SEVENTEENTH CONGRESS OF THE )
REPUBLIC OF THE PHILIPPINES )
First Regular Session )

HOUSE OF REPRESENTATIVES

H.No._ 2106 RFS'STRATON UNIT

BILLS AX? iN SERVICE

Introduced by Representative Vilma Santos-Recto
6th District of Batangas

AN ACT
INCREASING THE THRESHOLD FOR CERTAIN NON-VAT TAXPAYERS,
AMENDING FOR THE PURPOSE SECTIONS 109 AND 236 OF THE NATIONAL
INTERNAL REVENUE CODE OF 1997, AS AMENDED

Explanatory Note

The contribution of Micro and Small Enterprises (MSEs) to the country's economic
developmenteannot be overemphasized. In terms of employment, MSEs generated 4.36 million
jobs or roughly 55.9% of total jobs generated by all types of business establishments created in
2014, i.e. 2.37 million jobs in micro and 1.98 million in small enterprises'.Moreover, industries
falling under these categories propeleconomic growth by promoting development in the rural
areas, thereby bringing in employmentopportunities, decentralizing economic activities and
redistributing wealth throughout the country.

Complicated business regulations and rigorous accounting and reporting requirements
prescribed by the National Internal Revenue Code (NIRC) stifle the growth of micro and small
enterprises (MSEs). Under Section 236 of the NIRC, any person who exceeds or expects to
exceed his annual gross sales or receipts by One Million Five Hundred Thousand Pesos
(P1,500,000) are mandated to register for Value-Added Tax (VAT). At the same time, Section
109 of the same Code provides that transactions of goods and services that do not exceed the
amount of One Million Five Hundred Thousand Pesos (P1,500,000) are exempted from VAT.

The Bureau of Internal Revenue (BIR) issued Revenue Regulation No. 16-2011, which
adjusted the VAT threshold amount from One Million Five Hundred Thousand Pesos
(P1,500,000) to One Million Nine Hundred Nineteen Thousand Five Hundred Pesos
(P1,919,500)using the Consumer Price Index (CPI). Entities falling below the threshold are
mandated instead to pay the 3% percentage tax. A number of MSEs still find themselves
administratively incapable of complying with the rigorous requirements mandated by the
NIRC.The lower percentage tax rate of 3% compared to the 12% VAT presents an opportunity
for underdeclaration of sales or receipts to avoid VAT coverage.

Aside from the national taxes they have to pay, MSEs must also bear the cost of business
taxes to local government units (LGUs). The local levy varies according to the type of business,
and the amount of gross sales or receipts. Again, this becomes an avenue for tax evasion and
other corrupt practices such as misdeclaration of sales, bribery or connivance with the taxing
authority.

In the 2016 Doing Business Report of the World Bank Group, the Philippines fared low
and ranked 165" out of 189 economies in terms of starting a business in the country, and 126" in
terms of businesses paying taxes. Among the factors considered in measuring the ranking were

2014 MSME Statisties, DTI. Source: hup:/;www.dti,gov ph/dti/index php resources/sme-resources/ame-statistics (Accessed on
21 June 2016)



all the procedures officially required or commonly done in practice by an entrepreneur to start up
and formally operate an industrial or commercial business—as well as the time and cost required
to complete these procedures. Therefore, it is imperative that the MSEs be given adequate
support by reducing the tax impediments, among other burdensome registration procedures, that
hinder them to accelerate economic development.

This bill aims to protect MSEs by amending sections 109 (W) and 236 (F) & (G) of the
NIRG, thereby increasing the VAT threshold to Three Million Pesos (P3,000,000). The increase
in the VAT threshold is warranted in order to support entrepreneurs, who have proven to be
among the significant drivers of the country's economic growth, by freeing them from rigorous
tax procedures. MSEs will, in effect, be unburdened from the administrative and accounting
requirements prescribed by the NIRC to VAT-registered entities, while at the same time MS
will be able to focus on maximizing their resources towards intensifying economic activity and
creating more jobs.

Although the proposed measure may result in lower VAT revenues, MSEs will have
lower operating expenses, which will translate to lower consumer prices. In effect, the end-
consumers will ultimately benefit from this legislation through increased purchasing power.
Likewise, businesses will be able to provide more investments in labor and capital resulting to
accelerated job generation.

In view of the foregoing, immediate passage of the biJliscarnestly sought.

2 Source: Doing Business Report 2016, Accessed on 21 June 2016
‘tp://www. doingbusiness.org/~/media/giawb/doing?420business/documents/profiles/country/PHL pdf


SEVENTEENTH CONGRESS OF THE )
REPUBLIC OF THE PHILIPPINES)
First Regular Session )
HOUSE OF REPRESENTATIVES,

H.No. 2166.

