FOURTEENTI-I CONGRESS OF THE) 
REPuBr.,IC OF TIIB PHILIPPINES 
j 
First Regular Session 
) 
SENATE 
S.B. No. - 
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Introduced by SENATOR JUAN PONCE ENRILE 
EXPLANATORY NOTE 
This bill proposes to amend Republic Act No. 9337 by exempting power from the 
coverage of the expanded Value Added Tax (VAT) which includes the generation, 
transmission and distribution of power. 
One of the salient provisions of RA 9337 is to impose a ten percent (10%) VAT 
on the “sales of electricity by generation, transmission, and distribution companies”, the 
effect of which will increase the cost of electricity by P0.592 per kilowatt hour (kWh) 
based on the 2005 estimates by the Department of Energy. Before the aforementioned 
law was enacted, distributed power was VAT zero-rated under the RA 9136 (EPIM 
Law) while generated power was VAT-exempt under RA 6395. 
In 2005, the government projected to earn P6.35 billion from the VAT on power 
and by 2006 it projected to generate P7.62 billion plus an additional P1.23 billion from 
the lifting o€ exemption o€ electric cooperatives. But if power will be VAT-exempt, the 
government estimated to earn P27.38 billion in 2005 under a twelve percent (12%) VAT 
regime. 
Prior to the enactment of RA 9337, the cost of electricity in the Philippines was 
already one of the highest in Asia, which consequently crowds out investment. 
Moreover, the imposition of VAT on power will result to an additional P0.592 per kWh 
to he paid by the end-consumers as calculated by the Department of Energy (DOE), even 
after the two percent (2%) franchise tax was removed. Thus for a household with an 
average electricity consumption of 100 kWh a month, the VAT is estimated at P59.20, a 
quite substantial mount for minimum wage earner Filipinos. 
In addition, the increased cost of power for the business sector means higher cost 
of doing business which in turn crowds out investment. The crowding ont effect on 
investment of VAT on power will result to foregone opportunities such as employment, 
higher domestic income, etc. Thus there is an urgent need to exempt power from VAT. 
In view of the foregoing, the passage of this bill is earnestly sought. 


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FOURTEENTI-I CONGRESS OF THE ) 
REPUBLIC OF THE PHILIPPINES 
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First Regular Session 
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SENATE 
S.B. No. 
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Introduced by SENATOR JUAN PONCE ENRILE 
AN ACT 
FURTHER AMENDING SECTIONS 108 AND 109 OF THE NATIONAL 
INTERNAL REVENUE CODE OF 1997, AND FOR OTHER PURPOSES 
Be it enacted by the Senate and the House of Representatives 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: 
“SEC. 108. 
Properties. - 
J/alzie-Added Tax on Sale ofServices and Use or Lease of 
A. Rate and Base of Tax. - There shall be levied, assessed and 
collected, a value-added 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 of Finance, shall, effective January 1, 
2006, raise the rate of value-added tax 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 (1 112 YO). 
The phrase “sale or exchange of services” means the performance 
of all kinds of services in the Philippines for others for a free, remuneration 
or consideration, including those performed or rendered by construction 
and service contractors; stock, real estate, commercial, customs and 
immigration brokers; lessors of property, whether personal or real; 
warehousing services; lessors or distributor of cinematographic films; 
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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 operators of restaurants, 
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 carriers 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, 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 exchange of 
services’ shall liltewise 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; 
“(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 
knowledge or information; 
“(4) 
The supply of any assistance 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 services 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; 
“(G) 
The supply of technical advice, assistance or services 
rendered in connection with technical management or administration of 
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any scientific, industrial or commercjal undertaking, venlure, project or 
scheme; 
“(7) 
“(8) 
The lease of motion films, films, tapes and discs; and 
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, excluding value-added tax. 
B. 
Transactions Subject to Zero Percent (0%) Rate. - The 
following services performed in the Philippines by VAT-registered persons 
shall be subject to zero percent (0%) rate: 
“(1) 
Processing, manufacturing or repacking of goods for other 
persons doing business outside the Philippines which goods are 
subsequently exported, where the services are paid for in acceptable 
foreign currency and accounted for in accordance with the rules and 
regulations of the Bangko Sentral ng Pilipinas; 
“(2) 
Services other than those mentioned in the preceding 
paragraph rendered to a person engaged in business conducted outside the 
Philippines or to a nonresident person not engaged in business who is 
outside the Philippines when the services where performed, the 
consideration for which is paid for in acceptable foreign currency and 
accounted for in accordance with the rules and regulations of the Bangko 
Sentral ng Pilipinas (BSP); 
“(3) 
Services rendered to persons or entities whose exemption 
under special laws or international agreements to which the Philippines is a 
signatory effectively subjects the supply of such services to zero percent 
(0%) rate; 
“(4) 
Services rendered to persons engaged in international 
shipping or international air transport operations, including leases of 
property for use thereoE; 
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“(5) 
Services performed by subcontractors and/or contractors in 
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processing, converting, or manufacturing of goods for enterprise, whose 
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export sales exceed seventy percent (70%) of total annual production; 
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to read as follows: 
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“SEC. 109. Exempt Transactions. - (1) Subject to the provisions 
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of Subsection (2) hereot the following transactions shall be exempt from 
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the value-added tax: 
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“(A) 
Sale or importation of agricultural and marine food 
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products in their original state, livestock and poultry of a kind generally 
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used as, or yielding or producing foods for human consumption; and 
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breeding stock and genetic materials therefor. 
