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TIHIRTEENTH CONGRESS OF THE ) 
REPUBLIC OF THE PHILIPPINES 
) 
First Regular Session 
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OTE 
A broad-based Value-added Tax ( VAT ) is an efficient and neutral 
tax. Under this system, a broad range of goods and services are taxed in 
the same manner. VAT is also the only tax that has a built-in self- 
policing feature through its input VAT credit mechanism. 
Such 
mechanism creates a paper trail by which tax administration is able to 
match claims for input services, VAT can be a buoyant and stable 
source of revenue. Any increase in the tax base is certain to translate to 
an increase in VAT revenues. 
The desirability of VAT as a buoyant, efficient and neutral tax 
results only when the tax is applied on a broad base. Any exemption 
from VAT is a distortion in the system and a break in the VAT chain 
upon which lie the self-policing mechanism of the VAT. 
However, the full benefits from VAT cannot be realized in view of 
the exemptions that have been granted to various sectors of the 
economy. The National Internal Revenue Code, for instance, lists 25 
items of-exemptidiis~ from the VAT. The capacity of a broad-based VAT to 
address the revenue requirements of 
government should these 
exemptions be kept to the minimum can be substantial. 
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In view thereof, this bill seeks to withdraw certain exemptions from 
the VAT which are currently provided under the National Internal 
Revenue Code of 1997, as amended. Specifically, the bills seeks to repeal 
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the VAT exemption of the following : 
~ I$,: 
a. Sale or importation of coal, natural gas and petroleum pro ucts 
b. Sale or importation of raw materials used in the manufact re of 
petroleum products by the buyer or importer himself; 
c. Importation of passenger and / or cargo vessels of more than 
five thousand tons ( 5,000 ), whether coastwise or ocean- oing, 
including engine and spare parts of said vessel to be used by 
the importer himself as operator; 
d. Sales and importation of cooperatives, excluding lending 
activities of credit and multi-purpose cooperatives; 
e. Sale, importation, printing and publication of books; and 
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f. Services rendered in the exercise of medical and legal 
profession. 
In view-gf the foregoing, approval of this bill is earnestly urged. 
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Be it enacted by the Senate and House of Representatives 
Philippines in Congress assembled. 
Section I. Section 109 of the National Internal Revenue Code of 
1997, as amended by Republic Act No. 9238, is hereby amended to read 
as follows : 
of the 
“SEC. 109. Exempt Transactions. - The following shall be exempt 
from the value-added tax : 
(a) Sale of nonfood agricultural products; marine and forest 
products in their original state by the primary producer 
or the owner of the land where the same are produced; 
(b) Sale of cotton and cotton seeds in their original state’; and 
copra; 
.. .. . .. .. . 
(c) Sale or importation of agricultural and marine food 
products in their original state, livestock and poultry of a 
kind generally used as, or yielding or producing foods for 
human consumption; and breeding stock and genetic 
materials therefore; 
,’ :, 
Products classified under this paragraph and paragraph 
(a) shall be considered in their original state even if they 
KSve undergone the simple processes of preparation or 
preservation for the market, such as freezing, drying, 
salting, broiling, roasting, smoking or stripping, Polished 
and/or husked rice, corn grits, raw cane sugar and 
molasses, and ordinary salt shall be considered in their 
original state; 
(d) Sale or importation of fertilizers; seeds, seeding and 
fingerlings; fish, prawn, livestock and poultry feeds, 
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including ingredients, whether locally produced or 
imported, used in the manufacture of finished feeds 
(except specialty feeds for race horses, fighting cocks, 
aquarium fish, zoo animals and other animals generally 
considered as pets); 
[ (e) Sale or importation of coal and natural gas, in whatever 
form 
or 
state, and 
petroleum 
products (except 
lubricating oil, 
processed 
gas, grease, wax and 
petrolatum) subject to excise tax imposed under Title VI;] 
[ (f) Sale or importation of raw materials to be used by the 
buyer or importer himself in the manufacture of 
petroleum products subject to excise tax, except 
.. .- 
lubricating oil, 
processed 
gas, grease, wax and 
petrolatum; ] 
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[ (g) Importation of passenger and/or cargo vessels or more 
than five thousand tons (5,000), 
whether coastwise or 
ocean-going, including engine and spare parts of said 
vessels to be used by the importer himself as operator 
thereof; ] 
[ (h) ] ( E ) Importation of personal and households ffects 
belonging to the residents of the Philippines ret rning 
from abroad and nonresident citizens coming to r settle 
in the Philippines; Provided, That such goo s are 
exempt from customs duties under the Tari .. and 
Customs Code of the Philippines; 
," 
[ (i) ] ( F ) 
Importation of professional instruments and 
implements, wearing apparel, domestic animals, and 
personal household effects (except any vehicle, vessel, 
aircraft, machinery, other goods for use in the 
manufacture 
and 
merchandise 
of 
any 
kind 
in 
commercial quantity) belonging to persons coming to 
settle in the Philippines, for their own use and not for 
sale, barter or exchange, accompanying such persons, 
or arriving within ninety (90) days before or after their 
arrival, upon the production of evidence satisfactory ' to 
the Commissioner, that such persons are actually 
coming to settle in the Philippines and that the change 
of residence is bonafide; 
[ ( j ) ] ( G )Services subject to percentage tax under Title V; 
[ (k) ] ( H ) Services by agricultural contract growers and 
milling for others of palay into rice, corn into grits and 
sugar cane into raw sugar; 
[ ( 1 ) ] ( I ) Medical, dental, hospital and veterinary services 
[ (mj 1, ( J ) Educational services rendered by private 
educational 
institutions, 
