S E N A T E  
S.B. No. 
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Republic'Act 9337 was recently enacted by Congress to expand the coverage of 
the Value Added Tax (VAT). One of the salient provisions of the said law is to impose a 
ten percent (10%) VAT on the "sales of electricity by generation -companies, 
transmission; and distribution companies", the effect of 'which will increase electricity 
cost by P0.59 per kilowatt hour, based on estimates'made by the Department of 
Finance. 
Prior to the enactment of RA'9337, cost of electricity in the Philippines was 
already one of the highest in Asia and such fact crowds out investment. Therefore, the 
government, is Faced with foregone opportunities caused by lost investments such as 
employment, higher domestic income, among others. 
However, the ones that, will: be most affected: by the VAT, particularly on 
electricity, are the household consumers. 
What' most do not realize is that the 
government'will soon undertake the payment of stranded debts 'previously incurred by 
the National Power Corporation and 'distri,bution utilities which will form part of the 
universal charge that is already being borne by the consuming public. This, plus the 
VAT on power, will make the cost of electricity 
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more burdensome for the household 
This bill, therefore, proposes to, further amend the National Internal Revenue 
Code to exempt power from 'the Value :Added Tax. 
Under this proposal, power 
generation companies shall likewise not be~VAT zero-rated. With this, not only will the 
household consumers be spared,from higher cost of electricity, but the government also 
stands to gain approximately P23 billion as compared to the P6.35 billion that the 
government is expected to earn under RA 9337, where VAT is imposed on power. 
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consumers. 
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In view of all these, the passage of this bill is earnestly sought. 


THIRTEENTH CONGRESS OF THE 
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REPUBLIC OF THE PHILIPPINES 
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First Regular Session 
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Introduced by Sen. Juan Po 
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' ANACT 
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FURTHER AMENDING 
SECTIONS 
io8 AND 109 OF THE ~~ATIONAL 
INTERNAL 
REVENUE CODE OF 1997, AND FOR OTHER PURPOSES 
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Be it enacted by the Senate and the House of RGpresentatives 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: 
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:, . "SEC. 108. 'Valued-added Tai on Sale;of,Se&ices and Use or Lease 
of properties. - 
A. Rate and 5ase"of TaX. 
There' shali be levieh, assessed and 
collected, a value-added I tax' equivalent to ten percent (10%) of gross 
receipts derived from the sale 'or exchange 'of services, including the use 
or lease of properties: 
Provided, That the President, upon the 
recommendation of the Secretary df Finance, shall, effective January 1, 
2006, raise the rate of value-added fax to twelve percent (12%), after any 
of the following conditions has been 'satisfied: 
"(i) Value-added' tax collection 'as a :percentage of 
~ Gross Domestic 
Product (GDP) 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 year exceeds one and ,one-half percent (1 %%). ' 
~, The phrase, 'safe or exchange of ,services' means the performance 
of ail' kinds of services in the Philippines for,others for a fee, remuneration 
or consideration, including those performed o,r rendered~ by construction 
and 'service contractors;' stock, real estate, commercial, customs and 
immigration brokers; lessors ' of property, whether pirsonal or real; 
warehousing services; , lessors' or distributor 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 operatorsl of restaurants, 
refreshment parlors, cafes and other eating 'places, including clubs and 
caterers; 
dealers 
in 
securities; 
lending 
investors; j 
transportation 
contractors on their transport of goods or cargoes, includpg persons who 
transport goods or cargoes for'hire and other domestic common carriers 
by land relative to their transport of goods or cargoes; 4ommon carriers 
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by air and sea relative to their transport of passengers, Ejoods or cargoes 
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kom one place in the 'Philippines to another place in the Philippines; 
TRANSMISSION, AND DISTRIBUTION COMPANIES]; services of 
franchise grantees of electric utilities, telephone and telegraph, radio and 
television broadcasting ,and all other franchise grantees of electric utilities, 
