THIRTEENTH CONGRESS OF THE ) 
REPUBLIC OF THE PHILIPPINES 
) 
First Regular Session 
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MAR -7 P4 XI3 
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S E N A T E  
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1950 
S. No. 
(In substitution of SB Nos. 1337, 1838 and 1873, in consideration of 
HB Nos. 3555 and 3705) 
Prepared by the Committee with Senators Recto, Drilon, Flavier, Pangilinan and 
Gordon as authors thereof. 
AN ACT AMENDING SECTIONS 27,28,34,106,108,109,110,111, 
112,113,114,116,117,118,119,125,148,236,237AND 288 OF THE 
NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED, AND 
FOR OTHER PURPOSES 
Be if enacted by the Senafe and House of Representatives of fhe Philippines in 
Congress assembled: 
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SECTION 1. Section 27(A) of the National Internal Revenue Code of 1997, as 
amended, is hereby further amended to read as follows: 
"SEC. 27. Rates of Income Tax on Domestic Corporations. - 
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(A) In General. - Except as otherwise provided in this Code, an income tax of 
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thirty-five percent (35%) is hereby imposed upon the taxable income derived 
during each taxable year from all sources within and without the Philippines 
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by every corporation, as defined in Section 22(B) of this Code and taxable 
under this Title as a corporation, organized in, or existing under the laws of 
the Philippines: Provided, That effective January 1, 2009 [1998], the rate of 
income tax shall be THIRTY PERCENT (30%). [thirty-four percent (34%); 
effective January I, 
1999, the rate shall be thirty-three percent (33%); and 
effective January 1, 2000 and thereafter the rate shall be thirty-two percent 
(32%).] 
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x x x. 


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The [reduced 
corporate income tax rates shall b e  applied on the 
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amount computed by multiplying the number of months covered by the new 
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rates within the fiscal year by the taxable income of the corporation for the 
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period, divided by twelve. 
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x x x .” 
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SEC. 2. Section 28(A)(l) and (B)(I) and (5)(b) of the same Code, as amended, 
are hereby further amended to read as follows: 
“SEC. 
28. Rates of Income Tax on Foreign Corporations. - 
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(A) Tax on Resident Foreign Corporafions. - 
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(1) In General. - Except as otherwise provided in this Code, a corporation 
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organized, authorized, or existing under the laws of any foreign country, 
engaged in trade or business within the Philippines, shall be subject to an 
income tax equivalent to thirty-five percent (35%) of the taxable income 
derived in the preceding taxable year from all sources within the 
Philippines: Provided, That effective January I, 
2009 [1998], the rate of 
income tax shall be THIRTY PERCENT (30%). [thirty-four percent (34%); 
effective January ?, 1999, the rate shall be thirty-three percent (33%), and 
effective January 1, 2000 and thereafter the rate shall be thirty-two 
percent (32%).] 
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x x x. 
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period, divided by twelve. 
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x x x .  
The [reduced] corporate income tax rates shall b e  applied on the 
amount computed by multiplying the number of months covered by the new 
rates within the fiscal year by the taxable income of the corporation for the 
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(B) Tax on Nonresident Foreign Corporation. - 
(1) In General. - Except as otherwise provided in this Code, a foreign 
corporation not engaged in trade or business in the Philippines shall pay a 
tax equal to thirty-five percent (35%) of the gross income received during 
each taxable year from all sources within the Philippines, such as 
interests, dividends, rents, royalties, salaries, premiums (except 
reinsurance premiums), annuities, emoluments or other fixed or 
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determinable annual, periodic or casual gains, profits and income, and 
capital gains, except capital gains subject to tax under subparagraph[s] 
5(c) [and (d)]: Provided, That effective January 1, 2009 [1998], the rate 
of income tax shall be THIRTY PERCENT (30%). [thirty-four percent 
(34%); effective January 1, 1999, the rate shall be thirty-three percent 
(33%); and, effective January 1, 2000 and thereafter the rate shall be 
thirty-two percent (32%).] 
(2) x x x 
(3) x x x 
(4) x x x 
(5) Tax on Certain Incomes Received by a Nonresident Foreign Corporation. - 
(a) x x x 
(b) Intercorporate Dividends. - A final withholding tax at the rate of fifteen 
percent (15%) is hereby imposed on the amount of cash and/or 
property dividends received from a domestic corporation, which shall 
be collected and paid as provided in Section 57(A) of this Code, 
subject to the condition that the country in which the nonresident 
foreign corporation is domiciled, shall allow a credit against the tax due 
from the nonresident foreign corporation taxes deemed to have been 
paid in the Philippines equivalent to twenty percent (20%) [for 1997, 
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nineteen percent (1 9%) for 1998, eighteen percent (1 8%) for 1999, and 
seventeen percent (77%) thereafter], which represents the difference 
between the regular income tax of thirty-five percent (35%) [in 1997, 
thirty-four percent (34%) in 1998, and thirty-three percent (33%) in 
1999, and thirty-two percent (32%) thereafter on corporations] and the 
fifteen percent (15%) tax on dividends as provided in this 
subparagraphh]: PROVIDED, THAT EFFECTIVE JANUARY 1, 2009 
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THE CREDIT AGAINST THE TAX DUE SHALL BE EQUIVALENT TO 
FIFTEEN 
PERCENT 
(15%), 
WHICH 
REPRESENTS 
THE 
DIFFERENCE BETWEEN THE REGULAR INCOME TAX OF THIRTY 
PERCENT (30%) AND THE FIFTEEN PERCENT (15%) TAX ON 
DIVIDENDS. 
(c) x x x.” 
SEC. 3. Section 34(B)(1) of the same Code, as amended, is hereby further 
amended to read as follows: 
“SEC. 34. Deducfions from Gross Income. - 
(A) x x x 
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(B) Merest. - 
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(1) ln General. - The amount of interest paid or incurred within a taxable year 
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on indebtedness in connection with the taxpayer’s profession, trade or 
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business shall be allowed as deduction from gross income: Provided, 
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however, That the taxpayer‘s otherwise allowable deduction for interest 
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expense shall be reduced by FORTY-TWO PERCENT (42%) [an amount 
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equal to the following percentage 
of the interest income subjected to final 
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tax: fROVID€D, THAT EFFECTIVE JANUARY 1,2009 THE PERCENTAGE 
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SHALL BE THIRTY-THREE PERCENT (33%). 


