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Attached is the letter dated January 26, 1999 of Director Ma. Lourdes B. Recente, Research and Information Office, Department of Finance endorsing the Joint DOF-BOC Order No. 1-99 entitled "Rules and Regulations To Implement The Tax Incentives On Importations Of Qualified Jewelry Enterprises, as Provided Under Section 3 a, b, c And H Of Republic Act No. 8502 Otherwise Known As The "Jewelry Industry Development Act Of 1998".

For your information and guidance.

Adopted: 02 Feb. 1999

(SGD.) JULITA S. MANAHAN
Deputy Commissioner,
Internal Administration Group

JOINT DOF-BOC ORDER NO. 1-99
RULES AND REGULATIONS TO IMPLEMENT THE TAX INCENTIVES ON IMPORTATIONS OF QUALIFIED JEWELRY ENTERPRISES, AS PROVIDED UNDER SECTION 3 a, b, c AND h OF REPUBLIC ACT NO. 8502 OTHERWISE KNOWN AS THE "JEWELRY INDUSTRY DEVELOPMENT ACT OF 1998"

RULE 1. Coverage
The following Rules and Regulations are hereby promulgated to implement Section 3 a, b, c and h of RA 8502 with respect to the duty-free and excise tax-free importation of qualified jewelry enterprises.

Section 3(a), (b), (c) and (h) of RA 8502 are quoted as follows:

"SECTION 3. Development Incentives — The following incentives shall be available to qualified jewelry enterprises in the jewelry industry:

a) Entitlement to zero (0) duty on imported raw materials which include precious metals, loose gems, precious stones, jewelry parts, accessories and supplies for use by jewelry enterprise, as specifically mentioned in Chapter 5 of Section 1, Chapter 12 of Section II, Chapters 25, 26 and 27 of Section V, Chapter 28, 34 and 38 of Section VI, Chapter 70 of Section XIII, Chapter 71 of Section XIV, Chapter 83 of Section XV, and Chapter 96 of Section XX of the Tariff and Customs Code, as amended;

b) Exemption from the imposition of excise tax on all goods commonly or commercially known as jewelry, whether real or imitation pearls, precious and semi-precious stones and imitations thereof; all goods made of, or ornamented, mounted or fitted with precious metals or imitations thereof, as specifically mentioned in section 150 (a) of the National Internal Revenue Code of the Philippines, as amended;

c) Entitlement to zero (0) duty on imported capital equipment, including spare parts and toolings thereof falling within Chapter 69 of Section XIII, Chapter 82 of Section XV, Chapters 84 and 85 of Section XVI, and Chapter 90 of Section XVIII of the Tariff and Customs Code, as amended;

d) x x x

e) x x x

f) x x x

g) x x x

h) Jewelry enterprises availing of incentives provided under this Act shall still be eligible to incentives provided by other special laws such as Republic Act No. 7844 (Export Development Act of 1994), Republic Act No. 7916 (Special Economic Zone Act of 1995). Executive Order 226 (BOI Omnibus Investment Code), among others: Provided, That the activity is export-oriented and that there is no double availment of the same incentives.

Rule 2. Definition of Terms
For purposes of these Rules and Regulations, the terms as used herein shall have the following meaning:

(a) "Fine jewelry" — means

(1) articles of personal adornment made of precious metals, stones, pearls or combinations thereof (e.g. rings, bracelets, necklaces, brooches, earrings, watch-chains, fobs, pendants tie, pins, cuff links, combs, tiaras, dress-studs, religious or other medals or insignia).

(2) articles made of precious metals, with or without stones for personal use of a kind normally carried in the pocket, handbag or in the person ( e.g. cigarette cases, powder boxes, chain purses, cachou boxes).

(b) "Imitation Jewelry" — means articles falling either under a(1) or a(2) in the preceding paragraph made of base metals and/or materials other than precious metals; of imitations of gemstones, of natural materials; and/or their combination.

