be imposed only if the net income exceeds 10% of the net worth, in case of a domestic corporation, or net assets in the Philippines, in case of a resident foreign corporation: Provided, however, That a closely-hold corporation as defined hereinbelow shall be subject to the said additional income tax regardless of the rate of return on its net worth. The term "closely-held corporation" means any corporation, (a) at least 50% in value of the outstanding stocks or (b) at least 50% of the total combined voting power of all classes of stock entitled to vote, at any time during the taxable year, is owned directly or indirectly by or for not more than five persons, natural or juridical. For the purpose of determining whether an individual indirectly owns shares of stock in a corporation, the attribution rules prescribed by Section 66 of this Code shall be applied.
"The additional corporate income tax imposed in this subsection shall be collected and paid at the same time and in the same manner as the tax imposed in subsection (a) of this Section.
"(f) Tax on transactions by offshore banking units and under the expanded foreign currency deposit system. (1) Offshore banking units. The provisions of any law to the contrary notwithstanding the transactions of offshore banking units authorized by the Central Bank with non-residents and other offshore banking units shall be subject to a five per cent (5%) tax on the net income from such transactions which shall be in lieu of all taxes on the said transactions: Provided, however, That transactions of offshore banking units with local commercial banks, including branches of foreign banks that may be authorized by the Central Bank to transact business with offshore banking units, shall likewise be subject to the same tax, except net income from such transactions as may be specified by the Secretary of Finance, upon recommendation of the Monetary Board, to be subject to the usual income tax payable by banks. Any income of non-residents from transactions with said offshore banking units shall be exempt from any tax.
"In case of transaction with residents (other than other offshore banking units or local commercial banks including local branches of foreign banks that may be authorized by the Central Bank of the Philippines to transact business with offshore banking units), interest income from loans granted to such residents shall be subject only to a ten per cent (10%) withholding tax as final tax.
"(2) Expanded foreign currency deposit system. The net income derived by a depository bank from foreign currency transactions with non-residents, offshore banking units in the Philippines and other depository banks under the expanded foreign currency deposit system under the rules and regulations of the Central Bank shall be subject to a five per cent (5%) tax which shall be in lieu of all taxes on said transactions, except net income from such transactions as may be specified by the Secretary of Finance, upon recommendation of the Monetary Board, to be subject to the usual income tax payable by banks.
"Interest income from foreign currency loans granted by such depository banks under said expanded system to residents (other than offshore banking units in the Philippines or other depository banks under the expanded system) shall be subject to a ten per cent (10%) withholding tax as a final tax.
"Income of non-residents not engaged in trade or business in the Philippines from foreign currency loans to depository banks under the expanded system shall be exempt from income tax.
(g) The provisions of existing special or general laws to the contrary notwithstanding, all corporate taxpayers not specifically exempt under Section 27 of this Code shall pay the rates provided in this Section. All corporations, agencies or instrumentalities owned or controlled by the Government, including the Government Service Insurance System and the Social Security System but excluding educational institutions, shall pay such rate of tax upon their taxable net income as are imposed by this section upon associations or corporations engaged in a similar business or industry.
Section 2. Subparagraph (b) of Section 29 of the National Internal Revenue Code is hereby amended to read as follows:
"(b) Exclusion from gross income. The following items shall not be included in gross income and shall be exempt from taxation under this Title:
(1) Life insurance. The proceeds of life insurance policies paid to beneficiaries upon the death of the insured, whether in a single sum or otherwise, but if such amounts are held by the insurer under an agreement to pay interest thereon, the interest payments shall be included in gross income.
"(2) Amount received by insured as return of premium. The amount received by the insured, as a return of premium or premiums paid by him under life insurance, endowment, or annuity contracts, either during the term or at the maturity of the term mentioned in the contract or upon surrender of the contract.
"(3) Gifts, bequests, and devises. The value of property acquired by gift, bequests, devise, or descent; but the income from such property shall be included in gross income.
"(4) Interest on Government securities. Interest upon the obligations of the Government of the Republic of the Philippines or any political subdivision thereof, but in the case of such obligations issued after the approval of this Code, only to the extent provided in the act authorizing the issue thereof.
"(5) Compensation for injuries or sickness. Amounts received, through Accident or Health Insurance or under Workmen's Compensation Acts, as compensation for personal injuries or sickness, plus the amount of any damages received whether by suit or agreement on account of such injuries or sickness.
"(6) Income exempt under treaty. Income of any kind, to the extent required by any treaty obligation binding upon the Government of the Philippines.
"(7) Retirement benefits, pensions, gratuities, etc.
