EIGHTEENTH CONGRESS OF THE )

REPUBLIC OF THE PHILIPPINES )
First Regular Session )
HOUSE OF REPRESENTATIVES

H. B. No. 4542

Introduced by Rep. Vilma Santos-Recto
6th District of Batangas

AN ACT
EXEMPTING TOLLWAY OPERATIONS FROM THE VALUE ADDED. TAX,
AMENDING FOR THIS PURPOSE SECTIONS 108 AND 109 OF THE NATIONAL
INTERNAL REVENUE CODE OF 1997, AS AMENDED

EXPLANATORY NOTE

This proposed measure seeks to exempt the services of tollway operators from the
Value-Added Tax (VAT). Lawmakers, renowned tax experts and economists consistently
maintained that the legislative intent in enacting Republic Act No. 7716, or the Expanded
Value-Added Tax Law in 1994 is to exclude toll fees from the coverage of VAT.

However, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum
Circular No. 63-2010 dated July 10, 2010 clarifying that toll fees are subject to VAT, since
the services of tollway operators are not listed among the exempt transactions. In Diaz and
Timbol vs. Secretary of Finance and Commissioner of Internal Revenue, the Supreme Court
ruled that toll fees are subject to VAT. It is a well-settled rule in taxation that tax exemptions
must be justified by clear statutory grant and based on language in the law too plain to be
mistaken,

VAT is an indirect tax that is passed on to the consumers of goods and services.
‘Therefore, its imposition on toll fees will likely increase the cost of transportation and
consequently result in the increase of prices of basic goods and services. Similarly, various
manufacturing, business process outsourcing (BPO), passenger and cargo transport hub
operators and others will incur additional transport expenditures and experience disruptions
in their business expectations considering that the tollways link up freeports, special


economic zones, regional food production areas and financial centers with the population
centers, in rural, urban and highly-urbanized areas. Among these are the Tarlac Pangasinan
La Union Expressway (TPLEX), Subic Clark Tarlac Expressway (SCTEX), North Luzon
Expressway (NLEX), Star Tollway, and South Luzon Expressway (SLEX), among others.

Furthermore, VAT on services of tollway operators had never formed part of the
contracts or agreements between the Government and investors under the various Public-
Private Partnership (PPP)-Build-Operate-Transfer (BOT) programs, the core of the
government's economic resiliency plan.

Tollway operation is an inherent component of PPP in order to build the necessary
road infrastructures that government cannot fund by itself. Privately-built toll facilities
through the various modes of PPP consequently become publicly-owned at the expiration of
the contract or agreement. As such, they should not be subject to VAT considering that
tollway operators are merely stepping into the shoes of government in constructing these
roads for public convenience for a reasonable rate of return on their investments.

Hence, the passage of this bill is earnestly sought.

VILMA SANTOS-RECTO


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EIGHTEENTH CONGRESS OF THE )

REPUBLIC OF THE PHILIPPINES )
First Regular Session )
HOUSE OF REPRESENTATIVES
4542
H. B. No.

Introduced by Rep. Vilma Santos-Recto
6th District of Batangas

AN ACT
EXEMPTING TOLLWAY OPERATIONS FROM THE VALUE-ADDED TAX,
AMENDING FOR THIS PURPOSE SECTIONS 108 AND 109 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 108 of the National Internal Revenue Code of 1997, as amended, is
hereby further amended to read as follows:

“Sec. 108. Value-Added Tax on Sale of Services and Use or Lease of
Properties. —

“(A) Rate and Base of Tax. ~ There shall be levied, assessed and collected,

‘a value-added tax equivalent to twelve percent (12%) of gross receipts derived
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 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, motels, resthouses, pension houses, inns, resorts; proprietors or operators
of restaurants, refreshment parlors, cafes and other eating places, including clubs
and caterers; dealers in securities; lending investors; transportation contractors on
their transport of goods or cargoes, including persons who transport goods or


1 cargoes for hire and other domestic common carriers by land relative to their

2 transport of goods or cargoes; common carriers by air and sea relative to their

3 transport of passengers, goods or cargoes from one place in the Philippines to

4 another place in the Philippines; sales of electricity by generation companies,

5 transmission by any entity, and distribution companies, including electric

6 cooperatives; services of franchise grantees of electric utilities, telephone and

7 telegraph, radio and television broadcasting and all other franchise grantees except

8 SERVICES OF TOLLWAY OPERATORS WITH TOLLWAY

9 OPERATION CERTIFICATE ISSUED BY THE TOLL REGULATORY

10 BOARD AND those under Section 119 of this Code and non-life insurance

ul companies (except their crop insurances), including surety, fidelity, indemnity and

12 bonding companies; and similar services regardless of whether or not the

13 performance thereof calls for the exercise or use of the physical or mental

14 faculties. The phrase ‘sale or exchange of services' shall likewise include:

Is “ox.”

16 Sec. 2. Section 109 of the National Internal Revenue Code of 1997, as amended, is
17 hereby further amended to read as follows:

18 “Sec. 109. Exempt Transactions. ~

19 “(1) Subject to the provisions of Subsection (2) hereof, the following
20 transactions shall be exempt from the value-added tax:

21 “(A) xxx;

2 on,

2B (AA) Sale of drugs and medicines prescribed for diabetes, high cholesterol,
4 and hypertension beginning January 1, 2019; fand}

25 “(BB) SERVICES OF TOLLWAY OPERATORS WITH TOLLWAY
26 OPERATION CERTIFICATE ISSUED BY THE TOLL REGULATORY
27 BOARD; AND
28 “ {BB} (CC) Sale or lease of goods or properties or the performance of
29 services other than the transactions mentioned in the preceding paragraphs, the gross
30 annual sales and/or receipts do not exceed the amount of Three million pesos
31 (P3,000,000).

32 (2) xxx.”

33 Sec. 3. Implementing Rules and Regulations (IRR). ~ Within thirty (30) days from the

34 effectivity of this Act, the Secretary of Finance, upon the recommendation of the


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Commissioner of Internal Revenue, shall promulgate the necessary rules and regulations for
its effective implementation.

Sec. 4. 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. 5. 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,