duly 
accredited 
by 
the 
Department of Education [ , Culture and Sports (DECS)] 
except those rendered by professionals; 
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( DEPED ) and the Commission of Higher Education 
(CHED), and those rendered by government educational 
institutions; 
[ (n) ] ( K ) Sale by the artist himself of his works of art, 
literary works, musical compositions and similar 
creations, or his services performed for the production 
of such works; 
[ (0) 
] 
( L )Services rendered by individuals pursuant to an 
employer-employee relationship; 
[ (p)] ( M ) Services rendered by regional or area headquarters 
established 
in 
the 
Philippines 
by 
multinational 
corporations which act as supervisory, communications 
and coordinating centers for their affiliates, subsidiaries 
or branches in the Asia-Pacific Region and do not earn 
or derive income from the Philippines; 
[ (9) ] 
( 
N 
) Transactions which are exempt under 
"mternational agreements to which the Philippines is a 
signatory or under special laws, except those under 
Presidential Decree Nos. 66, 529 and 1590; 
[ (r) Sales by agricultural cooperatives duly registered with 
the 
Cooperative 
Development Authority 
to 
their 
members as well as sale of their produce, whether in its 
original state or processed form, to non-members; their 
importation of direct farm inputs, machineries and 
equipment, including spare parts thereof, to be used 
directly and exclusively in the production 
nd/or 
processing of their produce; ] 
I: 
[ (s) Sales by"e1ectric cooperatives duly registered wi h the 
Cooperative 
Development 
Authority 
or 
National 
Electrification Administration, relative to the generation 
and distribution of 
electricity as well as their 
importation of machineries and equipment, including 
spare parts, which shall be directly used in the 
gene.ration and distribution of electricity; ] 
[ (t) ] ( 0 
) Gross receipts from lending activities by credit or 
multi-purpose cooperatives duly registered with the 
Cooperative Development Authority whose 1e:nding 
operation is limited to their members; PROVIDED, 
HOWEVER, THAT SUCH LENDING ACTIVITIES SHALL 
BE SUBJECT TO THE TAX IMPOSED IN SECTION 121 
OF NATIONAL INTERNAL REVENUE CODE OF 1997, 
AS AMENDED BY REPUBLIC ACT NO, 9238; 
[ (u) Sales by non-agricultural, non-electrical and nonLcredit 
cooperatives duly registered with the Cooperative 
Development Authority: Provided, That the share capital 
contribution of each member does not exceed Fifteen 
Thousand Pesos (P15,OOO) and regardless of 
the 
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aggregate .capital and net surplus ratably distri . uted 
among the members ; ] 
P 
[ (v) ] ( P ) Export sales by persons who are not VAT- 
registered; 
[ (w) ] ( Q ) Sale of real properties not primarily held for sale 
to customers or held for lease in the ordinary course of 
trade or business or real property utilized for low-cost 
and socialized housing as defined by Republic Act No. 
7279, otherwise known as the Urban Development and 
Housing Act of 1992, and other related laws, house and 
lot and other residential dwellings valued at One million 
pesos (P1,OOO,OOO.OO) 
and below: Provided, That not 
latter than January 31st of 
the calendar year 
subsequent to the effectivity of this Act and each each 
calendar thereafter, the amount of One million pesos 
(Pl,OOO,OOO) 
shall be adjusted to its present value using 
the Customer Price Index, as published by the National 
Statistics Office (NSO); 
[ (x) ] ( R ) Lease of a residential unit with a monthly rental 
not exceeding Fight thousand pesos (P8,OOO): Provided, 
That not latter than January 31st of the calendar year 
subsequent to the effectivity of Republic Act No. 8241 
.and 
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each calendar year thereafter, the amount of Eight 
thousand pesos (P8,OOO) shall be adjusted to its present 
value using the Consumer Price Index as published by 
the National Statistics Office ("SO); 
[ (y) ] ( S ) Sale, importation, printing or publication of books 
and any newspaper, magazine, review of bulletin which 
appears at regular intervals with fixed prices for 
subscription and sale and which is not devoted 
principally to the publication of paid advertisemen s; 
performance of services other than the trans ctions 
mentioned in the preceding; paragraphs, the ,:gross 
annual sales and/or receipts do not exceed the a i 
ount 
the 
of Five hundred fifty thousand pesos (P550,OOO): 
Provided, That not later than January 31st of the 
calendar year subsequent to the effectivity of Republic 
Act No. 8241 and each calendar year thereafter, the 
amount of Five hundred fifty thousand pesos (P550,OOO) 
shall be adjusted to its present value using the 
Consumer Price Index, as published by the National 
Statistics Office (NSO); 
AND 
[ (2) ] ( T ) Sale or lease of goods or properties 
[(aa)] ( 
U 
) 
Services 
of 
banks, non-bank financial 
intermediaries performing quasi-banking functions, and 
other non-bank financial intermediaries [ ; 1. 
[ (bb) 
services rendered by doctors of medicine duly 
registered with the professional regulatory commission 
(PRC); 
and ] 
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[ (cc) services rendered by lawyers duly registered with the 
Integrated Bar of the Philippines (IBP). ] 
The foregoing exemptions to the contrary notwithsta ding, 
any person whose sale of goods or properties or services whi h are 
otherwise not subject to VAT, but who issues a VAT invoce or 
receipt therefore shall, in additional to his liability to other 
applicable percentage tax, if any, be liable to the tax imposed in 
Section 106 or 108 without the benefit of input tax credit, and 
such tax shall also be recognized as input tax credit to the 
purchaser under Section 110, all of this Code." 
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Section 2. If any provision of this Act shall be held to be 
unconstitutional or not valid, no other provision shall be affected 
thereby. 
Section 3. All laws, decrees, executive orders, administrative 
orders, regulations or parts thereof which are inconsistent with this Act 
are hereby repealed, amended or modified accordingly. 
. 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, 
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