(A) Retirement benefits received by officials and employees of private firms, whether individual or corporate, in accordance with a reasonable private benefit plan maintained by the employer: Provided, That the retiring official or employee has been in the service of the same employer for at least ten (10) years and is not less than fifty years of age at the time of his retirement: Provided, further, that the benefits granted under this Code shall be availed of by an official or employee only once. For purposes of this subsection, the term "reasonable private benefit plan" means a pension, gratuity, stock bonus or profit sharing plan maintained by an employer for the benefit of some or all of his officials or employees wherein contributions are made by such employer for officials and employees, or both, for the purpose of distributing to such officials and employees the earnings and principal of the fund thus accumulated, and wherein it is provided in said plan that at no time shall any part of the corpus or income of the fund be used for, or be diverted to, any purpose other than for the exclusive benefit of the said officials and employees.
"(B) Any amount received by an official and employee or by his heirs form the employer as a consequence of separation of such official or employee from the service of the employer due to death, sickness or other physical disability or for any cause beyond the control of the said official or employee.
"(C) The provisions of any existing law to the contrary notwithstanding, social security benefits, retirement gratuities, pensions and other similar benefits received by resident or non-resident citizens of the Philippines or aliens who come to reside permanently in the Philippines from foreign government agencies and other institutions, private or public.
"(D) Payments of benefits due or to become due to any person residing in the Philippines under the laws of the United States administered by the United States Veterans Administration.
"(E) Payments of benefits made under the Social Security System Act of 1954, as amended.
"(F) Benefits received from the GSIS and the retirement gratuity received by government officials and employees.
"(8) Miscellaneous items. (A) Income received from their investments in the Philippines, in loans, stock, bonds, or other domestic securities or from interest on their deposit in banks in the Philippines by (1) foreign governments, (2) financing institutions owned, controlled, or enjoying refinancing from them, and (3) international or regional financing institutions established by governments.
"(B) Income derived from any public utility or from the exercises of any essential governmental function accruing to the Government of the Philippines or to any political subdivision thereof.
"(C) Income derived as rewards under Republic Act Numbered twenty-three hundred and thirty-eight, as amended by Presidential Decree No. 707."
Section 3. Subparagraph (d) of Section 30 of the National Internal Revenue Code is hereby amended to read as follows:
"(d) Losses;
"(1) By individuals. In the case of an individual, losses actually sustained during the taxable year and not compensated for by insurance or otherwise.
"(A) If incurred in trade or business; or
"(B) If incurred in any transaction entered into for profit, though not connected with the trade or business; or
"(C) Of property not connected with the trade or business, if the loss arises from fires, storms, or casualty, or from robbery, theft, or embezzlement. No loss shall be allowed as a deduction under this paragraph if at the time of the filing of the return such loss has been claimed as a deduction for estate tax purposes in the estate tax return. The Secretary of Finance, upon recommendation of the Commissioner of Internal Revenue, is hereby authorized to promulgate rules and regulations prescribing among other things the time and manner by which the taxpayer shall submit a declaration of loss sustained from casualty or from robbery, theft, or embezzlement during the taxable year, Provided, however, That the time limit to be so prescribed in the regulations shall not be less than 30 days nor more than 90 days from the date of the occurrence of the casualty or robbery, theft or embezzlement giving rise to the loss.
"(2) By corporations. In the case of a corporation, all losses actually sustained and charged off within the taxable year and not compensated for by insurance or otherwise.
"(3) By non-resident aliens or foreign corporations. In the case of a non-resident alien individual or a foreign corporation, the losses deductible are those actually sustained during the year incurred in the business or trade conducted within the Philippines, and losses of property within the Philippines arising from fires, storms or other casualty, and from robbery, theft, or embezzlement, and losses actually sustained during the year in transactions entered into for profit in the Philippines although not connected with their business or trade, when such losses are not compensated for by insurance or otherwise. The Secretary of Finance, upon recommendation of the Commissioner of Internal Revenue, is hereby authorized to promulgate rules and regulations prescribing among other things the item and manner by which the taxpayer shall submit a declaration of loss sustained from casualty or from robbery, theft or embezzlement during the taxable year, Provided, however, That the time to be so prescribed in the regulations, shall not be less than 30 days nor more than 90 days from the date of the occurrence of the casualty or robbery, theft or embezzlement giving rise to the loss.
