EIGHTEENTH CONGRESS OF THE ) 
REPUBLIC OF THE PHILIPPINES 
) 
First Regular Session 
)
S E N A T E  
S. No. 
6 0 3
of tl)f fsrci rt.iip
’19 
JUL 17 P6 :15
RECEIVl D T,';
Introduced by Senator Ralph G. Recto
AN ACT
EXEMPTING TOLLWAY OPERATIONS FROM THE VALUE ADDED TAX, 
AMENDING FOR THIS PURPOSE SECTIONS 108 AND 109 OF THE 
NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED
EXPLANATORY NOTE
This proposed measure seeks to exempt the services of tollway operators 
from the Value-Added Tax (VAT). Lawmakers, renowned tax experts and economists 
consistently maintained that the legislative intent in enacting Republic Act No. 7716, 
or the Expanded Value-Added Tax Law in 1994 is to exclude toll fees from the 
coverage of VAT.
However, 
the 
Bureau 
of 
Internal 
Revenue 
(BIR) 
issued 
Revenue 
Memorandum Circular No. 63-2010 dated July 10, 2010 clarifying that toll fees are 
subject to VAT, since the services of tollway operators are not listed among the 
exempt transactions. In Diaz and Timboi vs. Secretary o f Finance and Commissioner 
o f Internal Revenue, the Supreme Court ruled that toll fees are subject to VAT. It is 
a well-settled rule in taxation that tax exemptions must be justified by clear statutory 
grant and based on language in the law too plain to be mistaken.
VAT is an indirect tax that is passed on to the consumers of goods and 
services. Therefore, its imposition on toll fees will likely Increase the cost of 
transportation and consequently result in the increase of prices of basic goods and 
services. Similarly, various manufacturing, business process outsourcing (BPO),
1


passenger and cargo transport hub operators and others will incur additional 
transport expenditures and experience disruptions in their business expectations 
considering that the tollways link up freeports, special economic zones, regional food 
production areas and financiai centers with the population centers, in rural, urban 
and highly-urbanized areas. Among these are the Tarlac Pangasinan La Union 
Expressway (TPLEX), 
Subic Clark Tarlac Expressway (SCTEX), 
North 
Luzon 
Expressway (NLEX), Star Tollway, and South Luzon Expressway (SLEX), among 
others.
Furthermore, VAT on services of tollway operators had never formed part of 
the contracts or agreements between the Government and investors under the 
various Public-Private Partnership (PPP)-Build-Operate-Transfer (BOT) programs, the 
core of the government's economic resiliency plan.
Tollway operation is an inherent component of PPP in order to build the 
necessary road infrastructures that government cannot fund by itself. Privately-built 
toll facilities through the various modes of PPP consequently become publicly-owned 
at the expiration of the contract or agreement. As such, they should not be subject 
to VAT considering that tollway operators are merely stepping into the shoes of 
government in constructing these roads for public convenience for a reasonable rate 
of return on their investments.
Hence, the passage of this bill is earnestly sought.
RALPH
/jiao


EIGHTEENTH CONGRESS OF THE ) 
REPUBLIC OF THE PHILIPPINES 
) 
First Regular Session 
)
S E N A T E
603
S. No.
f^-'. 
Jennie
ot till- fercrrtarj?
'19 JUL17 P6:15
■. L- o'.
Introduced by Senator Ralph G. Recto
AN ACT
EXEMPTING TOLLWAY OPERATIONS FROM THE VALUE-ADDED TAX, 
AMENDING FOR THIS PURPOSE SECTIONS 108 AND 109 OF THE 
NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED
Be it enacted by the Senate and House o f Representatives o f the Philippines in 
Congress assem bled:
1 
Section 1. Section 108 of the National Internal Revenue Code of 1997, as
2 
amended, is hereby further amended to read as follows:
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"Sec. 108. Value-Added Tax on Sale o f Services and Use or Lease o f
4 
Properties. -
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"(A) Rate and Base o f Tax. -  There shall be levied, assessed and
6 
collected, a value-added tax equivalent to twelve percent (12%) of gross
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receipts derived from the sale or exchange of services, including the use
8 
or lease of properties.
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"The phrase 'sale or exchange of services' means the performance
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of all kinds of services in the Philippines for others for a fee, remuneration
11 
or consideration, including those performed or rendered by construction
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and service contractors; stock, real estate, commercial, customs and
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immigration brokers; lessors of property, whether personal or real;
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warehousing services; lessors or distributors of cinematographic films;
15 
persons engaged in milling, processing, manufacturing or repacking goods
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for others; proprietors, operators or keepers of hotels, motels, resthouses,
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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 
caterers; 
dealers 
in 
securities; 
lending 
investors; 
transportation 
contractors on their transport of goods or cargoes, including persons who 
transport goods or cargoes for hire and other domestic common carrers 
by land relative to their transport of goods or cargoes; common carriers by 
air and sea relative to their transport of passengers, goods or cargoes 
from one place in the Philippines to another place in the Philippines; sales 
of electricity by generation companies, transmission by any entity, and 
distribution 
companies, 
including 
electric 
cooperatives; 
services 
of 
franchise grantees of electric utilities, telephone and telegraph, radio and 
television broadcasting and all other franchise grantees except SERVICES 
OF 
TOLLWAY 
OPERATORS 
WITH 
TOLLWAY 
OPERATION 
CERTIFICATE ISSUED BY THE TOLL REGULATORY BOARD AND 
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 exchange of services' shall likewise include:
"X X X ."
Sec. 2. Section 109 of the National Internal Revenue Code of 1997, as 
amended, is hereby further amended to read as follows:
"Sec. 109. Exempt Transactions. -
"(1) Subject to the provisions of Subsection (2) hereof, the following 
transactions shall be exempt from the value-added tax:
"(A) xxx;
"xxx;
(AA) Sale of drugs and medicines prescribed for diabetes, high 
cholesterol, and hypertension beginning January 1, 2019; £and]
"(BB) SERVICES OF TOLLWAY OPERATORS WITH TOLLWAY 
OPERATION CERTIFICATE ISSUED BY THE TOLL REGULATORY 
BOARD; AND


1 
" 
(CC) Sale or lease of goods or properties or the performance of
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services other than the transactions mentioned in the preceding paragraphs,
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the gross annual sales and/or receipts do not exceed the amount of Three
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million pesos (P3,000,000).
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"(2) XXX."
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Sec. 3. Implementing Rules and Regulations (IRR). -  Within thirty (30) days
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from the effectivity of this Act, the Secretary of Finance, upon the recommendation
8 
of the Commissioner of Internal Revenue, shall promulgate the necessary rules and
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regulations for its effective implementation.
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Sec. 4. Repealing Clause. -  All laws, acts, decrees, executive orders,
11 
issuances, and rules and regulations or parts thereof which are contrary to and
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inconsistent with this Act are hereby repealed, amended or modified accordingly.
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Sec. 5. 
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,