(c) "Import Consolidator" — means a non-stock, non-profit organization or association of jewelry enterprises, duly registered by the SEC, authorized to import in behalf of its members.

(d) "Importer" — shall refer to a qualified jewelry enterprise eligible for tax and duty incentives on its importations under RA 8502.

(e) "Jewelry" — refers to real or imitation pearls, precious and semi-precious stones and imitations thereof, or ornamented, mounted or fitted with precious metals or imitations thereof, which will be imported for use in the local manufacture of fine or imitation jewelry.

(f) "Qualified Jewelry Enterprise" — means an enterprise engaged in any aspect in the manufacturing of jewelry and in particular though not exclusively:

(1)	in the manufacture of fine jewelry;
(2)	in the manufacture of imitation jewelry;
(3)	cutting and polishing, forming of gemstones or in producing imitations thereof;
(4)	pearl farming, pearl culturing, and in the production of imitation pearls;
(5)	refining and/or forming of precious metals and/or imitations of precious metals;
(6)	manufacture of articles made of precious metals utilizing goldsmithing and/or silversmithing techniques and
(7)	the manufacture and/or processing of other raw materials and parts used in the manufacture of jewelry; and
(8)	activities in support of jewelry enterprise, such as: electroplating; gemstone appraisal and certification; assaying and refining; and import consolidating.

It must be duly registered and accredited by the Board of Investment, for the current year, as evidenced by a valid Certificate of Accreditation issued by the BOI. A qualified jewelry enterprise is categorized by BOI, based on its total assets, as either:

micro enterprise — with total assets of less than P1,500,000;

small enterprise — with total assets of P1,500,000 to P15,000,000;

medium scale enterprise — with total assets of P15,000,001 to P60,000.000; large

scale enterprise — with total assets of over P60,000,001

(g) "Raw Materials" — shall refer to direct inputs in jewelry making as enumerated in Annex A of these Rules and Regulations. These raw materials shall refer to:

(1) "Precious Metals" — means precious metals which include gold, silver, platinum palladium, rhodium, ruthenium, iridium and osmium. This includes alloys of precious metals, solders and plating chemicals such as rhodium and palladium plating solutions and potassium gold cyanide (minimum 68.3% gold) and potassium silver cyanide (approx. over 68% silver) and silver cyanide (over 54% silver) in salt solution.

(2) "Imitations of Precious Metals" — means non-precious metals electroplated to simulate precious metals.

(3) "Base Metals" — means iron and steel, copper, nickel, aluminum, lead, zinc, tin, and their articles thereof, and other base metals and their articles as defined in Section XV of the Tariff and Customs Code of the Philippines, as amended.

(4) "Gemstone" — means diamond, ruby, emerald, sapphire, opal, amethyst, beryl, topaz, garnet and all other gems and stones that are used in jewelry making.

(5) "Imitations of Gemstones" — means any man-made reproduction, copy, imitation, likeness and semblance of any of the aforementioned stones, processed, manufactured, or done in any method or procedure.

(h) "Supplies" — shall refer to other raw materials used in jewelry making as enumerated in Annex A of this Joint Order. Examples of "supplies" are:

(1) clasps, chains in spools, wires, sheets, findings, setting, rubber molds, cleaning solution, soldering pads, binding wires, points wheel, and sharpening stones; and

(2) consumable, such as injection waxes, investment powders, fluxes, solders, enamels, electroplating materials, and polishing compound.