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(6) 
Transport of passengers and cargo by air or sea vessels 
from the Philippines to a foreign country; and 
(7) 
Sale of power or fuel generated through renewable sources 
of energy such as, but not limited to, biomass, solar, wind hydropower, 
geothermal, ocean energy, and other emerging energy sources using 
technologies such as fuel cells and hydrogen fuels.” 
SEC. 2. 
Section 109 of the same Code, as amended, is hereby further amended 
“Products classified under this paragraph shall be considered in 
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their original state even if they have 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, ordinary salt, and copra 
shall be considered in their original state; 
“(B) 
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 specialty feeds for race horses, fighting cocks, aquarium 
fish, zoo animals and other animals generally considered as pets); 
“(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 €Tom customs duties under the Tariff and Customs Code of the 
Philippines; 
‘‘(I)) Importation of professional instruments and implements, 
wearing apparel, domestic animals, and personal household effects 
(except my vehicle, vessel, aircraft, machinery, other goods for use in the 
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inanufacture 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 bona fide; 
“(E) 
“(F) 
Services subject to percentage tax under Title V; 
Services by agricultural contract growers and milling for 
others of palay into rice, corn into grits and sugar cane into raw sugar; 
“(G) Medical, dental, hospital and veterinary services except 
those rendered by professionals; 
“(H) 
Educational services rendered by private educational 
institutions, duly accredited by the Department of Education (DepEd), the 
Commission on Higher Education (CHED), the Technical Education and 
Skills Development Authority (TESDA) and those rendered by 
government educational institutions; 
“(I) 
Services rendered by individuals pursuant to an employer- 
employee relationship; 
“(J) 
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; 
“(K) 
Transactions which are exempt under 
international 
agreements to which the Philippines is a signatory or under special laws, 
except those under Presidential Decree No. 529; 
“(L) 
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 and/or processing of their produce; 
“(M) POWER GENERATION COMPANIES AND THE 
ELECTRICITY SOLD BY THEM TO THEIR CUSTOMERS AS 
WELL AS THE TRANSMISSION OF ELECTRICTTY BY THE 
NATIONAL 
TRANSMISSION 
COMPANY 
AND 
ITS 
DISTRIBIJTION BY A DISTRIBUTION UTILITY COMPANY: 
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PROVIDED, HOWEVER, THAT ANY LAW TO THE CONTRARY 
NOTWITHSTANDING, 
INCLUDING 
SECTION 
(B) 
OF 
REPUBLIC ACT NO. 9136, POWER GENERATION COMPANIES 
SHALL IN 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: 
“(0) [N] Sales by non-agricultural, non-electric and non-credit 
cooperatives duly registered with the Cooperative Developinent 
Authority: Provided, That the share capital contribution of each member 
does not exceed Fifteen Thousand Pesos (Pl5,000.00) 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 (P 1,500,00.00) and below, house 
and lot, and other residential dwellings valued at Two Million Five 
Hundred Thousand Pesos (P2,500,000.00) 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 (Pl0,OOO.OO): 
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, importation, 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; 
“(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) IT] 
Importation of fuel, goods and supplies by persons 
engaged in international shipping or air transport operations; 
“(V) [U] 
Services ol‘ banks, non-banks financial intermediaries 
performing quasi-banking functions, and other non-bank financial 
intermediaries; and 
“(W) [VI 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,500,000.00): 
Provided, That not later than January 3 1, 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); 
“(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 Tor a period of 
three (3) years from the quarter the election was made.” 
SEC. 3. 
Implementing Rules and Regulations. - The Secretary o€ 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. 
Repealing Clause. - All laws, or provisions of laws, which are 
inconsistent herewith, are hereby repealed or amended accordingly. 
SEC. 5. 
Separability Clause. - 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 
following its publication in 
circulation. 
Approved, 
Clause - This Act shall take effect fifteen (15) days 
the Official Gazette or in any newspaper of general 
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