" 
'''' 
SIXTEENTH CONGRESS OF THE REPUBLIC ) 
OF THE PHILIPPINES 
) 
First Regular Session 
) 
SENATE 
461 
S.No. 
.s~!!uh 
(l}H,;. <If Itl~~""I"'V 
'13 . JUL -4 
A1 0 :25 
i-J'l :~b_:_. . i 
------------------------~--U . , 
Introduced by Senator Ralph G. Recto 
Explanatory Note 
The contribution of Micro and Small Enterprises (MSEs) to the country's economic 
development cannot be overemphasized. Based on 20 II figures, MSEs generated a total of 
3,420,845 jobsl , spanning regions and sectors nationwide. Moreover, industries falling under this 
category propel economic growth by promoting development in the rural areas, thereby 
dispersing employment opportunities, decentralizing economic activities and redistributing 
wealth throughout the country. 
Skillful, innovative and adaptive as they may be, MSEs find their wheels of growth 
gradually decelerated by the rigorous accounting and reporting requirements prescribed by the 
National Internal Revenue Code (NIRC). Under Section 236 of the NlRC, any person who 
exceeds or expects to exceed his annual gross sales or receipts by One Million Five Hundred 
Thousand Pesos (PI,500,000) are mandated to register for Value-Added Tax (VAT). At the same 
time, Section 109 of the same Code provides that transactions of goods and services that do not 
exceed the amount of One Million Five Hundred Thousand Pesos (PI,500,000) are exempted 
from V AT. Such amount shall be adjusted to its present value using the Consumer Price Index 
(CPI) published by the National Statistics Office (NSO). Entities falling below the threshold are 
mandated instead to pay 3% percentage tax. 
Despite the issuance of Bureau ofInternal Revenue (BIR) Revenue Regulations No. 16-
20 II, which adjusts the V AT threshold amount from One Million Five Hundred Thousand Pesos 
(Pl,500,000) to One Million Nine Hundred Nineteen Thousand Five Hundred Pesos 
(PI,919,500), a good number of MSEs still find themselves unable to free themselves from the 
domain of NAT and are without the administrative capacity to comply with the rigorous 
requirements mandated by the NIRC. 
In fact, in a 2013 World Bank report, the Philippines garnered a very low ranking (161 
out of 185 economies) in terms of starting a business in the country. Among the factors 
considered in measuring the ranking were all the procedures officially required or commonly 
done in practice bi an entrepreneur to start up and formally operate an industrial or commercial 
business-as well as the time and cost required to complete these procedures.2 Therefore, it is 
imperative that the MSEs be given adequate support by reducing the tax impediments, among 
other burdensome registration procedures, that hinder them to accelerate economic development. 
This bill aims to protect MSEs by amending sections 109 (W) and 236 (F) & (G) of the 
NIRC, thereby increasing the V AT threshold to Three Million Pesos (P3,000,000). The increase 
in the VAT threshold is warranted in order to support entrepreneurs, who have proven to be 
among the significant drivers of the country's economic growth, by freeing them from rigorous 
tax procedures. MSEs will, in effect, be unburdened from the administrative and accounting 
1 Source: hltp://www.dti.gov.ph/dti/index.php?p~321 (Accessed on March 20, 20l3) 
2 Source: Doing Business 2013, Accessed on March 20,2013 
http://www.doingbusiness.orgl-lrnedia/giawb/doing%20business/documents/projiles/country/PHL.pd[ 


, ' 
requirements prescribed by the NIRC to VAT-registered entities, while at the same time MSEs 
will be able to focus on maximizing their resources towards intensifying economic activity and 
creating more jobs. 
Although the proposed measure may result in lower VAT revenues, MSEs will have 
lower operating expenses, which will translate to lower consumer prices. In effect, the end-
consumers will ultimately benefit from this legislation through increased purchasing power. 
Likewise, businesses will be able to provide more investments in labor and capital resulting to 
accelerated job generation. 
In view of the foregoing, immediate passage of the bill is earnestly sought. 
/ejcv 


