FOURTEENTH CONGRESS OF THE 
) 
REPUBLIC OF THE PHILIPPINES ) 
First Regular Session 
1 
SENATE 
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Introduced by Senator JUAN MIGUEL F. ZUBIRI 
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EXPLANATORY NOTE 
This year has seen one of the steepest climbs of oil prices in the world 
market. In a short-term tracking of oil prices covering three years from December 
2004 to the first week of December this year, oil prices have been peaking 
progressively higher and stabilizing or settling down at higher and higher levels. 
The giant appetites of China, India and the United States, instability in Iran, 
Nigeria, Russia and Venezuela all exert upward pressure on prices. 
Oil was at its lowest in January this year at $61.59 per barrel Mean of 
Platts Singapore (MOPS) and domestic price was also at a low P35.75 per liter. 
In November, oil was at $’l00.29 per barrel. Consequently, oil rose to P43.95 per 
liter. The effect of a stronger peso mitigated the price increase by P8 per liter but 
the trend was unmistakable. 
If the highest price was the mountain peak and the lowest price the valley 
in one price cycle, each succeeding valley is always higher. Even if you track 
only the lowest prices, you would still in fact be climbing to the top. 
The same peaking movement of oil prices was reflected in the local 
market since prices were determined by supply, demand and competition. The 
Department of Energy has stated that “any changes in international oil prices 
directly affect pump prices” since the country “imports practically all our oil 
requirements because our own total production is less than one half of the 
county’s needs for half a day.” In addition, the landed prices of imported oil and 
oil products were inclusive of the effects of speculation in the foreign markets. 
The Energy department also estimated the effect of a P I  per unit increase 
in diesel price on generation cost of electricity, as follows: Luzon, 0.0002; 
Visayas, 0.0015; Mindanao, 0.0002;and, the Philippines, 0.0004. Likewise, a P I  
per unit increase in bunker price increased generation cost, as follows: Luzon, 
0.0002; Visayas, 0.0198; Mindanao, 0.0659; and, the Philippines, 0.0161. 
Unfortunately, with the costly price of imported oil, our government 
aggravated the effects of peaking oil prices when it enacted R. A. 9337 or the 
Reformed VAT Law (RVAT) in July 1,2005 and imposed Value-Added Tax on oil 
and oil products and on the sales of electricity by generation companies and 
transmission and distribution utilities. 
Initially, the VAT rate was 10 percent and was increased to 12% in 2006. 
The Reformed VAT Law provided so-called mitigating measures to soften the 
impact of the VAT imposition. It removed the excise tax on diesel, kerosene and 


fuel oil for power generation, reduced the excise tax for unleaded gasoline, and 
removed the national franchise tax of distribution utilities. Executive Order No. 
440 also reduced the import duty of crude and petroleum products from 5% to 
3% and, on LPG to 0%. 
Just before the imposition of the RVAT, the Energy department in June 
2005 outlined the components of the price per liter of gasoline, diesel, kerosene 
and liquefied petroleum gas (LPG),using price of Crude based on March 2005 
Dubai and of Product based on April 11-15, 2005 MOPS. The price components 
for each commodity were as follows: 
For gasoline at P31 .I8 per liter, with import dependence at 50%: 
Industry paid for dealer/hauler take, 3 %; oil company take, 16 %; crude/ 
product cost 64%; and duty and taxes, 17%. The importer paid: dealer/hauler 
take, 3%; oil company take, 8%; crude/product cost, 72%, and duty & taxes, 
17%. 
For diesel at P27.31 per liter, with import dependence at 55%: 
Industry paid for dealer/hauler take, 3 %; oil company take, 9 %; crude/ 
product cost 78%; and duty and taxes, 10%. The importer paid: dealedhauler 
take, 3%; oil company take, (2%); crudelproduct cost, 89%, and duty & taxes, 
10%. 
Kerosene at P27.94 per liter, with import dependence at 50%: 
Industry paid for dealerlhauler take, 2 %; oil company take, 15 %; crude/ 
product cost 76%; and duty and taxes, 7%. The importer paid: dealedhauler take, 
2%; oil company take, 1%; crudelproduct cost, 90%, and duty & taxes, 7%. 
LPG at P31.41 per kilogram, with import dependence at 69%: 
Industry paid for oil company take, 12 Yo; crude/ product cost 85%; and 
duty and taxes, 3%. The importer paid: oil company take, 18%; crudelproduct 
cost, 79%, and duty & taxes, 3%. 
Five months later in November 2005, the Energy department presented 
the impact of the 10% VAT on pump prices, as follows: 
Unleaded gasoline at P38.42 per liter, the VAT impact was P3.49/liter 
Regular gasoline at P36.37 / liter, the VAT impact was P3.31/liter 
Diesel at P33.17 / liter, the VAT impact was P3.02/liter 
Kerosene at P34.91 / liter, the VAT impact was P3.17hter 
Bunker at P22.80 / liter, the VAT impact was P2.07/liter 
LPG at P487.27 per cylinder, the VAT impact was P44.30/cylinder 
LPG at P493.87 / cylinder, the VAT impact was P44.90/cylinder 
According to the Energy department just before the imposition of the 
additional 2% VAT, the impact of VAT on local retail prices of oil and oil products 
will be less than 2% and only about 1% for electricity. Using prevailing average 
pump price in Metro Manila as of January 31, 2006, the VAT components were 
as follows: diesel, 58 centavos per liter; kerosene, 60 centavos/ liter; fuel oil, 40 
centavos / liter; regular gasoline, 63 centavos /liter; unleaded gasoline, 
67 
centavos / liter; LPG, about P8.90 - P9.83 per 11 kg cylinder. 
On electricity, using MERALCO figures as of January 31, 2006, estimated 
increase per month on electricity rates in the MERALCO franchise areas are as 
follows: P4.85 for those consuming 0-50 kWh per month; P6.78 for 51-70 kWh; 
P9.68 for 71-100 kWh; P19.37 for 101-200 kWh; P29.06 for 201-300 kWh; 
P38.75 for 301-400 kWh; P48.44 for 401-500 kWh; P58.13 for 501-600 kWh; 
P67.81 for 601-700 kWh; and P77.50 for 701-800 kWh per month. 


