NINFTEENTH CONGRESS OF THE   )
REPUBLIC OF THE PHILIPPINES      )
Second Regular session                  )
HOUSE OF REPRESENTATIVES
House Bill No.   8652
`,\
AN Aer
LOWERING   THE   COST   0F   DOING   BUSINESS   IN   SPECIAL   ECONOMIC
zONEs AND  FREEroRT zONEs,  AMENDING  FOR THE  puRrosE  SECTION
109 0F THE NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED
EXPLANATORY NOTE
This  proposed  measure  seeks to  lower the cost of doing  business  in  special
economic zones and  freeport zones  by exempting  from  value-added  tax (VAT)  the
sale of electricity to their locators.
In  2005,  Republic  Act  No.  9337,  otheiwise  known  as  the  Reformed  Value-
Added Tax (RVAT)  Lew, was enacted to widen the tax base  by removing a  number
of   products   and   services,    including   electricity,   from   the   list   of   VAT-exempt
transactions  under  the   National   Internal   Revenue  Code  of  1997,   as  amended,
thereby   increasing    revenue   collections.   Therefore,   the   sale   of   electricity   by
generation, transmission, and distribution companies,  including electric cooperatives,
is subject to VAT. This is in line with the principle that in order for the VAT aystem to
be effective, it should be broad-based and with limited exemptions.
Undoubtedly, the VAT reform has produced significant and positive effects on
our economy.  However, as a consequence, such effect is also inflationary. VAT is an
indirect tax that is passed on to the consumers of goods and services.
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The surge in demand for electricity indicates recovery from the crisis brought
about  by  the  COVID-19  pandemic.  However,  the  increase  in  its  price  will  have  an
effect on  inflation.  Electricity  is  an  important  component  in  the  production  of basic
goods and  services.  Therefore,  the  imposition  of VAT on the  sale of electricity  has
the   effect   of   increasing   the   production   cost   of   businesses,    particularly   the
manufacturing  and  IT-BPO  sectors within  the  special  economic  zones  and  freeport
Zones.
The   purpose   and   intent   of  this   proposed   measure   is   to   enhance   the
competitiveness of special  economic zones and  freeport zones in the global  market
by exempting  from  VAT the  sale  of electricity to their  locators.  The  objective  is to
help  these  industries  recover  from  the  crisis  brought  about  by  various  global  and
domestic  challenges,  and  maximize  their  time,  effort  and  resources  in  expanding
business operations, thereby stimulating economic growth and generating more jobs
throughout the country.
In  view  of  the  foregoing,  the
sought.
/jiao
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NINETEENTH CONGRESS OF THE   )
REPUBLIC OFTHE PHILIPPINES      )
Second Regular session                   )
HOUSE 0F REPRESENTATIVES
HouseBi|INo.     8652
Introduced by Representative Ralph G. Recto
AN ACT
LOWERING THE  COST OF  ELECTRICITY IN  SPECIAL  ECONOMIC ZONES AND
FREEpoiIT  zoNEs,  AMENDING  FOR  THE  puRrosE  SECTION  log  OF  THE
NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED
Be  it  enacted   by  the  Senate  and  House  of  Representatives  of  the  Philippines  in
Congress assembled:
1                   Section.   1.  Section   109  of  the  National  Internal   Revenue  Code  of  1997,  as
2      amended, is hereby further amended to read as follows:
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"SIHC. yJyB . Exempt Transactions. -
``(1)  Subject  to  the  provisions  of  Subsection  (2)  hereof,  the  following
transactions shall be exempt from the value-added tax:
``(A) xDex;
``xxx;
`UAAI: yocx:I
``(88) xxx;
``(cc)    SALE    OF    ELECTRIclrv    To    REGlsTERED    BuslNEss
ENTERPRISES WITHIN THE SPECIAL ECONOMIC ZONES OR FREEPORT
ZONES; AND
``[€G] (DD)  Sale or  lease  of goods or  properties or the  performance  of
services other than the transactions mentioned in the preceding paragraphs, the
gross  annual  sales  and/or  receipts  do  not  exceed  the  amount  of Three  million
pesos (P3,000,000)-"
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1                   Sfiyc. 2. Implementing Rules and Regulations (IRR). -WrNhim T!hirty (3/On derys Frclm
2      the effectivity of this Act, the Secretary of Energy and the Secretary of Finance,  upon
3      the  recommendation  of the  Commissioner  of  Internal  Revenue,  shall  promulgate  the
4      necessary rules and regulations for its effective implementation.
5                   Sec.  3.  Ae;c]ca/x77g Cyao5g,  -All  laws,  acts,  decrees,  executive orders,  issuances,
6      and  rules and  regulations or parts thereof which are contrary to and  inconsistent with
7      this Act are hereby repealed, amended or modified accordingly.
8                   Sec. 4.   fl78cZ7.M/fy, -This Act shall take effect fifteen (15) days after its complete
9      publication   in   the   Oy77cfa/  Gazi€fzig  or   in   at   least  two   (2)   newspapers   of  general
io       circulation.
Approved,
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