FIFTEENTH CONGRESS OF THE REPUBLIC 
OF THE PHILIPPINES 
Second Regular Session 
SENATE 
S. No. 2914 
) 
) 
) 
Introduced by Senator Ralph G. Recto 
EXPLANATORY NOTE 
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The measure seeks to clear the ambiguities in our tax statutes on whether or 
not toll operators are subject to the 12% value-added tax (VAT). 
Lawmakers, 
renowned tax experts and economists consistently maintained that the legislative 
intent is to exempt toll fee from VAT in the passage of Expanded Value-Added Tax 
Law in 1994. 
For 17 years the Bureau of Internal Revenue (BIR) never collected VAT frorn 
toll operation industry on the assumption that it is VAT exempt. Further, no revenue 
projections were made regarding VAT on toll fee collection in the budget 
deliberations of the previous administrations. Nor was it identified as a source of 
funding in any budget presentation by the Department of Finance. 
But the position now taken by the BIR holding toll operators VAT liable is a 
breach of campaign promise that this administration shall not impose new taxes 
amid the incessant fuel price hike. It has also serious implications on the public-
private partnership (PPP) as the core of economic resiliency plan of our present 
government. 
Toll operation is an inherent attribute of PPP to build the necessary road 
infrastructures that government cannot afford due to inadequate funding. Privately 
built toll facilities are nevertheless considered publicly owned after the investors 
have recouped their investments. 
As such, they should not be subject to VAT 
considering that toll operators are merely stepping into the shoes of the government 
in constructing these roads for public convenience. The government just allowed 
them to collect toll fees for reasonable rate of return of their investments. 
To impose VAT on these projects would certainly defeat the purpose of 
providing us with quality, accessible and cost-effective services. By shifting the 
burden to the consumers that investors stand to suffer will render PPP distasteful 
and unappealing to our constituents. 


The administrative impracticality of subjecting toll operators to VAT is another 
issue that SIR is not ready to address as yet. Records of the hearing called for this 
purpose show that its plan of rounding off the VAT due is flawed and does not 
comply with the requirements laid down by the tax code. 
The administrative 
nightmares entailing the collection of 12% VAT are undeniable when the amount due 
is a fraction of a peso or over by a centavo. Not to mention the need to indicate in 
the toll receipt the names and the addresses of the toll users for their VAT inputs. 
The Supreme Court, in a recent case, (Renato B. Oiaz and A(frora Ma. F. 17mbol vs. 
The Secretary of Finance and the Commissioner of Intemal Reven(fe, G.R. No. 
193007, J(f/y 19, 2011) took note of these observations and acknowledged as 
possible grounds for legal action should the SIR fail to execute. 
Moreover, the questionable interpretation by SIR of the relevant tax laws 
leading to the imposition of VAT imposition on toll operators must be settled once 
and for all. 
The legal basis it has been invoking came from the provision Section 
102 of Republic Act No. 7716 (Expanded Value-Added Tax Law of 1994) as 
correctly pointed out by the Supreme Court. It defines and enumerates the services 
that are subject to VAT which does not however mention toll operation as one of 
those included transactions. 
Nevertheless, the bill settles whatever doubt in the interpretation and 
construction of our tax statutes as to whether or not toll operators are subject to 
VAT. It will also underscore the legislative policy of exempting toll operators from 
VAT which, according to the Supreme Court, must be expressly provided for by law. 
Hence the passage of this bill is earnestly so::;u,.,..---.... 


FIFTEENTH CONGRESS OF THE REPUBLIC 
OF THE PHILIPPINES 
Second Regular Session 
SENATE 
S. No. 2914 
) 
) 
) 
Introduced by Senator Ralph G. Recto 
AN ACT 
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EXEMPTING TOLL OPERATIONS FROM THE TWELVE PERCENT (12%) VALUE 
ADDED TAX, AMENDING FOR THE PURPOSE SECTIONS 108 AND 109 OF THE 
NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED BY REPUBLIC 
ACT 9337, 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 
2 
amended, is hereby further amended to read as follows: 
3 
"SEC. 108. Value-Added Tax on Sale of Services and Use or Lease of 
4 
Properties. -
5 
"(A)Rate and Base of Tax. -
There shall be levied, assessed and 
6 
collected, a value-added tax equivalent to ten percent (10%) of gross 
7 
receipts derived from the sale or exchange of services, including the use 
8 
or lease of properties: 
Provided, That the 
President, 
upon the 
9 
recommendation of the Secretary of Finance, shall, effective January 1, 
10 
2006, raise the rate of value-added tax to twelve percent (12%), after any 
11 
of the following conditions has been satisfied: 
12 
"(i) Value-added tax collection as a percentage of Gross Domestic Product 
13 
(GOP) of the previous year exceeds two and four-fifth percent (2 4/5%); or 


