THIRTEENTH CONGRESS OF THE REPUBLIC 
) 
OF THE PHILIPPINES 
1 
First Regular Session 
1 
SENATE 
Introduced by Senator Franklin M. Drilon 
EXPLANATORYNOTE 
Today our government is vigorously focusing on finding solutions 
to the country’s serious financial difficulties. All sectors are enjo’ Qed to 
contribute their share in order to avert an impending fiscal crisis. One of 
the measures that could help address this problem is re- imposition of 
the franchise tax on telephone and television broadcasting companies. 
Telecommunications is an industry characterized by extremely 
rapid changes. It is considered to be one of the fastest growing industries 
in recent years. For the last five years (1998 to 2002), the total gross 
revenue for the industry amounted to P576.7 billion or an annual 
average of P115.3 billion. Tie dramatic and substantial increase in telcos 
revenue can be attributed to the growing usage of mobile phones which 
has a strong appeal to both the upper and lower classes. 
Under the present system, services rendered locally by tel, as are 
subjected to the value-added tax (VAT) and classified as exempt, zero- 
rated or taxable at ten (10) percent of gross receipts. Overseas 
dispatches, messages and communications transmitted by telcos are, 
however, charged with an overseas communications tax (OCT) at the rate 
of 10% on the amount paid for such services. This set-up creates an 
opportunity for tax evasion as receipts from higher tax products/? :rvices 
can be shifted to the lower taxed group, thereby reducing the tax liability 
of the company. Another factor that cuts down the liability of telcos is the 
amount of inputs tax credits claimed on capital expenditures. The 
broadcast industry, on the other hand, has a different set-up. Large 
broadcast companies are subject to the VAT while small broadcast 
networks who have not opted to be subject to the VAT, pay the franchise 
tax. 
This very diverse taxation scheme for both the telcos and the 
broadcast industry not only creates unequal tax treatment for similarly 
situated 
companies 
but 
likewise 
spawn 
complexities 
in 
tax 
administration. To correct these inequities and at the same time address 
the administrative difficulties of the BIR, this Bill seeks to -emove 
franchise grantees of telcos and broadcast services from the coverage of 
the VAT and subject them instead to the franchise tax at the rate of 
seven percent (7%) 
In view of the foregoing, approval of the Bill is earnestly sought. 
KLIN M. DRILON 
FP 


THIRTEENTH CONGRESS OF THE ) 
REPUBLIC OF THE PHILIPPINES 
) 
’04 r,$Jy 30 ;’I 159 
First Regular Session 
1 
S E N A T E  
$\ECE\VED BY : ._,- 
_ _ ~ .  
Introduced bv: Senator FRANKLIN M. DRILON 
AN ACT PROVIDING FOR THE REIMPOSITION OF THE FRANCHISE 
TAX ON TELEPHONE AND TELEGRAPH COMPANIES, AND RADIO 
AND TELEVISION BROADCASTING COMPANIES, AMENDING FOR 
THE PURPOSE SECTIONS 108 AND 119 OF THE NATIONAL 
INTERNAL REVENUE CODE OF 1997, AS AMENDED, AND FOR 
OTHER PURPOSES 
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 Tux on Sale of Service 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 ten 
percent ( 10%) 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 transportation contractors on their transport of goods 
or cargoes, including persons who transport goods or 
cargoes for hire another domestic common carriers by land, 
air and water relative to their transport of goods or cargoes; 


services of [franchise grantees of telephone and telegraph, 
radio and television broadcasting and other] franchise 
grantees except those under Section 119 of this Code; 
SERVICES OF [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. The phrase ‘sale 
or exchange of services’ shall likewise include: 
X 
X 
X” 
Section 2. Section 119 of the National Internal Revenue Code, is 
hereby further amended to read as follows: 
“SEC. 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 
and/or 
television 
broadcasting 
companies whose annual gross receipts of the proceeding 
year does not exceed Ten million pesos (PlO,OOO,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] UPON the gross receipts derived from the 
business covered by the law granting the franchise, A TAX IN 
ACCORDANCE 
WITH 
THE 
SCHEDULE 
PRESCRIBED 
HEREUNDER: 
(A) 
ON ELECTRIC, GAS AND 
WATER UTILITES . . . . . . . . . . . .  .TWO PERCENT (2%) 
(B) 
ON TELEPHONE AND/OR TELEGRAPH 
SYSTEMS, AND RADIO AND/OR 
TELEVISION BROADCASTING 
COMPANIES . . . . . . . . . . . . . .  .SEVEN PERCENT (7%) 
[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, further, That once the option is exercised, 
it shall not be revoked.] 
Section 3. Separability Clause. If any provision of this Act shall be 
held to be unconstitutional or not valid, no other provision shall be 
affected thereby. 
Section 4. Repealing Clause. All laws, decrees, executive orders, 
administrative orders, regulations or parts thereof which are inconsistent 
with this Act are hereby repealed, amended or modified accordingly. 
2 


Section 5. Effectivity. This Act shall take effect fifteen ( 15 ) days 
after its publication in the Official Gazette or in any two [ 2 ) newspapers 
of general circulation. 
Approved, 
3