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[Forty-one percent (41%) beginning January 1, 1998; 
Thirty-nine percent (39%) beginning January 1, 1999; and 
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Thirty-eight percent (38%) beginning January 1, 2000.1 
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x x x.” 
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to read as follows: 
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SEC. 4. Sec. 106(A) of the same Code, as amended, is hereby further amended 
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“SEC. 106. Value-Added Tax on Sale of Goods or Properties. - 
(A) Rate and Base of Tax. - There shall be levied, assessed and collected on 
every sale, barter or exchange BY A VAT-REGISTERED PERSON of goods 
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or properties LOCATED IN THE CUSTOMS TERRITORY OF THE 
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transferor. 
PHILIPPINES AT THE TIME OF SALE, a value-added tax equivalent to ten 
percent (10%) of the gross selling price or gross value in money of the goods 
or properties sold, bartered or exchanged, such tax to be paid by the seller or 
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(1) x x x  
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percent (0%) rate: 
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(2) The following sales by VAT-registered persons shall be subject to zero 
(a) Export Sales. -The term ‘export sales’ means: 
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(1) x x x; 
(2) x x x; 
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(3) x x x; 
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(4) x x x; [and] 
(5) x x x[.]; AND 
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(6) THE SALE OF GOODS, SUPPLIES AND FUEL TO PERSONS 
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ENGAGED EXCLUSIVELY IN INTERNATIONAL SHIPPING OR 
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I~TERNATION~L 
AIR TRANSPORT. 
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x x x. 
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(B) x x x  
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(C) x x x  
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(D) x x x” 
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to read as follows: 
SEC. 5. Section 108 of the same Code, as amended, is hereby further amended 
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“SEC. 108. Value-added Tax on Sale of Services and Use or Lease of 
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Properties. - 
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(A) Rate and Base of Tax. - There shall be levied, assessed and collected, a 
value-added tax equivalent to ten percent (10%) of gross receipts derived BY 
A VAT-REGISTERED PERSON from the sale or exchange of services, 
including the use or lease of properties. 
The phrase ‘sale or exchange of services’ means the performance of 
all kinds of services in the Philippines for others for a fee, remuneration or 
consideration, including those performed or rendered by construction and 
service contractors; stock, real estate, commercial, customs and immigration 
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brokers; lessors of property, whether personal or real; warehousing services; 
lessors or distributors of cinematographic films; persons engaged in milling, 
processing, manufacturing or repacking goods for others; proprietors, 
operators or keepers of hotels, rpotels, resthouses, pension houses, inns, 
resorts; proprietors or operators of restaurants, refreshment parlors, cafes 
and other eating places, including clubs and caterers; PROPRIETORS, 
LESSEES OR OPERATORS OF CABARETS AND NlGYT OR DAY 
CLUBS; dealers in securities; lending investors; transportation contractors on 
their transport of goods or cargoes, including persons who transport goods or 
cargoes for hire and other domestic common carriers by land [, air and water] 
relative to their transport of goods or cargoes: COMMON CARRIERS BY AIR 
AND SEA RELATIVE TO THEIR TRANSPORT OF PASSENGERS, 
GOODS 
OR CARGOES FROM ONE AIRPORT OK PLACE rN THE PH~LIPPINES 
TO 
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~ ~ ~ T H E R  
AIRPORT OR PLACE IN THE P H I L I ~ ~ I ~ E ~ ;  
SALES OF 
ELECTRICITY BY G ~ ~ E R A T I O N  
CO 
ISSi0$4, AND 
~ I ~ T R I B ~ T ~ O ~  
~ O ~ P A ~ I E S ;  
services of franchise grantees of ELECTRIC 
UTILITIES, telephone and telegraph, radio and television broadcasting and all 
other franchise grantees except those under Section l'l8 
and non-life insurance companies (except their crop insurances), including 
surety, fidelity, indemnity and bonding companies; and similar services 
regardless of whether or not the performance thereof calls for the exercise or 
use of the physical or mental faculties. IN D E ~ E ~ ~ I N ! N ~  
WHERE THE 
SERVICES ARE ~
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U ~ ~ E R  
THIS P
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P
H
,
THE 
RELEVANT TEST IS WHERE THE SERVICES ARE P E ~ ~ O R ~ E ~  
BY VAI- 
REGISTERED PERSONS P R O V ! D I ~ ~  
THE SERVICES. The phrase 'sale or 
exchaige of services' shall likewise include: 
(1) xxx; 
(2) x x x; 
(3) x xx; 
(4) x x x; 
(5) x xx; 
(6) x x x; 
(7) xxx; 
(S) x xx. 
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P 
(B) Transactions Subjecf fo Zero Percent (0%) Rate. - The following services 
performed in the Philippines by VAT-registered persons shall be subject io 
zero percent (0%) rate: 
(I) x x x; 
(2) Services other than those mentioned in the preceding paragraph 
ES, the consideration for which is paid for in acceptable foreign 
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currency and accounted for in accordance with the rules and regulations 
of the Bangko Sentral ng Pilipinas (BSP); 
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(3) x x x; 
(4) Services rendered to PERSONS ,[vessels] engaged exclusively in 
international shipping OR INTERNATIONAL AIR TRANSPORT; [and] 
(5) x x x; AND 
(6) TRANSPORT OF PASSENGERS AND CARGO BY AIR OR SEA 
VESSELS FROM THE PHILIPPINES TO A FOREIGN COUNTRY. 
(C) x x x." 
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SEC. 6. Section 109 of the same Code, as amended, is hereby further amended 
111 to read as follows: 
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"SEC. 109. Exempt Transactions. - (1) SUBJECT TO THE PROVISIONS 
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OF SUBSECTION (2) HEREOF, [T]the following TRANSACTIONS shall be 
exempt from the value-added tax: 
[(a) Sale of nonfood agricultural products; marine and forest products in their 
original state by the primary producer or the owner of the land where the 
same are produced;] 
[(b) Sale of cotton and cotton seeds in their original state; and copra;] 
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[(c)] (A) Sale or importation of agricultural and marine food products in their 
original state, livestock and poultry of a kind generally used as, or yielding or 
producing foods for human consumption; and breeding stock and genetic 
materials therefor. 
b 
Products classified under this paragraph [and paragraph (a)] shall be 
considered in their original state even if they have undergone the simple 
processes of preparation or preservation for the market, such as freezing, 
drying, salting, broiling, roasting, smoking or stripping. 
