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Republic of the Philippines.
HOUSE OF REPRESENTATIVES.
Quezon City, Metro Manila

SIXTEENTH CONGRESS
First Regular Session

House Bill No. 2492

Introduced by REP. MARIA LEONOR GERONA — ROBREDO

EXPLANATORY NOTE

The provision of tax incentives is one of the fiscal strategies to
encourage desired economic activities or social behaviors. In the Philippines,
tax incentives are used to promote investments that are deemed to have
significant impacts on economic growth and development. Several Investment
Promotion Agencies (IPAs) administer tax incentives provided under various
investment incentive laws, to registered investors, domestic or foreign, and
located within or outside designated economic zones.

Similarly, there are special laws that provide tax incentives to non-
investment activities. These activities are being encouraged with the hope of
enhancing the welfare of certain groups or sectors in the society. In fact,
countries in different stages of development use tax incentives, when
necessary, to satisfy the government's socio-economic goals.

At present, the Philippines’ system of accounting for tax expenditures in
the annual budget or the General Appropriations Act (GAA) only includes tax
incentives granted to National Government Agencies and Government-Owned
or -Controlled Corporations (GOCCs). This system fails to properly account for
the tax incentives granted to private individuals and corporations. There arises
the possibility that the real magnitude of the government's expenditure for tax
incentives may not be recorded and reported.

The proposed measure seeks to foster transparency in the present tax
system by creating a Tax Expenditure Account (TEA) in the annual national
budget. The TEA will reflect the amount of tax incentives granted to private
individuals and corporations, addressing the aforementioned information gap.

This is not the first time this bill was introduced to Congress. This
measure traces its roots in the 15th Congress where it was introduced by
Senate President Franklin Drilon and Hon. Jocelyn Limkaichong at the Senate
and House of Representatives, respectively, with their advocacy of
transparency.


Transparency is an important element of a good fiscal and investment
environment. It empowers all stakeholders—the government and the business
sector, and civil society--because it creates the opportunity and the means to
review the financial flow of all entities involved in each fiscal transaction

Considering the significant benefits of this measure, utmost
consideration and passage of this bill is earnestly sought.

MARIA the G. ROBREDO


Republic of the Philippines.
HOUSE OF REPRESENTATIVES.
Quezon City, Metro Manila

SIXTEENTH CONGRESS
First Regular Session

House Bill No._ 2492

Introduced by REP. MARIA LEONOR GERONA — ROBREDO

AN ACT ENHANCING THE CURRENT TAX SYSTEM BY IMPLEMENTING
MEASURES THAT ENSURE TRANSPARENCY IN THE MANAGEMENT
AND ACCOUNTING OF TAX INCENTIVES GRANTED TO GOVERNMENT
AND NONGOVERNMENT ENTITIES AND FOR OTHER PURPOSES

Be it enacted by the Senate and the House of Representatives of the
Philippines in Congress assembled:

SECTION 1. Title. — This Act shall be known as “The Tax Incentives
Management and Transparency Act.”

SECTION 2. Declaration of Policy. — It is hereby declared the policy
of the State to promote fiscal prudence and transparency in the proper
management and grant of tax incentives by developing means to measure the
government's fiscal exposure from these expenditures and to enable the
government to analyze and rationalize the fiscal cost and, at the same time,
optimize the economic impact and benefit incidence of such incentives.

SECTION 3. Definition of Terms. — As used herein,

a. “Investment Promotions Agencies (IPAs)” shall refer to government
entities created by law, executive order, decree or other issuance, in charge of
promoting investments, administering tax and non-tax incentives, and/or
overseeing the operations of the different economic zones and freeports in
accordance with their respective charters. These include the Board of
Investments (BOl), Philippine Economic Zone Authority (PEZA), Bases
Conversion Development Authority (BCDA), Subic Bay Metropolitan Authority
(SBMA), Clark Development Corporation (CDC), Poro Point Management
Corporation (PPMC), Bataan Technology Park, Inc. (BTPI), Cagayan Economic
Zone Authority (CEZA), Zamboanga City Special Economic Zone Authority
(ZCSEZA), Phividec Industrial Authority (PIA), Aurora Pacific Economic Zone
and Freeport Authority (APECO), Authority of the Freeport Area of Bataan
(AFAB), Tourism Infrastructure And Enterprise Zone Authority (TIEZA), and all
other similar authorities that may be created by law in the future.


b. “Other Govemment Agencies” shall refer to government agencies
other than IPAs which administer tax exemptions of any kind to any specific
entities and/or class of persons by reason of any law.

c. “Tax Expenditures” shall refer to grants of tax incentives or those
special provisions that give tax exemptions or preferential tax treatment to
qualified firms in their registered investment activities or to special groups or
individuals as a form of assistance for the purpose of encouraging certain
economic behavior or for other public interest purposes or policies declared by
law.