telephone and telegraph, radio and television broadcasting and all other 
franchise grantees except those under Section 119 of this Code 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 exch~ng~ 
of 
services' shall likewise include: 
"(1) 
The lease or'the use'of or the right or privilege to use any 
copyright, patent, design or model, plan, secret formula or process, 
goodwill, trademark, trade brand or other,,like property or right; 
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n(2) The lease'or the use of, or the right 'to use of any industrial, 
commercial or scientific equipment; 
"(3)' The supply of 'scientific, technical, industrial or commercial 
"(4) The supply of any assistant{ that'is ancillary and subsidiary to'and 
is furnished as a means of enabling the application or enjoyment of any' 
such property, or right ,as is! mentioned in subparagraph (2) or any 
knowledge or information as is mentioned in subparagraph (3); 
"(5) The supply of sehices by a nonresident person or his employee in 
connection with the use ,of property or rights belonging to, or the 
installation or operation of, any' brand, machinery or other apparatus 
purchased from such nonresident person; 
"(6) The supply of technical,advice, assistance or services rendered in 
connection with'technical management or administration of any scientific, 
industrial or commercial undertaking, venture, project or scheme; 
[SALES 
OF 
ELECTRICITY 
~ BY 
GENERATION 
COMPANIES, 
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knowledge or ,information; 
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,"(7) The lease of motion picture films, films,'tapes and:discs; and 
"'(8) The lease or the use or the right to use radio, television, satellite 
transmission and cable television time. 
"Lease of properties shall be subject to the tax, herein imposed 
irrespective of the place where the contract of lease or licensing 
agreement was executed if the property is leased or used in the 
Philippines. 
"The term 'gross, receipts' means the total amount of money or 
its equivalent representing the contract price, compensation, service fee, 
rental or royalty,, including ,the amount charged for materials supplied with 
the- services and deposits 'and advanced payments actually or 
constructively received during the taxable quarter for the services 
performed or to be performed for another person, 
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 excluding value-added 
tax., 
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SEC. 2. Section 109 of the same Code, as amended, 
read as follows: 
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is hereby further amended to 
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rice, corn grits, raw cane sugar and molasses, ordinary salt, and copra 
shall be considered in their original state; 
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Sale or importation 'of fertilizers; seeds, ,seedlings and 
fingerlings; fish prawn, livestock 'and poultry feeds, including ingredients, 
whether locally produced or imported, used in the:manufacture of finished 
feeds (except specia1ty"feeds for race horses, fighting cocks, aquarium 
fish, zoo animals and other animals generally considered as pets); 
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,"(C ) Importation: of personal and household effects belonging to 
the 'residents of the Philippines returning. from abroad and non-resident 
citizens coming to resettle in the Philippines: provided, That such goods 
are exempt from customs duties under the Tariff and Customs Code of the 
"(D) 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 corning to settle in the Philippines and that the 
change of residence is bona fide; 
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' ' "(E) Services subject to percentage tax under Title V; 
"(F) Serjices by, agricultural contract growers and milling for others 
"(G) Medical, dental, hospital' and veterinary services except those 
of paiay into rice, corn into grits and sugar cane into raw sugar; 
rendered by professionals; 
~ "(H) 
Educational services ' rendered by private educational 
institutions, duly accredited by the Department of Education (Depcd), the 
Commission on Higher Education (CHED), the Technical Education and 
Skills Development Authority (TESDA) and those rendered by government 
educational institutions; 
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"(I) 
Services rendered by individuals pursuant to an employer- 
employee relationship; 
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"(J) Services rendered by regional or area headquarters established 
in the Philippines by m,ultinational 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; ' , 
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"(K) 