Polished andlor 
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husked rice, corn grits, raw cane sugar and molasses, [and] ordinary salt, 
AND COPRA shall be considered in their original stater;] , 
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[(d)] (B) 
Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, 
prawn, livestock and poultry feeds, including ingredients, whether locally 
produced or imported, used in the manufacture of finished feeds (except 
specialty feeds for race horses, fighting. cocks, aquarium fish, zoo animals 
and other animals generally considered as pets); 
[(e)] 
(C) Sale [or importation] of [coal and] natural gas AND OTHER 
INDIGENOUS AND RENEWABLE' SOURCE§ OF ENERGY, in whatever 
form or state[, and petroleum ,products (except lubricating oil, processed gas, 
grease, wax and petrolatum) subject to excise tax imposed under Title VI]; 
[(9 Sale or importation of raw materials to be used ,by the buyer or importer 
himself in the manufacture of petroleum products subject to excise tax, except 
lubricating oil, processed gas, grease, wax and petrolatum;] 
[(g) Importation of passenger and/or cargo vessels of more than five thousand 
tons (5,000), whether coastwise or ocean-going, including engine and spare 
parts of said vessel to be used by the importer himself as operator thereof;] 
[(h)] 
(D) Importation of personal :and household effects belonging to the 
residents of the Philippines returning from abroad and nonresident citizens 
coming to resettle in the Philippines: Pbvided, That such goods are exempt 
from customs duties under the Tariff and Customs Code of the Philippines; 
[(i)] 
(E) Importation of professional instruments and implements, wearing 
apparel, domestic animals, and personal household effects (except any 
vehicle, vessel, aircraft, machinery, other goods for use in the manufacture 
and merchandise of any kind in commercial quantity) belonging to persons 
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coming to settle in the Philippines, for their own use and not for sale, barter or 
exchange, accompanying such persons, or arriving within ninety (90) days 
before or after their arrival, upon the production of evidence satisfactory to the 
Commissioner, that such persons are actually coming to settle in the 
Philippines and that the change of residence is bona fide; 
[a) Services subject to percentage tax under Title V;] 
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[(k)] 
(F) Services by agricultural contract growers and milling for others of palay 
into rice, corn into grits and sugar cane into raw sugar; 
[(I)] (G) Medical, dental, hospital and veterinary services except those rendered 
by professionals; 
[(m)] (H) Educational services rendered by private educational institutions, duly 
accredited by the Department of Education (DEPED) [, Culture and Sports 
(DECS)] and the Commission on Higher Education (CHED), and those 
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rendered by government educational institutions; 
[(n) Sale by the artist himself of his works of art, literary works, musical 
compositions and similar creations, or his services performed for the 
production of such works;] 
[(o)] (I) Services rendered by individuals pursuant to an employer-employee 
relationship; 
[(p)] (J) Services rendered by regional or area headquarters established in the 
Philippines by multinational corporations which act as supervisory, 
communications and coordinating centers for their affiliates, subsidiaries or 
branches in the Asia-Pacific Region and do not earn or derive income from 
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the Philippines; 
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[(q)] (K) Transactions which are exempt under internation I agreem nts to 
which the Philippines is a signatory or under special laws, except those under 
Presidential Decree Nos. 66, 529 and 1590; 
[(r)] (L) Sales by agricultural cooperatives duly registered with the Cooperative 
Development Authority to their members as well as sale of their produce, 
whether in its original state or processed form, to non-members; their 
importation of direct farm inputs, machineries and equipment, including spare 
parts thereof, to be used directly and exclusively in the production andlor 
processing of their produce; 
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[(s) Sales by electric cooperatives duly registered with the Cooperative 
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Development Authority or National Electrification Administration, relative to 
the generation and distribution of electricity as well as their importation of 
machineries and equipment, including spare parts, which shall be directly 
used in the generation and distribution of electricity;] 
[(t)] 
(M) Gross receipts from lending activities by credit or multi-purpose 
cooperatives duly .registered with the Cooperative Development Authority 
[whose lending operation is limited to their members]; 
[(u)] (RI) Sales by non-agricultural, non-electric and non-credit cooperatives duly 
registered with the Cooperative 
~ Development Authority: Provided, That the 
share capital contribution of each member does not exceed Fifteen thousand 
pesos (P15,OOO) and regardless of the aggregate capital and net surplus 
ratably distributed among the members; 
[(v) Export sales by persons who are not VAT-registered;] 
[(w)] (0) Sale of real properties not primarily held for sale to customers or held 
for lease in the ordinary course of trade or business, or real property utilized 
for low-cost and socialized housing as defined by Republic Act No. 7279, 
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otherwise known as the Urban Development and Housing Act of 1992, and 
other related laws, house and lot and other residential dwellings valued at 
ONE MILLION FIVE HUNDRED THOUSAND PESOS (P1,500,000) [One 
million pesos (PI ,OOO,OOO)] 
and below[: Provided, That not later than 
January 31st of the calendar year subsequent to the effectivity of this Act and 
each calendar year thereafter, the amount of One million pesos (PI ,000,000) 
shall be adjusted to its present value using the Consumer Price Index, as 
published by the National Statistics Office (NSO)]; 
[(x)] (P) Lease of a residential unit with a monthly rental not exceeding TEN 
THOUSAND PESOS (Pl0,OOO) [Eight thousand pesos(P8,OOO): Provided, 
That not later than January 31st of the calendar year subsequent to the 
effectivity of Republic Act No. 8241 and each calendar year thereaker, the 
amount of Eight thousand pesos (P8,OOO) shall be adjusted to its present 
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value using the Consumer Price Index as published by the Nationa1,Statistics 
Office (NSO)]; 
[(y)] (Q) Sale, importation, printing or publication of books and any newspaper, 
magazine, review or bulletin which appears at regular intervals with fixed 
prices for subscription and sale and which is not devoted principally to the 
publication of paid advertisements; AND 
[(z)] (R) 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 SEVEN HUNDREb 
FIFTY THOUSAND PESOS (P750,OOO) [Five hundred fifty thousand pesos 
(P550,OOO): Provided, That not later than January 31st of the calendar year 
subsequent to the effectivity of Republic Act No. 8241 and each calendar year 
thereafter, the amount of Five hundred fifty thousand pesos (P550,OOO) shall 
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be adjusted to its present value using the Consumer Price Index, as 
published by the National Statistics Office (NSO);] 
[(aa) Services of banks, non-bank financial intermediaries performing quasi- 
banking functions, and other non-bank financial intermediaries;] 
[(bb) Services rendered by doctors of medicine duly registered with the 
Professional Regulation Commission (PRC); and 
[(cc) Services rendered by lawyers duly registered with the Integrated Bar of the 
Philippines (IBP).] 