RULE 3. CONDITIONS FOR AVAILMENT OF DUTY-FREE AND/OR EXCISE TAX-FREE IMPORTATION OF RAW MATERIALS, SUPPLIES, CAPITAL EQUIPMENT, MACHINERY, TOOLS OR SPARE PARTS
In the implementation of the duty and excise tax exemptions of importations of raw materials, supplies, capital equipment, machinery, tools or spare parts, as provided under Section 3(a), (b) and (c) of RA 8502, the Department of Finance shall ensure that the following conditions are complied with:

a.) The importation should be made by a qualified jewelry enterprise as defined in Rule II (e) of these Rules and Regulations.

b.) The raw materials and/or supplies which shall be imported by the qualified jewelry enterprise —

(1) must be included in Annex A of these Rules and Regulations; and

(2) will be exclusively used by the qualified jewelry enterprise in the manufacture of its products and in the operation of its accredited activity, as indicated in a sworn statement by the importer.

c. The capital equipment, machinery, tools and/or spare parts which shall be imported by the qualified jewelry enterprise

(1) must be included in Annex B of these Rules and Regulations;

(2) will be exclusively used by the qualified jewelry enterprise in the manufacture of its products and in the operation of its accredited activity, as indicated in a sworn statement by the importer, and

(3) the rated capacity of the machinery or equipment to be imported must be within the capacity of the qualified jewelry enterprise based on total assets declared in its registration and accreditation with BOI;

RULE 4. PROCEDURES FOR THE AVAILMENT OF DUTY AND/OR EXCISE TAX EXEMPTION ON THE IMPORTATION OF RAW MATERIALS, SUPPLIES, MACHINERY, EQUIPMENT, TOOLS AND/OR SPARE PARTS PURSUANT TO SECTION 3(a), (b) and (c) of RA No. 8502
Section 1. Documentation Requirements. — Tax avail of the duty and excise tax exemptions, the following documents should be submitted by the qualified jewelry enterprise to the Department of Finance:

1. A certified true copy of BOI Certificate of Accreditation issued by the BOI Managing Head or his duly authorized representative.
   
   
2. Sworn statement that the importation shall be for the exclusive use of the qualified jewelry enterprise.
   
   
3. A Clean Report of Findings (CRF) accompanying the import entry for release of imports such as supplies, capital equipment, spare parts and tools. Proper description of imports should be provided in accordance with CMO No. 48-94 (Guidelines in the Collection of Filing Fees Under CAO 8-94 Relative to the Tentative Release of CRF Questioned Shipment Pursuant to CMO 51-92 AND 12-93).
   
   Importation of precious stones and precious metal however is exempt from the Selective Pre-Shipment Inspection and Advance Clearance System pursuant to Joint Order No. 1-91, as amended (Incorporating All the Amendments in the Implementation of the Comprehensive Import Supervision Scheme). The importation of such commodities does not require a CRF.
   
   
4. A brochure (original or photocopy) of the equipment being imported indicating rated capacity or attainable capacity of the equipment.
   
   
5. If the qualified jewelry enterprise is also registered with the Board of Investments (BOI), Philippine Economic Zone Authority (PEZA) or the Export Development Council (EDC), it must submit a certification from the concerned incentive administering agency attesting to the following:

(1) that the enterprise is a registered export enterprise and the availment of the duty and/or excise tax exemption shall not result to double availment of the same incentives;

(2) that the raw materials, supplies and capital equipment, including spare parts and tools being imported are included in the positive list as provided in Annex A and Annex B of these Rules and Regulations; and

(3) that the importation shall be for the exclusive use of the enterprise in its accredited operation.

Section 2. Procedures. — The procedures in the application for exemption from customs duties and/or excise tax are prescribed hereunder.

1. Application for exemption from customs duties and/or excise tax shall be filed with the Revenue Office, Department of Finance, Manila.
   
   
2. If the importer has complied with all the documentary requirements, the DOF shall forward the endorsement, authorizing the release of the shipment to the Tax Exempt Division of the Bureau of Customs (BOC) copy furnished the importer.
   
   
3. Upon opening of the letters of credit, importer shall present the following to the bank.
   

   (1) Filled up Import Entry Declaration (IED)
   
   (2) DOF Endorsement of Duty and/or Excise Tax Exemption

   The bank will stamp/validate the IED indicating that shipment is duty and/or excise tax exempt.
   
   
4. The importer or its duly designated representative (e.g. customs broker) shall file an import entry at the Bureau of Customs with the following documents:
   

   (1) Import entry declaration (except shipments under direct payment process)
   
   (2) DOF endorsement
   
   (3) CRF if necessary per Section 1b.
   