Government was able to raise hefty revenues through the Reformed VAT 
Law. In 2006, total RVAT collection was P76.9 Billion of which P49.15 Billion 
came from VAT on crude and petroleum products. From January to June this 
year, total RVAT collection was P43.7 Billion of which P18.6 B came from VAT 
on crude and petroleum products. 
The problem is that increasing oil prices and the additional impact of VAT 
translates to higher consumer prices. Monitoring of consumer prices for the 
whole of 2006 and from January to October this year shows consumer prices 
following on the heels of oil prices. Prices of food, beverages & tobacco: clothing; 
housing & repairs services; and fuel, light and water all track the price of oil. 
An increase in electricity rates also results to rising cost of production, 
rising prices and rising consumer expenditures. The additional 2% VAT imposed 
in 2006 increased household expenditures by an average of 1.4%; prices of 
commodities by an average of 1.8% and total cost of production by an average of 
The RVAT has made crude and petroleum products and electricity highly- 
taxed commodities. Increased collection from RVAT is a gain for government 
coffers but it has caused. much pain to consumers since its imposition. Every 
peso raked in by government is an additional burden shouldered by the 
consumer especially in times of rising oil prices. 
This bill seeks to offer relief to the consumers by restoring the Value- 
Added Tax exemption on sales of petroleum and petroleum products and of 
electricity. 
1.5%. 


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FOURTEENTH CONGRESS OF THE 
) 
REPUBLIC OF THE PHILIPPINES ) 
First Regular Session 
1 
SENATE 
Introduced by Senator JUAN MIGUEL F. ZUBlRl 
AN ACT AMENDING 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, Chapter 1 of Title IV - Value-Added Tax of the NlRC 
As Amended is hereby amended to read as follows: 
Sec. 109. Exempt Transactions. - The following shall be exempt from 
the value- added tax: 
(a) xxx 
(b) xxx 
(c) xxx 
(d) xxx 
After paragraph (d), insert the following paragraph (e). 
(e) SALE OR IMPORTATION OF COAL AND NATURAL GAS, 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; 
And re-letter the succeeding paragraphs, from (f) to (r) and insert the following 
paragraph (s) after the re-lettered (r). 
(s) SALES BY DISTRIBUTION UTILITIES 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; 
And re-letter the succeeding paragraphs. 


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SEC. 2. Section f19, Title V - Other Percentage Taxes is hereby amended to 
read as follows: 
Section 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 all franchises on radio andlor television broadcasting companies 
whose annual gross receipts of the preceding year do not exceed Ten million 
pesos (PlO,OOO.OO), subject to Section 236 of this Code, a tax of three percent 
(3%) and on ELECTRIC, gas and water utilities, a tax of two percent (2%) on the 
gross receipts derived from the business covered by the law granting the 
franchise: Provided, however, That radio and television broadcasting companies 
referred to in this Section shall have an option to be registered as a value-added 
taxpayer and pay 'the tax due thereon: Provided, furfher, That once the option is 
exercised, said option shall be irrevocable. 
The grantee shall file the return with, and pay the tax due thereon to the 
Commissioner or his duly authorized representative, in accordance with the 
provisions of Section 128 of this Code, and the return shall be subject to audit by 
the Bureau of Internal Revenue, any provision of any existing law to the contrary 
notwithstanding. 
SEC. 3. Section 148, Chapter V of Title VI - Excise Taxes on Certain Goods is 
hereby amended to read as follows: 
Chapter V - Excise Tax on Petroleum Products 
Sec.148. 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 they are 
in existence as such: 
(a) xxx ; 
(b) xxx ; 
(c) xxx ; 
(d) xxx ; 
(e) Naphtha, regular gasoline and other similar products of distillation, per liter of 
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 
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Secretary of Energy, in consultation with the Secretary of Finance, per liter of volume 


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capacity, Zero (PO.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; 
(f) xxx ; 
(9) xxx ; 
(h) Kerosene, per liter of volume capacity, [zero centavos (O.OO)] 
SIXTY 
CENTAVOS (0.60): Provided, That kerosene, when used as aviation fuel, shall be 
subject 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 centavos (PO.0O)J ONE PESO AND SIXTY- 
THREE CENTAVOS (PI .63); 
(j) xxx ; 
(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 centavos (PO.OO)] THIRTY 
CENTAVOS (P0.30). 
SEC. 4. lmplementing Rules and Regulations. - The Secretary of Finance, 
shall, upon the recommendation of the Commissioner of Internal Revenue, promulgate 
not later than 90 days upon the effectivity of this Act, the rules and regulations for the 
effective implementation of this Act. 
SEC. 5. Repealing Clause. - All laws, executive orders, rules or regulations, or 
any part thereof, inconsistent with any provisions of this Act are hereby repealed or 
modified accordingly. 
SEC. 6. Effectivity. -This Act shall take effect immediately upon its approval. 
Approved,