[The foregoing exemptions to the contrary notwithstanding, any person 
whose sale of goods or properties or services which are otherwise not subject tq 
VAT, but who issues a VAT invoice or receipt therefor shall, in addition to his 
liability to other applicable percentage tax, if any, be liable to the tax imposed in 
Section 106 or 108 without the benefit of input tax credit, and such tax shall also 
be recognized as input tax credit to the purchaser under Section 110, all of this 
Code]. 
: 
(2) A VAT-REGISTERED PERSON MAY ELECT THAT SUBSECTION 
(1) NOT APPLY TO ITS SALE OF GOODS OR PROPERTIES OR SERVICES: 
PROVIDED, THAT AN ELECTION MADE UNDER THIS SUBSECTION SHALL 
BE IRREVOCABLE FOR A PERIOD OF THREE (3) YEARS FROM THE 
MONTH THE ELECTION WAS MADE.” 
SEC. 7. Section 110 of the same Code, as amended, is hereby further amended 
to read as follows: 
“SEC. 110. Tax Credits. - 
(A) Creditable lnput Tax. - 
2s 
(1)xxx 
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(2) The input tax on domestic purchase OR I ~ P O R T A T ~ O ~  
of goods or 
properties BY A VAT-REGISTERED PERSON shall be creditable: 
(a) To the purchaser upon consummation of sale and on importation of goods 
or properties; and 
(b) To the importer upon payment of the value-added tax prior to the release 
of the goods from the custody of the Bureau of Customs. 
PROV/DED, THAT THE INPUT TAX ON GOODS PURCHASED OR 
IMPORTED IN A CALENDAR MONTH FOR USE IN TRADE OR BUSINESS 
FOR WHICH DEDUCTION FOR DEPRECIATION OR AMORTIZATION IS 
ALLOWED UNDER THIS CODE, SHALL BE SPREAD EVENLY OVER THE 
MONTH OF ACQUISITION AND THE FIFTY-NINE (59) SUCCEEDING 
MONTHS IF THE AGGREGATE ACQUISITION COSY FOR SUCH GOODS 
EXCEEDS SIX HUNDRED SIXTY THOUSAND PESOS (P660,OOO): 
PROVIDED, [Hlhowever, THAT in the case of purchase of services, lease or 
use of properties, the input tax shall be creditable to the purchaser, lessee or 
licensee upon payment of the compensation, rental, royalty or fee. 
(3)xxx. 
x x x  
(B) Excess Oufpuf or puf Tax. - If at the end of any taxable quarter the output tax 
exceeds the input tax, the excess shall be paid by the VAT-registered person. If 
the input tax exceeds the output tax, the excess shall be carried over to the 
succeeding quarter or quarters. Any input tax attributable [to the purchase of 
capital goods or] to zero-rated sales by a VAT-registered person may at his 
option be refunded or credited against other internal revenue taxes, subject to 
the provisions of Section 112. 
(C) x x x. 
x x x ." 
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to read as follows: 
SEC. 8. Section 1 I 1  of the same Code, as amended, is hereby further amended 
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“SEC. 1 1 1. Transitional/ Presumptive lnpuf Tax Credifs. - 
(A) Transitional lnput Tax Credits. -A person who becomes liable to value-added 
tax or any person who elects to be a VAT-registered person shall, subject to 
the filing of an inventory according to rules and regulations prescribed by the 
Secretary of Finance, upon recommendation of the Commissioner, be 
allowed input tax on his beginning inventory of goods, materials and supplies 
equivalent to TWO PERCENT (2%) [eight percent (8%)] of the value of such 
inventory or the actual value-added tax paid on such goods, materials and 
supplies, whichever is higher, which shall be creditable against the output tax. 
(B) Presumpfive lnpuf Tax Credits. - 
[(I)] 
Persons or firms engaged in the processing of sardines, mackerel and 
milk, and in manufacturing refined sugar and cooking oil, shall be allowed 
a presumptive input tax, creditable against the output tax, equivalent to 
FOUR PERCENT (4%) [one and one-half percent (I %%)I 
of the gross 
value in money of their purchases of primary agricultural products which 
are used as inputs to their production. 
x x x. 
[(2) Public works contractors shall be allowed a presumptive input tax 
equivalent to one and one-half percent (I%%) 
of the contract price with 
respect to government contracts. only in lieu of actual input taxes 
therefrom.]” 
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to read as follows: 
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(A) x x x. 
SEC. 9. Section 112 of the same Code, as amended, is hereby further amended 
“SEC. 112. Refunds or Tax Credits of lnpuf Tax. - 
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[(B) Capifal Goods. - A VAT-registered person may apply for the issuance of a 
tax credit certificate or refund of input taxes paid on capital goods imported or 
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locally purchased, to the extent that such input taxes have not been applied 
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made.] 
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against output taxes. The application may be made only within two (2) years 
after the close of the taxable quarter when the importation or purchase was 
[(C)] (B) 
Cancellation of VAT Regisfration. - A person whose registration has 
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been cancelled due to retirement from or cessation of business, or due to 
changes in or cessation of status under Section 106(C) of this Code may, 
within two (2) years from the date of cancellation, apply for the issuance of a 
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tax credit certificate for any unused input tax which may be used in payment 
of his other internal revenue taxes. 