Section 4. Section 45(a) of the National Internal Revenue Code is hereby amended to read as follows:
"Sec. 45. Individual returns. (a) Requirements. (1) The following individuals are required to file an income tax return, if they have a gross income of at least P1,800 for the taxable year:
"(A) Every Filipino citizen, whether residing in the Philippines or abroad and,
"(B) Every alien residing in the Philippines, regardless of whether the gross income was derived from sources within or outside the Philippines.
"(2) Regardless of amount, every non-resident alien engaged in trade or business in the Philippines shall file an income tax return.
"The income tax return shall be filed in duplicate, and shall set forth specifically the gross amount of income from all sources, except that of non-resident aliens engaged in trade or business in the Philippines which shall contain only such income derived from sources within the Philippines.
"(3) Notwithstanding the provisions of the preceding paragraphs, an individual (except a non-resident alien engaged in trade or business in the Philippines) whose gross income derived solely from salaries, wages, remunerations and other similar compensation for services rendered, does not exceed his personal exemption of P1,800 if he/she is single or P3,000 if he/she is married or head of the family, plus the optional standard deduction to which he/she is entitled to claim under sub-paragraph (k) of Section 30, is not required to file an income tax return."
Section 5. Section 53 of the National Internal Revenue Code is hereby amended by adding a new paragraph as follows:
"(C) Resident individuals and corporations. Dividends received by individuals residing in the Philippines from a domestic corporation, as well as royalties in any form received by such individuals and domestic and/or resident foreign corporations from any person whether natural or juridical shall be subject to withholding tax at source at the rate of 10% thereof. The tax shall be withheld by the payer-corporation and/or person and paid in the same manner and subject to the same conditions as provided in section 54 of the National Internal Revenue Code: Provided, however, That the tax withheld under this sub-paragraph shall be credited against the income tax liability of the recipient-taxpayer for the taxable year."
Section 6. Article 1 of H.B. No. 5480, enacted as an integral part of Presidential Decree No. 30, as amended, is hereby amended to read as follows:
"Art. 1. Requirements of declaration. Every individual subject to income tax under Section twenty-one or twenty-two of this Title, receiving income other than that subject to withholding under Supplement A of this Title, and every corporation subject to income tax under Section twenty-four of this Title shall file a declaration of its net taxable income for each quarter of its taxable year: Provided, however, That individuals and corporations that have paid the income tax herein required and have filed the adjustment return prescribed in Article Three of this supplement shall be exempt from filing the return required in Section forty-five and forty-six of this Title."
Section 7. Article 2 of H.B. No. 5480, enacted as an integral part of Presidential Decree No. 30, as amended, is hereby amended to read as follows:
"Art. 2. Time for filing corporate quarterly income tax return and manner of paying the income tax. Every corporation shall file in duplicate a quarterly summary declaration of its gross income and deductions on a cumulative basis for the preceding quarter or quarters upon which the income tax, as provided in Title II of this Code, shall be levied, collected and paid. The tax so computed shall be decreased by the amount of tax previously paid or assessed during the preceding quarters and shall be paid not later than sixty (60) days from the close of each of the first three (3) quarters of the taxable year, whether calendar or fiscal year."
Section 8. Article 4 of H.B. No. 5480 enacted as an integral part of Presidential Decree No. 30, as amended, is hereby amended to read as follows:
"Art. 4. Filing of adjustment returns and final payment of income tax. On or before the fifteenth day of April or on or before the fifteenth day of the fourth month following the close of the fiscal year, every taxpayer covered by this Supplement shall file an adjustment return covering the total net taxable income of the preceding calendar or fiscal year and if the sum of the quarterly tax payments made during that year is not equal to the total tax due on the entire net taxable income of that year, the corporation shall either (a) pay the excess tax still due or (b) be refunded the excess amount paid, as the case may be. In case the corporation is entitled to a refund of excess quarterly income taxes paid, the refundable amount shown in its final and adjustment return may be credited against the quarterly income tax liabilities for the taxable quarters of the succeeding taxable year."
Section 9. Subparagraph (e) of Section 88 of the National Internal Revenue Code is hereby amended to read as follows:
"(c) Proceeds of life insurance. To the extent of the amount receivable by the estate of the deceased, his executor, or administrator, as insurance under policies taken out by the decedent upon his own life, irrespective of whether or not the insured retained the power of revocation, or to the extent of the amount receivable by any beneficiary designated in the policy of insurance, except when it is expressly stipulated that the designation of the beneficiary is irrevocable."