Introduced by Representative Vilma Santos-Recto
6th District of Batangas

AN ACT
INCREASING THE THRESHOLD FOR CERTAIN NON-VAT TAXPAYERS,
AMENDING FOR THE PURPOSE SECTIONS 109 AND 236 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:

SECTION 1. Section 109 of the National Internal Revenue Code of 1997, as amended by
Republic Act No. 9337, is hereby further amended to read as follows:
“SEC. 109. Exempt Transactions. —

(1) Subject to the provisions of Subsection (2) hereof, the following

transactions shall be exempt from the value-added tax:
"(A) xxx;
xxx
“(W) 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 [One million five hundred thousand _ pesos
(P1,500,000) THREE MILLION PESOS (P3,000,000): Provided,
That not later than [January 31, 2009]SIX (6) YEARS AFTER THE
EFFECTIVITY OF THIS ACTand every [three (3)|SIX (6) years
thereafter, the amount herein stated shall be adjusted to its present
value using the Consumer Price Index(CPI), as published by the
[National Statistics Office (NSO)|PHILIPPINE STATISTICS
AUTHORITY (PSA).

“(@) xxx.”

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Sec. 2, Section 236 paragraph (F) subparagraph (2)(a) and paragraph (G) subparagraph
(1) of the National Internal Revenue Code of 1997, as amended by Republic Act No. 9337, are
hereby further amended to read as follows:
“SEC. 236. Registration Requirements. ~
(A) xxx;
“xxx
“(F) Cancellation of Registration. ~
(1) xxx
“(2) Cancellation of Value-added Tax Registration. - A VAT-
registered person may cancel his registration for VAT if:
“(a) He makes written application and can demonstrate to
the Commissioner's satisfaction that his gross sales or
receipts for the following twelve (12) months, other than

those that are exempt under Section 109 (A) to [(U)] (V),

will not exceed [One million five hundred thousand pesos
(P1,500,000)] THREE MILLION PESOS (P3,000,000):
PROVIDED, THAT NOT LATER THAN SIX (6)
YEARS AFTER THE EFFECTIVITY OF THIS ACT
AND EVERY SIX (6) YEARS THEREAFTER, THE
AMOUNT HEREIN STATED SHALL BE ADJUSTED
TO ITS PRESENT VALUE USING THE CONSUMER
PRICE INDEX (CPI), AS PUBLISHED BY THE
PHILIPPINE STATISTICS AUTHORITY (PSA);
“(b) xxx.”
“(G) Persons Required to Register for Value-Added Tax. ~
“(1) Any person who, in the course of trade or business, sells, barters
or exchanges goods or properties, or engages in the sale or exchange

of services, shall be liable to register for value-added tax if:

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—EEE—————AOSEO—E—EEEOE—E—E—EEEOEOO Ee eo

1 “(a) His gross sales or receipts for the past twelve (12) months,

2 other than those that are exempt under Section 109 (A) to (V),
3 have exceeded [One million five hundred thousand pesos
4 (P1,500,000)] THREE MILLION PESOS (3,000,000):
5 PROVIDED, THAT NOT LATER THAN SIX (6) YEARS
6 AFTER THE EFFECTIVITY OF THIS ACT AND EVERY
7 SIX (6) YEARS THEREAFTER, THE AMOUNT HEREIN
8 STATED SHALL BE ADJUSTED TO ITS PRESENT
9 VALUE USING THE CONSUMER PRICE INDEX (CPI),

10 AS PUBLISHED BY THE PHILIPPINE STATISTICS

in AUTHORITY (PSA); or

12 “(b) There are reasonable grounds to believe that his gross sales
13 or receipts for the next twelve (12) months, other than those that
14 are exempt under Section 109 (A) to (V), will exceed [One
Is million five hundred thousand pesos (P1,500,000)] THREE
16 MILLION PESOS (P3,000,000): PROVIDED, THAT NOT
17 LATER THAN SIX (6) YEARS AFTER THE
18 EFFECTIVITY OF THIS ACT AND EVERY SIX (6)
19 YEARS THEREAFTER, THE AMOUNT HEREIN
20 STATED SHALL BE ADJUSTED TO ITS PRESENT
21 VALUE USING THE CONSUMER PRICE INDEX (CPI),
22 AS PUBLISHED BY THE PHILIPPINE STATISTICS
at AUTHORITY (PSA).

24 (2) xxx

25 “(H) xxx

26 “() xxx

2 “xxx.”

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Sec. 3. Implementing Rules and Regulations (IRR). — Within sixty (60) days upon
approval of this Act, the Secretary of Finance, upon recommendation by the Commissioner of
Internal Revenue, shall issue the IRR for the effective implementation of this Act.

Sec. 4. Separability Clause. — Any portion or provision of this Act that may be declared
unconstitutional or invalid shall not have the effect of nullifying other portions or provisions
hereof, as long as such remaining portions or provisions can still subsist and be given effect in
their entirety.

Sec. 5. Repealing Clause. All laws, acts, decrees, executive orders, issuances, and rules
and regulations or parts thereof which are contrary to and inconsistent with this Act are hereby
repealed, amended or modified accordingly.

SEC. 6. Effectivity. - This Act shall take effect fifteen (15) days after its complete
publication in the Official Gazette or in at least two (2) newspapers of general circulation.

Approved,

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