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[(D)] (C) Period within which Refund or Tax Credit of Input Taxes shall be 
Made. - In proper cases, the Commissioner shall grant a refund or issue the 
tax credit certificate for creditable input taxes within one hundred twenty (120) 
days from the date of submission of complete documents in support of the 
application filed in accordance with Subsection[s] (A) [and (B)] hereof. 
x x x. 
[(E)] (D) Manner of Giving Refund. - Refunds shall be made upon warrants 
! 
drawn by the Commissioner or by his duly authorized representative without 
*, 
the necessity of being countersigned by the Chairman, Commission on Audit, 
the provisions of the Administrative Code of 1987 to the. contrary 
1 
23 
24 
notwithstanding: Provided, That refunds under this paragraph shall be subject 
to post audit by the Commission on Audit.” 
25 
SEC. 10. Section 113 of the same Code, as amended, is hereby further 
26 
amended to read as follows: 
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“SEC. 1 13. Invoicing and Accounting Requirements for VAT-Regisfereg 
Persons. - 
(A) Invoicing Requirements. - A VAT-registered person shall !§SUE [,I: 
(I) 
A VAT INVOICE for every sale, BARTER OR EXCHANGE OF GOODS 
OR PROPERTIES[, issue an invoice or receipt.]; AND 
(2) A VAT OFFICIAL RECEIPT FOR EVERY LEASE OF GOODS OR 
PROPERTIES, AND FOR EVERY SALE, BARTER OR EXCHANGE OF 
SERVICES. 
i 
(B) INFORMATION CONTAINED IN THE VAT INVOICE OR VAT OFFICIAL 
RECEIPT. - [In addition to the information required under Section 237 t] The 
following information shall be indicated in the VAT invoice or VAT OFFICIAL 
receipt: 
(1) A statement that the seller is a VAT-registered person, followed by his 
taxpayer’s identification number (TIN); [and] 
(2) The total amount which the purchaser pays or is obligated to pay to the 
seller with the indication that such amount includes the value-added 
tax[.]: PROVIDED, THAT: 
(a) THE AMOUNT OF THE TAX SHALL BE SHOWN AS A SEPARATE 
ITEM IN THE INVOICE OR RECEIPT; 
(b) IF THE SALE IS EXEMPT FROM VALUE-ADDED TAX, THE WORDS 
“VAT EXEMPT SALE” SHALL BE DISPLAYED PROMINENTLY ON 
THE INVOKE OR RECEIPT; 
(c)IF THE SALE IS SUBJECT TO ZERO PERCENT (0%) VALUE- 
ADDED TAX, THE WORDS “ZERO-RATED SALE” SHALL BE 
DISPLAYED PROMINEN~LY ON THE INVOICE OR RECEIPT; 
(d) IF THE SALE IS ONLY PARTIALLY SUBJECT TO VALUE-ADDED 
TAX, THE INVOICE OR RECEIPT SHALL CLEARLY INDICATE THE 
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BREAK-DOWN OF THE SALE PRICE BETWEEN ITS TAXABLE, 
EXEMPT 
AND 
ZERO-RATED 
COMPONENTS, 
AND 
THE 
CALCULATION OF THE VALUE-ADDED TAX ON EACH PORTION 
OF THE SALE SHALL BE SHOWN ON THE INVOICE OR RECEIPT: 
PROVIDED, THAT 
THE SELLER MAY ISSUE SEPARATE 
INVOICES OR RECEIPTS FOR THE TAXABLE, EXEMPT, AND 
ZERO-RATED COMPONENTS OF THE SALE. 
(3) THE DATE OF TRANSACTION, QUANTITY, UNIT COST AND 
DESCRIPTION OF THE MERCHANDISE OR NATURE OF THE 
SERVICE: AND 
I 
(4) IN THE CASE OF SALES IN THE AMOUNT OF ONE THOUSAND 
PESOS p1,aoo) OR MORE WHERE THE SALE OR TRANSFER IS 
MADE TO A VAT-REGISTERED PERSON, THE NAME, BUSINESS 
STYLE, IF ANY, ADDRESS AND TAXPAYER IDENTIFICATION 
NUMBER (TIN) OF THE PURCHASER, CUSTOMER OR CLIENT. 
[(B)](C) Accounting Requirements. - Notwithstanding the provisions of Section 
23212331, all persons subject to the value-added tax under Sections 106 and 
108 shall, in addition to the regular accounting records required, maintain a 
subsidiary sales journal and subsidiary purchase journal on which the daily 
sales and purchases are recorded. The subsidiary journals shall contain such 
information as may be required by the Secretary of Finance. 
(D) CONSEQUENCE OF ISSUING ERRONEOUS VAT INVOICE OR VAT 
OFFICIAL RECEIPT. - 
(1) IF A PERSON WHO IS NOT A VAT-REGISTERED PERSON ISSUES 
AN INVOICE OR RECEIPT CONTAINING A STATEMENT THAT THE 
SELLER IS A VAT-REGISTERED PERSON, ‘FOLLOWED BY HIS 
TAXPAYER IDENTIFICATION NUMBER (TIN): 
I 
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(a) THE ISSUER SHALL, IN ADDITION TO ANY LIABILITY TO OTHER 
PERCENTAGE TAXES, BE LIABLE TO: 
(i) THE TAX IMPOSED IN SECTION 106 OR 108 WITHOUT THE 
BENEFIT OF ANY INPUT TAX CREDIT; AND 
(ii) A 50% SURTAX UNDER SECTION 247(B) OF THIS CODE; 
(b)THE TAX SHALL, IF THE OTHER REQUISITE INFORMATION 
REQUIRED UNDER SUBSECTION (B) IS SHOWN ON THE INVOICE 
OR RECEIPT, BE RECOGNIZED AS AN INPUT TAX CREDIT TO 
THE PURCHASER UNDER SECTION 110 OF THIS CODE. 
(2) IF A VAT-REGISTERED PERSON ISSUES A VAT INVOICE OR VAT 
OFFICIAL RECEIPT FOR A VAT-EXEMPT TRANSACTION, BUT FAILS 
TO DISPLAY PROMINENTLY ON THE INVOICE OR RECEIPT THE 
WORDS “VAT EXEMPT SALE”, THE ISSUER SHALL BE LIABLE TO 
ACCOUNT FOR THE TAX IMPOSED IN SECTION 106 OR 908 AS IF 
SECTION 109 DID NOT APPLY. 