   (4) Copies of shipping documents such as pro forma invoice and/or commercial invoices, airway bill and/or bill of lading and other shipping documents including full description;

5. The importer shall pay the value added tax and import processing fee due on the shipment through a bank upon payment and presentation of the copy of the DOF endorsement or the bank will machine-validate the Import Entry and Internal Revenue Declaration (IEIRD) indicating amount of taxes and import processing fees paid.
   
   Assessment of the importation shall be done by BOC. If it has been assessed for higher taxes than what has been paid, the importer has to pay the difference before shipment is released.
   
   
6. In case of handcarried raw materials and supplies, capital equipment or machinery, tools and spare parts for jewelry making brought in by passengers at the arrival area (airport/seaport), the said items shall be declared in the Baggage Declaration Form complete with BOC documents required under Section 2 d, Rule V, hereof. The passenger, for and in behalf of the importer, shall pay the value added tax to the BOC cashier at the arrival area. Should there be misdeclaration, non-declaration and/or undervaluation thereof, imposition of penalties, surcharges or seizure shall be done by the BOC in proper cases.

Section 3. Period of Processing. — The tax incentive provisions governing importations of qualified jewelry enterprises shall be processed within 30 days from receipt of the complete and correct set of documents.

Section 4. Report to be Kept by Manufacturers. — Pursuant to Section 153 of the NIRC of 1997, the records of imported jewelry or raw materials, kept by the qualified jewelry enterprise may be used as evidence by which to determine whether these were sold or traded 'as is' without being subjected to manufacturing process, whenever the raw materials received into the factory exceed the manufactured or partially manufactured products on hand and lawfully removed from the factory, plus waste removed or destroyed, and a reasonable allowance for unavoidable loss in manufacture, the Commissioner of Internal Revenue may assess the unaccounted imported jewelry or raw materials for the twenty per cent (20%) excise tax inclusive of corresponding penalties as provided under the Code. These records shall be subject to regular inspection by the authorized revenue officers.

If as a result of the assessment of the twenty per sent (20%) excise tax there would necessarily result a deficiency in customs duty on the same importation/s, the Commissioner of Internal Revenue shall likewise certify the same to the Commissioner of Customs who shall cause the said deficiency to be paid inclusive of corresponding penalties as provided under the Tariff and Customs Code, as amended.

RULE 5. PENAL PROVISION.
When the duty and/or excise tax-free importations are found to be sold, transferred or disposed of to non-exempt persons/entities, the qualified jewelry enterprise who is the importer shall be liable to pay twice the amount of duties and/or excise taxes waived. The use of such articles by persons or entities other than the qualified jewelry enterprise or without prior payment of duties and/or excise taxes aforementioned, shall subject such article/s to seizure and forfeiture proceedings in accordance with the provisions of the Tariff and Customs Code, as amended. Civil penalties such as payment of surcharge and interest shall be imposed pursuant to Sections 248 and 249 of the National Internal Revenue Code, as amended.

RULE 6. VISITORIAL POWERS
The Revenue Office of the Department of Finance shall conduct pre- and post-inspection of the facilities and imported raw materials, supplies, capital equipment or machinery, tools and spare parts released duty-free in accordance with these Rules in line with the monitoring function of said Office.

RULE 7. REPEALING CLAUSE
All administrative orders, rules and regulations, or parts thereof which are inconsistent with the provisions of these Rules and Regulations are hereby repealed, amended, or modified accordingly.

RULE 8. EFFECTIVITY
These Regulations shall govern the implementation of the fiscal incentives provided under RA 8502 which became effective on July 9, 1998.

Adopted: 25 Jan. 1999

(SGD.) EDGARDO B. ESPIRITU
Secretary

RECOMMENDING APPROVAL:

(SGD.) NELSON A. TAN
Acting Commissioner, Bureau of Customs