13th CONGRESS OF THE REPUBLIC 
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OF THE PHILIPPINES 
First Regular Session 
'04 
JUL -6 fi10 50 
llVED BY: 
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.Aada 
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S. BILL NO. 
Introduced by Senator Ralph G. Recto 
Explanatory Note 
In light of the global economic slowdown that has adversely 
affected world economies, it becomes all the more imperative to extend 
the period during which net operating losses ("NOL") can be taken as a 
deduction from gross income, thereby serving to cushion the impact of 
the global economic slowdown on the Philippine economy. "NOL" refers 
to the excess of allowable deductions over gross income of the business in 
a given taxable year. 
The National Internal Revenue Code of 1997 (the "Tax Code"), 
provided specified conditions are met, allows NOL to be carried-over for a 
period of three (3) consecutive taxable years immediately following the 
year in which the loss was incurred. 
Giving businesses five (5) years (instead of 3 years) within which to 
carry-over and offset the NOL it has incurred against the income of the 
succeeding 5 years will effectively breathe life to the animating spirit 
behind the Tax Code provisions on deductibility of NOL, Le., to minimize 
the inequity that may result if a taxpayer were taxed on all income of 
good years without being allowed any substantial benefit from the NOL 
sustained during bad years. 
Furthermore, the amendments to the Tax Code provisions in this 
proposed measure are designed to address the reality that the present 3- 
year period to carry-over the NOL is too short to derive substantial benefits 
from the carry-over of the NOL. 
It is in this light that immediate 
I of this bill is earnestly 
sought. 


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AMENDING 
Be it enac 
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AN ACT 
SECTION 34 OF REPUBLIC ACT OF 8424, OTHERWISE KNOWN AS 
THE NATIONAL INTERNAL REVENUE CODE OF 1997 
d by the Senate and House of Represenfafives of the 
1 3 t h  CONGRESS OF THE REPUBLIC 
) 
OF THE PHILIPPINES 
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First Regular Session 
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'84 JUL -6 A1050 
i 
I 
SENATE 
S. BILL NO. 
Introduced by Senator Ralph G. Recto 
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34 of Republic Act 8424, otherwise known as the 
Code of 1997, is hereby amended to read as 
follows: 
eductions from Gross Income. --- Except for taxpayers 
"SEC. 34. 
earning compensation income arising from personal services rendered 
under an erpployer-employee relationship where no deductions shall be 
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this Section other than under Subsection (M) hereof, in 
computing $axable income subject to income tax under Sections 24(A); 
25(A): 26: 2 (A), (6) and (C); and 28(A) ( I ) ,  there shall be allowed the 
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following debuctions from gross income: 
x x x  
(D) 
Lo ses. - 
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x x x  
(3) 
Net Operating Loss Carry-over. -The net operating loss of the 
business or enterprise for any taxable year immediately 


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preceding the current taxable year, which had not been 
previously offset as deduction from gross income shall be 
carried over as a deduction from gross income for the next 
[three (3)] FIVE (5) 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) 
Not, less than seventy-five percent (75%) in 
nominal value of the 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. 
For purposes of this Subsection, the term 'net operating loss' 
shall mean the excess of allowable deduction over gross income of 
the business in a taxable year: 
Provided, That for mines other than oil and gas wells, a net 
operating loss without the benefit of incentives provided for under 
Executive Order No. 226, as amended, otherwise known as the 
Omnibus Investments Code of 1987, incurred in any of the first ten 
(10) years of operation may be carried over as a deduction from 


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taxable income for the next five (5) years immediately following the 
year of such loss. The entire amount of the loss shall be carried over 
to the first of the five (5) taxable years following the loss, and all 
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portion of such loss which exceeds the taxable income of such first 
year shall be deducted in like manner from the taxable income of 
the next remaining four (4) years. 
x x x  
SEC. 2. 
Repealing Clause. -- All laws, acts, presidential decrees, 
executive orders, proclamation and/or administrative regulations that are 
inconsistent with the provisions of this Act are hereby amended, modified, 
superseded or repealed accordingly. 
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Approved, 
SEC. 3. 
Effectivity. - This Act shall take effect fifteen (15) days 
after its publication in at least two (2) newspapers of general circulation.