(E) 
TRANSITIONAL RULE - 
NOTWITHSTANDING SUBSECTION (B), 
TAXPAYERS MAY CONTINUE TO ISSUE VAT INVOICES AND VAT 
OFFICIAL RECEIPTS FOR THE PERIOD JULY 1,2005 TO DEGEMBER 31, 
2005, IN ACCORDANCE WITH BUREAU OF INTERNAL REVENUE 
ADMINISTRATIVE PRACTICES THAT EXISTED AS OF DECEMBER 31, 
2004.” 
SEC. 11. Section I14 of the same Code, as amended, is hereby further 
amended to read as follows: 
“SEC. 114. Return and Payment of Value-Added Tax. - 
(A) x x x. 
(6) 
x x x. 
(C) Withholding of Credifable Value-added Tax. - The Government or any of its 
political subdivisions, instrumentalities or agencies, including government- 
29 
owned or -controlled corporations (GOCCs) shall, before making payment on 
b 
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account of each purchase of goods from sellers and services rendered by 
contractors which are subject to the value-added tax imposed in Sections 106 
and 108 of this Code, deduct and withhold the value-added tax due at the rate 
of: 
(1) FIVE PERCENT (5%) [three percent (3%)] of the gross payment for the 
purchase of goods, and ON [six percent (6%) on] gross receipts for 
services rendered 
by contractors, INCLUDING PUBLIC WORKS 
CONTRACTORS [on every sale or installment payment1 which shall be 
creditable against the value-added tax liability of the seller; AND [or 
contractor: Provided, however, That in the case of government public 
works contractors, the withholding rate shall be eight and one-half percent 
12 
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14 
(8.5%): Provided, further, That the] 
(2) TEN PERCENT (10%) OF THE GROSS payment for lease or use of 
properties or property rights to nonresident owners [shall be subject to ten 
15 
i 
percent (10%) withholding tax at the time of paymentl. For [this purpose] 
16 
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x x x.” 
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SEC. 12. Section 116 of the same Code, as amended, is hereby further 
20 
21 
THE PURPOSES OF THIS SECTION, the payor or person in control of 
the payment shall be considered as the withholding agent. 
amended to read as follows: 
“SEC. 11 6. Tax on Persons Exempt from Value-Added Tax (VAT). - Any 
I 22 
person whose sales or receipts AMOUNT TO SEVEN HUNDRED FIFTY 
THOUSAND PESOS (P750,OOO) AND BELOW OR are exempt under Section 
23 
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25 
109[(z)](R) of this Code from the payment of value-added tax and who is not a 
VAT-registered person shall pay a tax equivalent to three percent (3%) of his 


0 
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gross quarterly sales or receipts: Provided, That cooperatives shall be exempt 
from the three percent (3%) gross receipts tax herein imposed.” 
SEC. 13, Section 117 of the same Code, as amended, is hereby further 
amended to read as follows: 
“SEC. 117. 
Percentage Tax on Domestic Carriers and Keepers of 
Garages. - Cars for rent or hire driven by the lesseel,]; transportation 
contractors, including persons who transport passengers for hire, and other 
domestic carriers by land[, air or water,] for the transport of passengers[,] 
I 
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(except owners of bancas and owners of animal-drawn twp wheeled vehicle), 
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and keepers of garages shall pay a tax equivalent to three percent (3%) of their 
quarterly gross receipts. 
x x x.” 
SEC. 14, Section 118 of the same Code, as amended, is hereby deleted and the 
succeeding sections of the Code are hereby renumbered accordingly: 
“SEC. 11 8. Percentage Tax on International Carriers. - 
! 
i 
(A) Jnlernational air carriers doing business in the Philippines shall pay a tax of 
three percent (3%) of their quarterly gross receipts. 
(B) International shipping carriers doing business in the Philippines shall pay a 
i 
tax equivalent to three percent (3%) of their quarterly gross receipts.”] 
SEC. 15. Section I19 of the same Code, as amended, is hereby further 
amended to read as follows: 
“SEC. 118[119]. 
Tax on Franchises. - Any provision of general or 
special law to the contrary notwithstanding, there shall be levied, assessed and 
collected in respect to ail franchises on radio andlor television broadcasting 
companies whose annual gross receipts of the preceding year DO [does] 
not 
exceed Ten million pesos (PlO,OOO,OOO), subject to Section 23512361 of this 
21 


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Code, a tax of three percent (3%) and on [electric,] gas and water utilities, a tax 
2 
of two percent (2%) on the gross receipts derived from the business covered by 
3 
the law granting the franchise: Provided, however, That radio and television 
4 
broadcasting companies referred to in this Section shall have an option to be 
5 
registered as a value-added taxpayer and pay the tax due thereon: Provided, 
6 
further, That once the option is exercised, SAID OPTION SHALL BE 
7 
IRREVOCABLE [it shall not be revoked]. 
8 
x x x.” 
‘ 9  
10 
SEC. 16. Section 125 of the same Code, as amended, is hereby further 
amended to read as follows: 
.ll 
“SEC. 124[125]. Amusement Taxes. - There shall be collected from the 
12 
proprietor, lessee or operator of cockpits, [cabarets, night or day clubs,] boxing 
13 
exhibitions, professional basketball games, Jai-Alai and racetracks, a tax 
14 
equivalent to: 
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(a) x x x 
[(b) Eighteen percent (18%) in the case of cabarets, night or day clubs;] 
[(@I (B) x x x  
(C) 
x x x 
I[(.)] 
(D) x x x  
x x x.” 
