REVENUE REGULATIONS NO. 11-2005 issued on June 23, 2005 defines “gross income
earned” to implement the tax incentive provision of Republic Act No. 7916, otherwise known as
“The Special Economic Zone Act of 1995”.
“Gross income earned” shall refer to gross sales or gross revenues derived from business
activity within the ECOZONE, net of sales discounts, sales returns and allowances and minus
costs of sales or direct costs but before any deduction is made for administrative, marketing,
selling and/or operating expenses or incidental losses during a given taxable period.
For purposes of computing the total five percent (5%) tax rate imposed, the following
direct costs are included in the allowable deductions to arrive at gross income earned for specific
types of enterprises:
! ECOZONE Export Enterprises, Free Trade Enterprises and Domestic
Market Enterprises:
– Direct salaries, wages or labor expenses
– Production supervision salaries
– Raw materials used in the manufacture of products
– Decrease in Goods in Process Account (Intermediate goods)
– Decrease in Finished Goods Account
– Supplies and fuels used in production
– Depreciation of machinery and equipment used in production, and of
that portion of the building owned or constructed that is used
exclusively in the production of goods
– Rent and utility charges associated with building, equipment and
warehouses used in production
– Financing charges associated with fixed assets used in production the
amount of which were not previously capitalized
! ECOZONE Developer/Operator, Facilities, Utilities and Tourism
Enterprises:
– Direct salaries, wages or labor expense
– Service supervision salaries
– Direct materials, supplies used
– Depreciation of machineries and equipment used in the rendition of
registered services, and of that portion of the building owned or
constructed that is used exclusively in the rendition of registered
service
– Rent and utility charges for buildings and capital equipment used in
the rendition of registered services
– Financing charges associated with fixed assets used in the registered
service business the amount of which were not previously capitalized
The effectivity of Sections 3, 4, and 6 of Revenue Regulations No. 2-2005 is hereby
suspended insofar as it applies to enterprises registered under R.A. 7916, pending the issuance of
a new regulations pertaining on the matter related thereto.