Section 10. Subparagraph (b) of Section 137 (b) of the National Internal Revenue Code is hereby amended to read as follows:
"(b) Cigarettes
"(1) On cigarettes per packed in thirties, the retail price of which per pack does not exceed eighty centavos, on each thousand, three pesos;
"(2) On cigarettes packed in thirties, the retail price of which per pack exceeds eighty centavos but does not exceed one peso on each thousand five pesos;
"(3) On cigarettes packed in thirties, the retail price of which per pack exceeds one peso but does not exceeds one peso and ten centavos, on each thousand, eight pesos;
"(4) On cigarettes packed in twenties, the retail price of which per pack does not exceed one peso and ten centavos, on each thousand, ten pesos;
"(5) On cigarettes packed in twenties, the retail price of which per pack exceeds one peso and ten centavos, but does not exceed one peso and forty centavos, on each thousand, sixteen pesos;
"(6) On cigarettes packed in twenties, the retail price of which per pack exceeds one peso and forty centavos, but does not exceed one peso and seventy centavos, on each thousand, eighteen pesos;
"(7) On cigarettes packed in twenties, the retail price of which per pack exceeds one peso and seventy centavos, but does not exceed two pesos, on each thousand, twenty pesos;
"(8) On cigarettes packed in twenties, the retail price of which per pack exceeds two pesos, but does not exceed two pesos and fifty centavos, on each thousand, thirty two pesos;
"(9) On cigarettes packed in twenties, the retail price of which per pack exceeds two pesos and fifty centavos, but does not exceed three pesos, on each thousand, forty pesos;
"(10) On cigarettes packed in twenties, the retail price of which per pack exceeds three pesos on each thousand, fifty pesos;
"(11) If the cigarettes of local manufacture are of foreign brands or trade marks and being manufactured locally under licensing agreements with the foreign brand or trade mark owners, the tax shall be increased by fifty per centum per thousand: Provided, That, any subsequent transfer or alienation of title or right over a cigarette brand or trade mark by a foreign owner to a local manufacturer in whatever manner, form or description shall not affect the rates of tax then prevailing after the effectivity of this Code;
"(12) If the cigarettes of local manufacture are mechanically wrapped or packed, the tax shall be increased by one hundred twenty per centum per thousand. Cigarettes shall be considered mechanically wrapped or packed when at any stage of the wrapping or packing thereof, a machine or any mechanical contrivance shall have been used;
"(13) If the cigarettes are of foreign manufacture, regardless of the retail price per pack or the manner of wrapping or packing thereof, on each thousand, eighty pesos.
Cigarettes subject to tax at lower rates before the effectivity of the new tax rates herein prescribed shall be automatically be subject at the corresponding higher rates and there is nothing under this subsection (b) which allows any downward reclassification of tax rates for existing brands of cigarettes duly registered at the time the herein rates become effective.
"Duly registered and/or existing brands of cigarettes packed in 20's at the time of the new rates herein prescribed shall not be allowed to be packed in 30's."
x x x x x x x x x
Section 11. Subparagraphs (1) and (2) of Section 182 (A) of the National Internal Revenue Code are hereby amended to read as follows:
"Sec. 182. Fixed taxes. (1) Persons subject to percentage tax. Unless otherwise provided, every person engaging in business on which the percentage tax is imposed shall pay a fixed annual tax of one hundred pesos.
"(2) Persons not subject to percentage tax. Every person who is not required to pay the percentage tax prescribed under this Title shall pay for each calendar year in which the person shall engage in business a fixed annual tax based upon his gross annual sales during the preceding calendar year, as follows:
"Twenty pesos, if the amount of the gross annual sales does not exceed two thousand four hundred pesos;
"Forty pesos, if the amount of the gross annual sales exceeds two thousand four hundred pesos but does not exceed ten thousand pesos;
"Eighty pesos, if the amount of the gross annual sales exceeds ten thousand pesos but does not exceed thirty thousand pesos;
"One hundred sixty pesos, if the amount of the gross annual sales exceeds thirty pesos but does not exceed fifty thousand pesos;
"Two hundred fifty pesos, if the amount of the gross annual sales exceeds fifty thousand pesos but does not exceed seventy-five thousand pesos;
"Three hundred fifty pesos, if the amount of the gross annual sales exceeds seventy-five thousand pesos but does not exceed one hundred thousand pesos;
"Five hundred pesos, if the amount of the gross annual sales exceeds one hundred thousand pesos but does not exceed one hundred fifty thousand pesos;
"Nine hundred pesos if the amount of the gross annual sales exceeds one hundred fifty thousand pesos but does not exceed three hundred thousand pesos;
"One thousand six hundred pesos, if the amount of the gross annual sales exceeds three hundred thousand pesos but does not exceed five hundred thousand pesos;
"Three thousand pesos, if the amount of the gross annual sales exceeds five hundred thousand pesos but does not exceed one million pesos;