SEC. 17: Section 148 of the same Code, as amended, is hereby further 
, 
amended to read as follows: 
“SEC. 14711481. Manufactured Oils and Other Fuels. - There shall be 
collected on refined and manufactured mineral oils and motor fuels, the following 
excise taxes which shall attach to the goods hereunder enumerated as soon as 
i 
26 
they are in existence as such: 
22 


(a) xxx; 
(b) xxx; 
(c) x xx; 
(d) xxx; 
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(e) Naphtha, regular gasoline and other similar products of distillation, per liter of 
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volume capacity, FOUR PESOS AND THIRTY-FIVE CENTAVOS (P4.35) 
.[Four pesos and eighty centavos (P4.80)]: Provided, however, That naphtha, 
when used as a raw material in the production of petrochemical products or 
as replacement fuel for natural-gas-fired-combined cycle power plant, in lieu 
of locally-extracted natural gas during the non-availability thereof, subject to 
the rules and regulations to be promulgated by the Secretary of Energy, in 
consultation with the Secretary of Finance, per liter of volume capacity, Zero 
(P0.00): Provided, further, That the by-product including fuel oil, diesel fuel, 
kerosene, pyrolysis gasoline, liquefied petroleum gases and similar oils 
having more or less the same generating power, which are produced in the 
processing of naphtha into petrochemical products shall be subject to the 
applicable excise tax specified in this Section, except when such by-products 
are transferred to any of the local oil refineries through sale, barter or 
exchange, for the purpose of further processing or blending into finished 
products which are subject to excise tax under this Section; 
(9 Leaded premium gasoline, per liter of volume capacity, Five pesos and thirty- 
five centavos (P5.35); unleaded premium gasoline, per liter of volume 
capacity, FOUR PESOS AND EIGHTY CENTAVOS (P4.80) [Four pesos and 
' I  
thirty-five centavos (P4.35)]; 
e 
(9) x x x; 
(h) Kerosene, per liter of volume capacity, ZERO 
(PO.00) [Sixty centavos 
(OBO)]: Provided, That kerosene, when used as aviation fuel, shall be subject 
23 


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0 
to the same tax on aviation turbo jet fuel under the preceding paragraph (g), 
such tax to be assessed on the user thereof; 
(i) Diesel fuel oil, and on similar fuel oils having more or less the same generating 
power, per liter of volume capacity, ZERO-(PO.00) [One peso and sixty-three 
centavos (P1.63)]; 
i 
(j) x xx; 
i 
(k) xxx; 
(I) Bunker fuel oil, and on similar fuel oils having more or less  the^ same 
generating power, per liter of, volume capacity, ZERO (PO.00) [Thirty 
10 
centavos (P0.30)].” 
11 
12 
13 
SEC. 18: Section 236 of the same Code, as amended, is hereby further 
amended to read as follows: 
“SEC. 235[236]. Registration Requirements. - 
, 14 
(A) x x x  
15 
(B) ’ x x x 
16 
(C) x x x  
17 
(D) x x x  
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(E) x x x  
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(F) Cancellation of Registration. - 
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(I) 
GENERAL RULE. - The registration of any person who ceases to be 
liable to a tax shall be cancelled upon filing with the Revenue District 
Office where he is registered an application for registration information 
update in a form prescribed therefor; 
24 
(2) CANCELLATION OF VALUE-ADDED TAX REGISTRATION. - A VAT- 
25 
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IF: 
REGISTERED PERSON MAY CANCEL HIS REGISTRATION FOR VAT 
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(a) HE MAKES WRlTTEN APPLICATION AND CAN DEMONSTRATE 
TO THE COMISSIONER'S SATISFACTION THAT HIS GROSS 
SALES OR RECEIPTS FOR THE FOLLOWING TWELVE (12) 
MONTHS, OTHER THAN THOSE THAT ARE EXEMPT UNDER 
SECTION I09 (A) TO (Q), WILL BE LESS THAN SEVEN 
HUNDRED FIFTY THOUSAND PESOS (P750,000), 
OR 
(b) HE HAS CEASED TO CARRY ON HIS TRADE OR BUSINESS, 
AND DOES NOT EXPECT TO RECOMMENCE ANY TRADE OR 
BUSINESS WITHIN THE NEXT TWELVE (12) MONTHS. 
THE CANCELLATION OF REGISTRATION WILL BE EFFECTIVE 
FROM THE FIRST DAY OF THE FOLLOWING MONTH. 
(G) Persons 
REQWRED TO REGlSTER FOR VALUE-ADDED TAX 
[Commencing Business]. - 
(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: 
(a) HI§ GROSS SALES OR RECEIPTS FOR THE PAST TWELVE (12) 
MONTHS, OTHER THAN THOSE THAT ARE EXEMPT UNDER 
SECTION 109 (A) TO (Q), HAVE EXCEEDED SEVEN HUNDRED 
FIFTY THOUSAND PESOS (P750,OOO); OR 
(b) THERE ARE REASONABLE GROUNDS TO BELIEVE THAT HIS 
GROSS SALES OR RECEIPTS FOR THE NEXT TWELVE (12) 
MONTHS, OTHER THAN THOSE THAT ARE EXEMPT UNDER 
SECTION I09 (A) TO (Q), WILL EXCEED SEVEN HUNDRED 
FIFTY THOUSAND PESOS (P750,OOO). 
i 
(2) EVERY PERSON WHO BECOMES LIABLE TO BE REGISTERED 
UNDER PARAGRAPH (1) OF THIS SUBSECTION [expects to realize 
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gross sales or receipts subject to value-added tax in excess of the amount 
prescribed under Section 109(z) for the next 12-month period from the 
commencement of the business,] shall register with the Revenue District 
Office which has jurisdiction over the head office or branch of that person, 
and shall pay the annual registration fee prescribed in Subsection (6) 
hereof. IF HE FAILS TO REGISTER, HE SHALL BE LIABLE TO TAX 
UNDER TITLE IV AS IF HE WERE A VAT-REGISTERED PERSON, BUT 
WITHOUT THE BENEFIT OF INPUT TAX CREDITS FOR THE PERIOD 
IN WHICH HE WAS NOT PROPERLY REGISTERED. 
[(H) Persons Becoming Liable fo the Value-Added Tax. - Any person, whose 
gross sales or receipts in any 12-month period exceeds the amount 
prescribed under Section 109(z) of this. Code for exemption from the value- 
added tax shall register in accordance with Subsection (A) hereof, and shall 
pay the annual registration fee prescribed within ten (IO) days after the end of 
the last month of that period, and shall be liable to the value-added tax 
commencing from the first day of the month following his registration.] 