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SIXTEENTH CONGRESS OF THE REPUBLIC ) 
{J19Ht;r tl' ttp! ~jcH'H-ttlf~ 
OF THE rHILIPPINES 
) 
First Regular Session 
) 
i 
'13 
JUL -4 AlO :25 
SENATE 
461 
S.No. __ __ 
"',' ,~_ t ... ~ , ,-" 1 'i1J'i. 
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!71"''"",/,<''''1' '>". r' 
--------------------------------------------~------~'+f' ' 
Introduced by Senator Ralph G. Recto 
AN ACT 
INCREASING 
THE THRESHOLD FOR CERTAIN 
NON-VAT 
TAXPAYERS, 
AMENDING FOR THE PURPOSE SECTIONS 109 AND 236 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: 
I 
SECTION 1. Section 109 ofthe National Internal Revenue Code of 1997, as amended by 
2 
Republic Act No. 9337, is hereby further amended to read as follows: 
3 
"SEC. 109. Exempt Transactions.-
4 
(I) Subject to the provisions of Subsection (2) hereof, the following 
5 
transactions shall be exempt from the value-added tax: 
6 
n(A) xxx; 
7 
"xxx 
8 
"(W) Sale or lease of goods or properties or the performance of 
9 
services other than the transactions mentioned in the preceding 
1 0 
paragraphs, the gross annual sales andior receipts do not exceed the 
11 
amount of THREE MILLION PESOS (P3,000,OOO) [One million five 
12 
hundred thousand pesos (PI,500,000)]: Provided, That not later than 
13 
THREE (3) YEARS AFTER THE EFFECTIVITY OF THIS ACT 
14 
[January 31, 2009] and every three (3) years thereafter, the amount 
15 
herein stated shall be adj usted to its present value using the Consumer 
16 
Price Index, as published by the National Statistics Office (NSO). 
17 
"(2) xxx." 
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1 
SEC. 2. Section 236 paragraph (F) subparagraph (2)(a) and paragraph (G) subparagraph 
2 
(1) of the National Internal Revenue Code of 1997, as amended by Republic Act No/ 9337, are 
3 
hereby further amended to read as follows: 
4 
"SEC. 236. Registration Requirements.-
5 
"(A) xxx; 
6 
"xxx 
7 
"(F) Cancellation of Registration. -
8 
"(1) xxx 
9 
"(2) Cancellation of Value-added Tax Registration. -
A VAT-
10 
registered person may cancel his registration for V A T if: 
11 
"(a) He makes written application and can demonstrate to 
12 
the Commissioner's satisfaction that his gross sales or 
13 
receipts for the following twelve (12) months, other than 
14 
those that are exempt under Section 109 (A) to (V), will not 
15 
exceed THREE MILLION PESOS (P3,000,000): [One 
16 
million five 
hundred thousand pesos 
(Pl,500,000)] 
17 
PROVIDED, THAT NOT LATER THAN THREE (3) 
18 
YEARS AFTER THE EFFECTIVITY OF THIS ACT AND 
19 
EVERY THREE (3) YEARS THEREAFTER, THE 
20 
AMOUNT HEREIN STATED SHALL BE ADJUSTED TO 
21 
ITS PRESENT VALUE USING THE CONSUMER PRICE 
22 
INDEX, 
AS 
PUBLISHED 
BY 
THE 
NATIONAL 
23 
STATISTICS OFFICE (NSO); 
24 
"(b) xxx." 
25 
"(G) Persons Required to Register for Value-Added Tax.-
26 
"(1) Any person who, in the course of trade or business, sells, barters 
27 
or exchanges goods or properties, or engages in the sale or exchange 
28 
of services, shall be liable to register for value-added tax if: 
Page 2 of4 


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1 
"(a) His gross sales or receipts for the past twelve (12) months, 
2 
other than those that are exempt under Section 109 (A) to (V), 
3 
have exceeded THREE MILLION PESOS (3,000,000): [One 
4 
million five hundred thousand pesos (Pl,500,000)] PROVIDED, 
5 
THAT NOT LATER THAN THREE YEARS AFTER THE 
6 
EFFECTIVITY OF THIS ACT AND EVERY THREE (3) 
7 
YEARS THEREAFTER, THE AMOUNT HEREIN STATED 
8 
SHALL BE ADJUSTED TO ITS PRESENT VALUE USING 
9 
THE CONSUMER PRICE INDEX, AS PUBLISHED BY THE 
10 
NATIONAL STATISTICS OFFICE (NSO); or 
11 
"(b) There are reasonable grounds to believe that his gross sales 
12 
or receipts for the next twelve (12) months, other than those that 
13 
are exempt under Section 109 (A) to (V), will exceed THREE 
14 
MILLION PESOS (P3,000,000): [One million five hundred 
15 
thousand pesos (Pl,500,000)] PROVIDED, THAT NOT 
16 
LATER THAN THREE YEARS AFTER THE EFFECTIVITY 
17 
OF 
THIS 
ACT 
AND 
EVERY THREE 
(3) 
YEARS 
18 
THEREAFTER, THE AMOUNT HEREIN STATED SHALL 
19 
BE ADJUSTED TO ITS PRESENT VALUE USING THE 
20 , 
CONSUMER PRICE INDEX, AS PUBLISHED BY THE 
21 
NATIONAL STATISTICS OFFICE (NSO). 
22 
"(2) xxx 
23 
"(H) xxx 
24 
"(I) xxx 
25 
"xxx." 
26 
SEC. 3. Implementing Rules and Regulations (IRR). - Within sixty (60) days upon 
27 
approval of this Act, the Secretary of Finance, upon recommendation by the Commissioner of 
28 
Internal Revenue, shall issue the IRR for the effective implementation of this Act. 
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t '. 
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SEC. 4. Separability Clause. - Any portion or provision of this Act that may be declared 
2 
unconstitutional or invalid shall not have the effect of nUllifYing other portions or provisions 
3 
hereof, as long as such remaining portions or provisions can still subsist and be given effect in 
4 
their entirety. 
5 
SEC. 5. Repealing Clause. All laws, acts, decrees, executive orders, issuances, and rules 
6 
and regulations or parts thereof which are contrary to and inconsistent with this Act are hereby 
7 
repealed, amended or modified accordingly. 
8 
SEC. 6. Effectivity. - This Act shall take effect fifteen (15) days after its complete 
9 
publication in the Official Gazette or in at least two (2) newspapers of general circulation. 
Approved, 
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