Transactions 
which 1 are 
exempt 
under 
international 
agreements to which the Philippined, is a signatory or under special laws, 
except those under Presidential Deceee No. 529; 
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"(L) Sales by agricultural cooperatives duly registered with the 
Cooperative Development Authority to their members as well as sale of 
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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 and/or processing of their produce; 
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AND 
T 
ELEC 
ITY SOLD BY THEM TO THEIR CUS OMERS AS WELL AS 
THE 
NSMISSION OF ELECTRICITY 
Y THE NATIONAL 
TRANSMISSION COMPANY AND ITS DI$TRI5UTION BY A 
DISTRIBUTION UTILITY COMPANY: 
, HOW EWE^, 
THAT ANY LAW TO THE CONTRARY 
TWIT HSTAN DI N G, 
INCLUDING SECTION (5) OF REPUBLIC ACT NO. 9136, PO WE^ 
GENERATION COMPANIES SHALL I N  NO CASE BE VALUE ADDED 
TAX ZERO-RATED; 
"(N) [MI Gross receipts from lending activities by credit or multi- 
purpose cooperatives duly registered with the Cooperative Development 
Authority; 
1 [N] Sales by mon-agricultural, non-electric and non-credit 
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 aggregate 
capital and net surplus ratably distributed among the members; 
"(P) [O] Export sales by persons who are not VAT-registered; 
"(Q) [PI 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, residential lot valued at One 
million five hundred thousand pesos (Pl,SOO,OOO) 
and below, house and 
lot, and other residential dwellings valued at Two million five hundred 
thousand pesos '(P2,500,000) and below: Provided, That not later than 
January 31, 2009 and every'three (3) years thereafter, the amounts 
herein stated shall be adjusted'to their present,values using the Consumer 
Price index, as published by the National Statistics Office (NSO); 
" '  "(R) [Q] Lease of, a residential unit with a monthly rental not' 
exceeding Ten thousand pesos (P10,OOO): 
Provided, That not later than 
January 31, 2009 and every three ( 3 )  years thereafter, the amount herein 
stated shall be adjusted to'its present value using the Consumer Price 
Index, as published by the National Statistics Office (NSO); 
"(S) [R] Sale, impartation, printing'or publication of books and any 
newspaper, magazine, .review or ' !  bulletin which appears at regular 
intervals with fixed prices for subscription ,and sale and which is not 
devoted principally to the publication' of paid advertisements; 
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"(T) [SI Sale, importation'or lease of passenger or cargo vessels 
and aircraft, including engine, equipment and spare parts thereof for 
domestic or international transport operations; 


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' ' "(U) [TI Importation of, fuel, goods"and supplies by persons 
engaged in international shipping or air transport operations; 
"(W) 
[UJ Services of bank$, non-banks financial intermediaries 
performing quasi-banking functions, 
and other non-bank financial 
intermediaries; and 
"(W) [ V I  Sale or lease of goods or properties or the performance 
of services other than the transactions mentioned in the preceding 
paragraphs, the gross annual sales and/or receipts do not exceed the 
amount ' of One million five ',hundred thousand pesos (Pl,SOO,OOO): 
Provided, That not later than January 31, 2009 and every three (3) years 
thereafter, the amount herein stated shall be adjusted to its present value 
using 'the Consumer Price Index, as published by the National Statistics 
'(2) A VAT-registered person may elect that Subsection' (1) not 
apply to its sale of goods or properties or services: Provided, That an 
election 'made under this Subsection shall be irrevocable for a period of 
three (3) years from the quarter the'election was made." ', 
SEC. 3. hblementing Ru/es and Regulations. -- The Secretary of ,Finance shall, 
upon the recommendation of the Commissioner of Internal Revenue, promulgate the 
necessary rules and regulations for the effective implementation of this Act. 
Upon 
issuance of the said rules and regulations, all former rules and regulations pertaining to 
value-added tax shall be deemed revoked. 
Sec. 4. Repea/ing C/ause,' - All laws, or provisions of laws, which are inconsistent 
herewith, are hereby repealed or amended accordingly: 
See. 5. ,Separability C/ause. - If 
any provision of this Act is! subsequently declared 
unconstitutional, the validity of :the remaining provisions'hereof shall: remain in full force 
and effect.' 
Sec, 6. Effectivity Clause, -- This Act shall take effect fifteen (15) days following its 
publication,in the Official Gazette or in any newspaper of general circulation. 
Approved, 
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