SECTION 4. Accounting and Claiming of Tax Incentives. — The
amounts pertaining to tax incentives administered by IPAs and other
government agencies to private individuals and corporations, and specified in
accordance with a schedule to be prepared by the Department of Finance
(DOF), shall be treated as both revenue and expenditure of the General Fund.
Revenues of all persons, whether natural or juridical, shall be subject to the
regular tax rate, and the incentives to which they are entitled shall be
administered by the relevant IPA and/or other government agency by way of
utilization of the Tax Expenditure Account provided in the succeeding section.

Registered enterprises qualified for tax incentives shall submit their claim
for incentives to their respective tax incentive administering body. After review
and approval of the claim, the IPA or government agency concerned shall be
responsible for requesting the approved amount from the Department of Budget
and Management (DBM).

SECTION 5. Tax Expenditure Account (TEA). — An account shall be
created in the annual General Appropriations Act (GAA), from which tax
incentives, as may be determined by the IPAs and other government agencies
in accordance with law, are accounted. Notwithstanding the provisions of their
respective charters, IPAs and other government agencies concerned shall
account in the TEA all tax incentives that they grant.

SECTION 6. Automatic Appropriation. — Tax expenditures for
purposes of this Act are deemed automatically appropriated, provided, that no
obligations shall be incurred or payments made from the TEA thus
automatically appropriated except as issued in the form of regular budgetary
allotments.

Notwithstanding the provision under this Section, the Commissioner of
Internal Revenue shall exercise his/her power to make assessments and
prescribe additional requirements for tax administration and enforcement as
specified under Section 6 of the National Internal Revenue Code (NIRC) of
1997, as amended.

Revenues accounted for by way of the TEA under this Act shall not be
included in the base for computation of any other budget appropriation such as
those for the internal revenue allotment of local government units under the


Local Government Code of 1991and for the rewards and incentives under the
Attrition Act of 2005.

SECTION 7. Administration, Implementation and Monitoring of
Tax Incentives. — The IPAs and other government agencies concerned shall
be responsible for the administration and implementation of tax incentives
granted to registered enterprises. They shall submit to the DOF their respective
annual tax expenditures based on computed cost in terms of revenue foregone
‘on the tax incentives granted to their registered enterprises or to special groups,
as the case may be, and other data related to the grant of such incentives as
may be required by the DOF.

In fulfiling the foregoing requirements, the IPAs and other government
agencies shall also be subject to the power of the Commissioner to obtain
information and to summon, examine and take testimony of persons under
Section 5 of the NIRC of 1997, as amended

The DOF, together with the Bureau of Internal Revenue (BIR) and the
Bureau of Customs (BOC), shall create a single database of all tax incentives
granted by the IPAs and other government agencies, monitor the incentives
granted, and submit an annual Tax Expenditure Report to the President and to
the Chairman of the Committee on Appropriations/Finance of both houses of
Congress as part of the annual GAA.

SECTION 8.Non-compliance with Reportorial Requirements;
Penalties. - The failure of an IPA or other government agency to submit the
tax expenditure report and other data required herein, by reason of the fault or
failure of any registered enterprise, shall be a ground for the suspension of the
incentives being enjoyed by such registered enterprise or special group for the
particular taxable year, due to violation of the terms and conditions of its
registration. Repeated violation shall be penalized with the cancellation of the
enterprise's registration.

The DOF shall issue to the concemed IPA or other government agency
a notice of non-compliance with this Act and its implementing rules and
regulations, and direct the latter to explain its failure to comply and the actions
it took to address such failure. The concerned IPA or other government
agency, if its failure be attributable to the fault or failure of a registered
enterprise, shall state such fact in its explanation, attach supporting documents
(such as official requests for submission), and cause the issuance of a notice
of violation of registration terms and conditions against the registered
enterprise.

The erring registered enterprise shall then be subject to the
aforementioned penalties the terms of and procedure for which shall be
prepared by the IPAs and other government agencies for inclusion in the
implementing rules and regulations of this Act, in addition to the applicable
penalties provided for under the NIRC of 1997, as amended.

SECTION 9. Joint Congressional Oversight Committee. — A Joint
Congressional Oversight Committee, herein referred to as the Oversight


Committee, shall be constituted in accordance with the provisions of this Act.
The Oversight Committee shall be composed of the Chairperson of the
Committee on Appropriations of the House of Representatives, the Chairperson
of the Committee on Finance of the Senate and three (3) additional members
from each House to be designated by the Senate President and the Speaker of
the House of Representatives.

The Secretaries of Budget and Management, Trade and Industry and
Finance shall report to the Oversight Committee on an annual basis the
investment performance and the corresponding tax expenditures and other
relevant data.

SECTION 10. Implementing Rules and Regulations. — The DOF, in
coordination with the DBM, BIR and BOC, and in consultation with all IPAs and
other concerned government agencies, shalll, within sixty (60) days from the
effectivity of this Act, jointly promulgate rules and regulations to implement the
intent and provisions of this Act.

SECTION 11. Separability Clause. — In the event that any provision
of this Act is declared invalid, the other provisions of the Act which are not
affected thereby shall remain in force and effect.

SECTION 12. Effectivity. — This Act shall take effect fifteen (15) days
after its publication in a newspaper of general circulation in the Philippines.

Approved