THIRTEENTH CONGRESS OF THE REPUBLIC ) 
5 M Y  98 M I  551 
OF THE PHILIPPINES 
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first Regular Session 
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Introduced by Senator Richard J. Gordon 
EXPLANATORY NOTE 
Republic Act No. 7227 or the Bases Conversion and Development Act of 1992 
created the Subic Bay Freeport. To attract investors, it granted businesses and enterprises 
in the Subic Bay Freeport exemption from payment of all local and national taxes. In lieu 
thereof, a final tax of five percent (S%j on gross income earned was imposed. Of this, three 
percent (3%) goes to the national government, one percent (1%) goes to the local 
government units affected by the declaration of the Subic Bay Freeport, and one percent 
(1%) goes to a development fund to be utilized for the development of municipalities outside 
Olongapo and Subic contiguous to the Subic Bay Freeport. 
The development fund, in which Olongapo and Subic were excluded, was 
established under the premise that "Olongapo and Subic will really get the giant share of the 
economic activities going on in the Special Economic Zone and the Freeport." This is 
because Olongapo and Subic were intended to become part of the Freeport. The situation 
of Olongapo and Subic, however, is the same as the other local government units affected 
by the declaration of and contiguous to the Subic Bay Freeport. 
Olongapo and Subic suffers much disparity in the sharing of the five percent (5%) 
final tax on gross income of businesses and enterprises in the Subic Bay Freeport, 
especially with respect to the one percent (1%) development fund, which was never defined 
and actualized in law and in practice. Rather, it is merely being distributed as a share in the 
revenue to the local government units contiguous to the Subic Bay Freeport, except 
Olongapo and Subic, without any concrete development plan or project. Thus, Morong and 
Hermosa in Bataan and San Antonio in Zambales currently enjoy a total share of two 
percent (2%) of the five percent (5%) final tax. 
Moreover, the identification of which areas are affected by the declaration of the 
Subic Bay Freeport and which areas are contiguous to it is a subject of debate in 
interpretation. This bill, therefore, aims to clarify the identification of the local government 
units that are to benefit from the five percent (5%) final tax on gross income of businesses 
and enterprises in the Subic Bay Freeport - Olongapo, Subic, San Antonio, San Marcelino 
and Castillejos in Zambales, and Morong, Hermosa and Dinalupihan in Bataan - and 
promote and facilitate its equal distribution among t
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THIRTEENTH CONGRESS OF THE REPUBLIC ) 
OF THE PHILIPPINES 
1 
firsf Regular Session 
1 
SENATE 
S. No. -a. 
L 
Introduced by Senator Richard J. Gordon 
AM ACT AMENDING SECTION 12 (C) OF REPUBLIC ACT NO. 7227, AS AMENDED, 
OTHERWISE KNOWN AS THE BASES C O N V E ~ ~ I O N  
AND D~VELOPMENT ACT OF 1992 
Be if enacted by the Senate and the House of Representatives of the Philippines in Congress 
assem bled: 
SECTION 1. Section 12 (c) of Republic Act No. 7227, as amended, otherwise known 
as the Bases Conversion and Development Act of 1992, is hereby amended to read as 
follows: 
"Sec. 12. Subic Special Economic Zone. - x x x 
x x x  
(c) The provision of existing laws, rules and regulations to the contrary 
notwithstanding, no taxes, local and national, shall be imposed within the Subic Special 
Economic Zone. In lieu of paying taxes, three percent (3%) of the gross income earned by 
all businesses and enterprises within the Subic Special Economic Zone shall be remitted to 
the National Government, [one percent (IYo) each] AND TWO PERCENT (2%) to the local 
government units affected by the declaration of AND CONTIGUQUS TO the zone, NAMELY 
OLONGAPO, SUBIC, SAN ANTONIO, SAN MARCELINO AND CASTILLEJOS IN 
ZAMBALES, AND MORONG, HERMOSA AND DINALUPIHAN IN BATAAN, in proportion to 
their population area, and other factors. 
[In addition, there is hereby established a 
development fund of one percent (1%) of the gross income earned by all businesses and 
enterprises within the Subic Special Economic Zone to be utilized for the development of 
municipalities outside the City of Olongapo and the Municipality of Subic, and other 
municipalities contiguous to the base areas.]" 
Sec. 2. Repealing Clause. - All laws, decrees, orders, rules and regulations or other 
issuances or parts thereof inconsistent with Section 1 of this Act are hereby repealed or 
modified accordingly. 


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circulation in the Philippines. 
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Approved, 
Sec. 3. Effecfivify. - This Act shall take effect after fifteen (15) days following the 
completion of its publication either in the Official Gazette or in a newspaper of general