"(ii) National government deficit as a percentage of GDP of the previous 
2 
year exceeds one and one-half percent (1 Yz%). 
3 
"The phrase 'sale or exchange of services' means the performance of all 
4 
kinds of services in the Philippines for others for a fee, remuneration or 
5 
consideration, including those performed or rendered by construction and 
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service contractors; 
stock, 
real 
estate, 
commercial, 
customs and 
7 
immigration brokers; lessors of property, whether personal or real; 
8 
warehousing services; lessors or distributors of cinematographic films; 
9 
persons engaged in milling, processing, manufacturing or repacking goods 
10 
for others; proprietors, operators or keepers of hotels, motels, rest-houses, 
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pension houses, inns, resorts; proprietors or operators of restaurants, 
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refreshment parlors, cafes and other eating places, including clubs and 
13 
caterers; dealers in securities; lending investors; transportation contractors 
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on their transport of goods or cargoes, including persons who transport 
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goods or cargoes for hire and other domestic common carriers by land 
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relative to their transport of goods or cargoes; common carriers by air and 
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sea relative to their transport of passengers, goods or cargoes from one 
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place in the Philippines to another place in the Philippines; sales of 
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electricity by generation companies, transmission, and 
distribution 
20 
companies; services of franchise grantees of electric utilities, telephone 
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and telegraph, radio and television broadcasting and all other franchise 
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grantees except SERVICES OF TOLL OPERATORS WITH TOLL 
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OPERATION CERTIFICATE ISSUED BY THE TOLL REGULATORY 
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BOARD AND those under Section 119 of this Code and non-life insurance 
25 
companies (except their crop insurances), including surety, fidelity, 
26 
indemnity and bonding companies; and similar services regardless of 
2 


whether or not the performance thereof calls for the exercise or use of the 
2 
physical or mental faculties. The phrase 'sale or exchange of services' 
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shall likewise include: 
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"Xxx" 
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SEC. 2. Section 109 of the National Internal Revenue Code of 1997, as 
6 
amended, is hereby further amended to read as follows: 
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"SEC. 109. Exempt Transactions.-
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"(1) Subject to the provisions of Subsection (2) hereof, the following 
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transactions shall be exempt from the value-added tax: 
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"xxx 
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"(V) SERVICES OF TOLL OPERATORS WITH TOLL OPERATION 
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CERTIFICATE ISSUED BY THE TOLL REGULATORY BOARD; AND 
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"(W) Sale or lease of goods or properties or the performance of services 
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other than the transactions mentioned in the preceding paragraphs, the gross 
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annual sales and/or receipts do not exceed the amount of One million five 
16 
hundred thousand pesos (Pi ,500,000): Provided, That not later than January 31, 
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2009 and every three (3) years thereafter, the amount herein stated shall be 
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adjusted to its present value using the Consumer Price Index, as published by 
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the National Statistics Office (NSO). 
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"(2) xxx" 
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SEC. 3. Implementing Rules and Regulations (IRR). - Within sixty (60) 
22 
days upon approval of this Act, the Secretary of Finance shall issue the IRR for the 
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effective implementation of this Act. 
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SEC. 4. Separability Clause. - Any portion or provision of this Act that may 
25 
be declared unconstitutional or invalid shall not have the effect of nullifying other 
3 


portions or provisions hereof, as long as such remaining portions or provisions can 
2 
still subsist and be given effect in their entirety. 
3 
SEC. 5. Repealing Clause. All laws, acts, decrees, executive orders, 
4 
issuances, and rules and regulations or parts thereof which are contrary to and 
5 
inconsistent with this Act are hereby repealed, amended or modified accordingly. 
6 
SEC. 6. 
Effectivity. - This Act shall take effect fifteen (15) days after its 
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complete publication in the Official Gazette or in at least two (2) newspapers of 
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general circulation. 
Approved, 
4