[(I)] (H) Optional Regisfrafion FOR VALUE-ADDED TAX of Exempf Person. - 
(I) 
Any person [whose transactions are exempt from value-added tax under 
Section I09 of this Code] WHO IS NOT REQUIRED TO REGISTER FOR 
VALUE-ADDED TAX UNDER SUBSECTION (6) HEREOF MAY ELECT[; or 
any person whose transactions are exempt from value-added tax under 
Section I09 (a), (b), (c), and (d) of this Code, who opts] to register FOR 
VALUE-ADDED TAX BY REGISTERING WITH THE REVENUE DISTRICT 
OFFICE THAT HAS JURISDICTION OVER THE HEAD OFFICE OF THAT 
PERSON, AND PAYING [as a VAT taxpayer with respect to his export sales 
only, may update his registration information in accordance with Subsection 
26 
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(E) hereof, not later than ten (IO) days before the beginning of the taxable 
quarter and shall pay] the annual registration fee in Subsection (6) 
hereof. 
3 
(2) 
ANY PERSON WHO ELECTS TO REGISTER UNDER THIS 
4 
SUBSECTION SHALL NOT BE ENTITLED TO CANCEL THEIR 
5 
REGISTRATION UNDER SUBSECTION (F)(2) FOR THE NEXT TWO (2) 
- 6  
YEARS. 
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[In any case, the Commissioner may, for administrative reasons, deny any 
8 
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hereof. 
application for registration including updates prescribed in Subsection (E) 
10 
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For purposes of Title IV of this Code, any person who has registered 
value-added tax as a tax type in accordance with the provisions of Subsection 
(C) hereof shall be referred to as A “VAT-registered person” who’ shall be 
assigned only one Taxpayer Identification Number (TIM). 
14 
15 
x x x” 
16 
17 
follows: 
RJ)1 (1) x x x. 
SEC. 19. Section 237 of the Code, as amended, is hereby amended to read as 
18 
“SEC. 236[237]. Issuance of Receipts or Sales or Commercial Invoices. - 
19 
All persons subject to an internal revenue tax shall, for each sale anti transfer of 
I 20 
merchandise or for services rendered valued at Twenty-five pesos (P25.00) or 
21 
more, issue duly registered receipts or sale or commercial invoices, prepared at 
22 
least in duplicate, showing the date of transaction, quantity, unit cost and 
23 
description of merchandise or nature of service: Provided, however, That [in the 
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case of sales, receipts or transfers in the amount of One hundred pesos 
(P100.00) or more, or regardless of amount, where the sale or transfer is made 
by a person liable to value-added tax to another person also liable to value- 
added tax; or] where the receipt is issued to cover payment made as rental$, 
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commissions, compensation or fees, receipts or invoices shall be issued which 
shall show the name, business style, if any, and address of the purchaser, 
customer or client[: Provided, further, That 
where the purchaser is VAT- 
registered person, in addition to the information herein required, the invoice or 
receipt shall further show the Taxpayer Identification Number (TIN) of the 
purchaser]. 
x x x.” 
Sec. 20. Section 288 of the same Code, as amended, is hereby further amended 
to read as follows: 
“SEC. 28712881. Disposition of Incremental Revenues. - 
(A) x x x. 
(6) 
x x x. 
(C) x x x. 
(D) REVENUE FROM THE VALUE-ADDED TAX, - TEN PERCENT (10%) OF 
THE TOTAL VALUE-ADDED TAX COLLECTION SHALL BE ALLOCATED 
i 
AND DIVIDED EQUALLY BETWEEN THE FOLLOWING: 
(I) PUBLIC ELEMENTARY AND SECONDARY EDUCATION; AND 
i 
(2) PUBLIC HEALTH SERVlCES IN ORDER TO SUSTAIN THE GOAL OF 
I 
UNIVERSAL COVERAGE OF THE NATIONAL HEALTH INSURANCE 
PROGRAM. 
FURTHERMORE, THE AMOUNT OF FIFTEEN MILLION PESOS 
(P15,000,000) SHALL BE ALLOCATED FOR THE PUBLIC INFORMATION 
AND EDUCATION PROGRAM OF THE BUREAU OF INTERNAL REVENUE.” 
SEC. 21. Implementing Rules and Regulations. - The Secretary of Finance 
shall, upon the recommendation of the Commissioner of Internal Revenue, promulgate 
not later than May 31, 2005 the necessary Rules and Regulations for the effective 
iqplementation of this Act. Upon issuance of the said Rules and Regulations, all former 
rules and regulations pertaining to value-added tax shall be deemed revoked. 
28 


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3 
4 
SEC. 22. Repealing Clause. - The following laws or provisions of laws are 
hereby repealed and the persons andlor transactions affected herein are made subject 
to the value-added tax subject to the provisions of Title IV of the National Internal 
Revenue Code of 1997, as amended: 
5 
6 
Airlines, Inc.; 
7 
8 
9 
Corporation; 
(a) Section 13(b)(l) and (2) of P.D. No. 1590 on the franchise tax of Philippine 
(b) Section 1 I 
of R.A. No. 7151 on the franchise tax of Cebu Air, Inc.; 
(c) Section I 1  of R.A. No. 7583 on the franchise tax of Aboitiz Air Transport 
10 
(d) Sections 12 and 14 of R.A. No. 7909 on the franchise tax of Pacific Airways 
11 
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113 
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Corporation; 
(e) Sections I 1  and 15 of R.A. No. 8339 on the franchise tax of Air Philippines; 
(9 Section 13 of R.A. No. 6395 on the exemption from value-added tax of 
National Power Corporation (NPC); 
(9) Section 6, fifth paragraph of R.A. No. 9136 on the sales of generated power 
by generation companies; and 
(h) Section 15 of R.A. No. 9209 on the franchise tax of the Manila Electric 
Company (MERALCO), including the provisions of all laws imposing franchise 
tax to franchise grantees of electric utilities. 
All other laws, acts, decrees, executive orders, issuances and rules and 
regulations or parts thereof which are contrary to and inconsistent with any provisions of 
this Act are hereby repealed, amended or modified accordingly. 
SEC. 23. Separabilify Clause. - If any provision of this Act is subsequently 
declared unconstitutional, the validity of the remaining provisions hereof shall remain in 
full force and effect. 
SEC. 24. Ehcectivify Clause. - This Act shall take effect on July I, 
2005. 
Approved, 
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