13” CONGRESS OF THE REPUBLIC 
) 
OF THE PHILIPPINES 
First Regular Session 
) 
S E N A T E  
S. Bill. No. 
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Introduced by Senator Ralph G. Recto 
EXPLANATORY 
NOTE 
This bill seeks to pursue drastic reform measures to instill fiscal discipline amorg the 
taxpayers in line with the desire and program of the national government to provide! more 
efficient basic services to the taxpayers. It is thus imperative to implement revenue meksures 
aimed at boosting revenues to work out a reasonable solution to the country’s growing budget 
deficit. 
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The economic managers of the Philippine government have been working to keep its 
budget deficit under control. This legislation proposes to help devise a solution to the biggest 
problem facing the country’s ailing economy. The necessity of introducing stop-gap measures is 
due to the alarming numbers as follows: the budget deficit reached 198.7 billion pesos (3.61 
billion dollars) at the end of 2003, just below the target ceiling of 202 billion pesos while the 
target deficit for 2004 is pegged at 197.8 billion pesos. 
Under the present provisions of the National Internal Revenue Code of 1997 (the “Tax 
Code”), the Net Operating Loss Carry-Over (“NOLCO”) as a deduction from gross income is 
available to the taxpayer for the next three consecutive taxable years following the year in whkh 
it was incurred. At present, if the taxpayer incurs an operating loss in year 1 but eventually 
registers a gain or profit in year 2, the NOLCO may be offset against the resulting gain or profit 
so that no income taxes may be due and owing the government. 
Under the proposal, the NOLCO will not be available as a deduction from gross income 
such that in the event that a taxpayer who incurred losses in year l’registers a profit in the 
succeeding year, then the relevant comparison that must be made is between the Minimum 
Corporate Income Tax (MCIT) or the regular corporate income tax, whichever is greater, for 
purposes of determining the taxes due the government. 
In view of the foregoing, the immediate approval of this measwe is earnestly sought 
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13” CONGRESS OF THE REPUBLIC 
) 
OF THE PHILIPPINES 
1 
First Regular Session 
1 
Introduced by Senator Ralph G. Recto 
AN ACT 
AMENDING SECTION 34 PARAGRAPH D SUBSECTION 3 OF REPUBLIC 
ACT 8424 OTHERWISE KNOWN AS THE NATIONAL INTERNAL REVENUE 
CODE OF 1997 
Be it enacted by the Senate and House of Representatives of the Philippines in Congress 
assern bled: 
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SECTION 
1. 
Section 34 of Republic No. 
8424, otherwise known as the 
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“National Internal Revenue Code of 1997,” is hereby amended to read as follows: 
“Sec. 34. 
Deductions from Gross Income. - 
Except for taxpayers 
earning compensation income arising from personal services rendered 
d e r  an em$oyer-employee 
relationship where no deductions shall be 
allowed under this Section other than under Subsection (M) hereof, in 
computing taxable income subject to income tax under Sections 24(A); 
25(A); 26; 27(A), (B) and (C); and 28(A)(1), there shall be allowed the 
following deductions from gross income: 
“(A) 
X X X 
“(B) 
X X X 
“(C) x x x 
“@) 
Losses. - 
x x x  
[(3) Net Operating Loss Carry-over. - 
The net operating loss of the business or enterprises 
for any taxable year immediately preceding the current 
taxable year, which had not been previously offset as 
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deduction from gross income shall be carried over as a 
deduction from gross income for the next three (3) 
consecutive taxable years immediately following the year 
of such loss: Provided, however, that any net loss incurred 
in a taxable year during which the taxpayer was exempt 
from income tax shall not be allowed as a deduction under 
this Subsection: Provided, further, That a net operating loss 
carry-over shall be allowed only if there has been no 
substantial change in the ownership of the business or 
enterprise in that - 
“(i) 
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Not less than seventy-five percent 
(75%) in nominal value of outstanding issued shares, if the 
business is in the name of a corporation, is held by or on 
behalf of the same persons; or 
“(ii) 
Not less than seventy-five percent 
(75%) of the paid up capital of the corporation, if the 
business is in the name of a corporation, is held by or on 
behalf of the same persons]. 
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SEC. 2. The succeeding sections and letters of Republic Act No. 8424 are hereby 
adjusted accordingly. 
SEC. 3.Implementing Rules and Regulations. - The Bureau of Internal Revenue 
(SIR), 
Department of Finance (DoF), Department of Labor and Employment (DOLE), 
Civil Service Commission (CSC) and other appropriate government agencies shall 
promulgate rules and regulations necessary for the effective implementation of this Act. 
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SEC. 4. Repealing Clause. - All other laws, decrees, orders, issuances and rules 
and regulations or parts thereof inconsistent with this Act are hereby amended or repealed 
accordingly. 
SEC. 5. Separability Clause. - The provisions of this Act are hereby declared to 
be separable and, in the event any of such provisions is declared unconstitutional, the 
order provision which is not affected thereby shall remain in full force and effect. 
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SEC. 6. 
Efectivity; - This Act shall take effect fifteen (15) days after its 
complete publication in at least two (2) newspapers of general circulation. 
Approved, 
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