"Five thousand pesos, if the amount of the gross annual sales exceeds one million pesos but does not exceed one million five hundred thousand pesos;
"Seven thousand pesos, if the amount of the gross annual sales exceeds one million five hundred thousand pesos but does not exceed two million pesos;
"Nine thousand pesos, if the amount of the gross annual sales exceeds two million pesos but does not exceed two million five hundred thousand pesos;
"Eleven thousand pesos, if the amount of the gross annual sales exceeds two million five hundred thousand pesos but does not exceed three million pesos;
"Fourteen thousand pesos, if the amount of the gross annual sales exceeds three million pesos but does not exceed four million pesos;
"Eighteen thousand pesos, if the amount of the gross annual sales exceeds four million pesos but does not exceed five million pesos;
"Twenty-two thousand pesos, if the amount of the gross annual sales exceeds five million pesos but does not exceed six million pesos;
"Twenty-six thousand pesos, if the amount of the gross annual sales exceeds six million pesos but does not exceed seven million pesos;
"Thirty thousand pesos, if the amount of the gross annual sales exceeds seven million pesos but does not exceed eight million pesos;
"Thirty-four thousand pesos, if the amount of the gross annual sales exceeds eight million pesos but does not exceed nine million pesos;
"Thirty-eight thousand pesos, if the amount of the gross annual sales exceeds nine million pesos but does not exceed ten million pesos;
"If the amount of the gross annual sales exceeds ten million pesos, the graduated fixed tax shall be thirty-eight thousand pesos plus one thousand pesos for every one million pesos of gross sales or a fractional part thereof in excess of ten million pesos.
"If a merchant is engaged in two or more businesses, one or more of which is subject to, and the others exempt from, the percentage tax, he shall pay the graduated fixed annual tax provided above, based on the individual sales of his business not subject to the percentage tax under this Title. The initial graduated fixed annual tax to be paid by the person first engaging in business subject to the said tax shall be twenty pesos."
Section 12. Section 183 of the National Internal Revenue Code is hereby amended by adding a new paragraph (c) to read as follows:
"(c) Flexibility clause. In the interest of the national economy and the general welfare, and subject to the limitations herein prescribed, the President upon recommendation of the Secretary of Finance and the National Economic Development Authority is hereby empowered to revise the rates of percentage taxes, including any necessary change in the classification of the articles enumerated in sections 194, 195, 196, 197, 198, 199 and 201. The existing rates may be increased by not more than 50% or decreased by not more than 10%.
"The above authority may be exercised by the President if any of the following conditions exists:
"(1) Economic conditions render it necessary to increase revenue, or to redirect expenditure or consumption patterns by increasing or decreasing the rates of percentage tax on certain commodities;
"(2) Where in the light of technological and social changes, it is necessary to classify new products or to reclassify certain articles subject to the sales tax on the basis of the changed concepts of essentiality or the degree of manufacturing done; or
"(3) Where it is necessary to counter an adverse action on the part of another country."
Section 13. Section 186-B of the National Internal Revenue Code is hereby amended to read as follows:
"Sec. 186-B. Percentage tax on sales of processed meat, milk and vegetable, fish and other sea foods, wheat flour and feeds. There shall be levied, assessed and collected once only on every original sale, barter, exchange and similar transaction either for nominal or valuable consideration, intended to transfer ownership of, or title to, the articles enumerated hereinbelow, a tax equivalent to five per centum of the gross selling price or gross value in money of the articles so sold, bartered, exchanged, or transferred, such tax to be paid by the manufacturer or producer.
"(a) Processed meat, milk and vegetables; fish and other sea foods;
"(b) Wheat flour; and
"(c) Poultry and animal feeds.
Provided, however, That the articles are manufactured out of materials subject to tax under this section; Section 186, or Section 189, the total cost of such materials as duly established, shall be deductible from the gross selling price or gross value in money of the manufactured articles.
"For purposes of this section, processed meat, milk and vegetables, fish and other sea foods include such food products which have undergone the process of curing, canning, bottling or similar processes but exclude such food products which have undergone only simple preserving processes such as freezing, drying, salting or smoking."
Section 14. The above sections as amended by this Decree shall be incorporated in the consolidation and codification of all existing internal revenue laws under a separate Presidential Decree.
Section 15. Effectivity date. This Decree shall take effect immediately.
Done in the City of Manila, this 3rd day of June, in the year of Our Lord, nineteen hundred and seventy-seven.
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