TWENTIETH CONGRESS OF THE 
REPUBLIC OF THE PHILIPPINES
First Regular Session
SENATE
S.B. No. 1089
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25 WIG -7 PI 21
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Introduced by Senator WIN GATCHALIAN
AN ACT PRESCRIBING AND INSTITUTIONALIZING THE PAYMENT BY THE 
GOVERNMENT OF THE INCOME TAX OF PETROLEUM SERVICE 
CONTRACTORS, AS INCENTIVE IN PETROLEUM OPERATIONS AND FOR
OTHER PURPOSES
EXPLANATORY NOTE
Petroleum exploration and development is a capital-intensive economic activity which 
plays a significant role in achieving the Philippines' energy security and self-sufficiency. 
Under Presidential Decree No. 87 (PD 87), private entities which are legally, financially, 
and technically qualified are granted the privilege to explore and develop oil and gas 
resources owned by the State1 through a Petroleum Service Contract entered with the 
government.
Given that oil and gas exploration entail significant capital expenditure, there is thus 
a need for stability in government policies to encourage developers to invest in the 
sector. A particular policy that needs to be clarified is the payment of income tax 
liability incurred by a petroleum service contractor. While the law provides that the 
government share in the annual net revenue derived from a Petroleum Service 
Contract shall already include the income tax liability of the petroleum service
1 Section 2. Article XII. 1987 Constitution.


contractor,2 the Commission on Audit (COA) has nonetheless issued a ruling charging 
the Malampaya Consortium for income tax liability amounting to Php 146.8 Billion.3 
The COA Decision has cast uncertainty in the Philippine upstream oil and gas sector 
has been cited as potentially damaging to the government's efforts in enticing new 
explorations.4
This proposed legislation thus seeks to remove the cloud caused by the COA Decision 
by explicitly mandating the government to assume the payment of income tax in line 
with the provisions of PD 87 and consistent with the long-held practice by the 
Department of Energy and Department of Finance. This proposed measure would 
provide stability and certainty in tax policy further stimulating private sector 
participation in the domestic upstream oil and gas industry, a critical sector of the 
economy.
For these reasons, the immediate passage of this measure is
IN GATCHALIAN
2 Section 18 (2). Presidential Decree No. 87 otherwise known as the Oil Exploration and Development Act of 1972: xxx 
Provided, finally, That in no case shall the annual net revenue or share of the GOVERNMENT, including all taxes paid by or on 
behalf of the contractor, be less than sixty percent of the difference between the gross income and the sum of operating 
expenses and Filipino participation incentive;
3 COA Orders Malampaya consortium to pay P146-B in taxes. CNN Philippines. 17 May 2018. Available at: 
https://www.cnnphilippines.eom/news/2018/5/17/COA-malampaya-P146-billion-taxes.html. Accessed on 9 August 2022.
Malampaya tax dispute goes to Supreme Court. Upstream Online. 24 May 2018. Available at: 
https://www.upstreamonline.com/weekly/malampaya-tax-dispute-goes-to-supreme-court/2-l-340156. Accessed on 9 August 
2022.


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TWENTIETH CONGRESS OF THE 
REPUBLIC OF THE PHILIPPINES
First Regular Session
invakt
mmtr ollDffri’frftitiy
25 AUG-7 PI 21
SENATE
S.B. No. 1089
RECEIVE! lY:.
Introduced by SEN. WIN GATCHALIAN
AN ACT PRESCRIBING AND INSTITUTIONALIZING THE PAYMENT BY THE 
GOVERNMENT OF THE INCOME TAX OF PETROLEUM SERVICE 
CONTRACTORS, AS INCENTIVE IN PETROLEUM OPERATIONS AND FOR
OTHER PURPOSES
Be it enacted by the Senate and the House of Representatives of the Philippines 
in Congress assembled:
SECTION 1. Short Title. - This Act shall be known as the "Income Tax Incentive for 
Petroleum Service Contractors Act".
SECTION 2. Declaration of Policy. - It is hereby declared the policy of the State to 
encourage the production of indigenous petroleum through a stable incentive regime 
towards ensuring energy security in the country.
SECTION 3. Income Tax Incentive. - The Government shall pay the income tax of 
petroleum service contractors on income derived from petroleum operations in the 
Philippines under the service contract using the government share in the annual net 
revenue or net proceeds.
SECTION 4. Implementing Rules and Regulations. - The Department of Energy, in 
consultation with the relevant government agencies energy industry stakeholders,


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shall issue the implementing rules and regulations of this Act within sixty (60) days 
upon its effectivity.
SECTION 5. Amendatory Clause. - Sections 8.11, 12.1, 12.2, and 19 of Presidential 
Decree No. 87, otherwise known as the "Oil Exploration and Development Act of 1972" 
are hereby amended.
SECTION 6. Separability Clause. - Any portion or provision of this Act, which may 
be declared unconstitutional or invalid shall not have the effect of nullifying other 
portions or provisions hereof.
SECTION 7. Repealing Clauses. - All laws, ordinances, rules, regulations and other 
issuance or parts thereof, which are inconsistent with this Act, are hereby amended, 
modified, or repealed accordingly.
SECTION 8. Effectivity Clause. - This Act shall take effect fifteen (15) days after its 
publication in at least two (2) newspaper of general circulation.
Approved,