Hoo SE OF REPRESENTATIVES

RE eae 2016

SEVENTEENTH CONGRESS )
REPUBLIC OF THE PHILIPPINES }
First Regular Session

HOUSE OF REPRESENTATIVE!

Introduced by Representative Maximo B. TGS TATION UNIT
1689 BUS ND ise SERVICE
House Bill No. ~ 0°"
EXPLANATORY NOTE

The motor vehicle manufacturing industry has extensive downstream linkages,
mainly with basic and critical heavy industries (e.g. iron and steel, chemicals, rubber); and
upstream linkages with tertiary industries such as transport services and distribution of
goods. Thus, a progressive motor vehicle manufacturing industry is considered a key driver
of industrialization and economic development.

In developed countries like the United States, Japan and Germany, the vehicle
manufacturing industry forms the core of its industrial strength. The importance of the
industry was even more highlighted during the 2008 Global Financial Crisis, when these
developed economies quickly took to action and implemented measures in support of the
vehicle manufacturing industry. The emerging economies Brazil, Russia, India and China
also put high priority on developing a domestic vehicle manufacturing industry.

In ASEAN, member-states with manufacturing capabilities such as the Philippines,
Thalland, Malaysia and Indonesia continuously develops and implements strategic
development programs/ policies for motor vehicle manufacturing as a key strategy for
industrialization

The Philippines first implemented its motor vehicle development program in 1973.
‘Among others, the program was aimed at developing a local vehicle manufacturing industry
that would effectively encourage the development of vehicle parts manufacturing and auto-
supporting industries. The government envisioned the industry as a major source of
manufacturing value-added, and therefore has potentially high economic contributions.

Since the implementation of the Motor Vehicle Development Program (MVDP),
substantial investments estimated at Php100 billion were put in place in manufacturing
operations, about 75,000 jobs were generated and the annual export revenues from locally-
produced parts reached over USS3 Billion in 2010. At the same time, technology transfer
has significantly contributed to the improvement of production process and product quality;
and automotive skills development programs have raised the levels of Filipino workmanship
and capabilities. It is clear that the motor vehicle manufacturing industry plays an important
role in socio-economic development

However, the Philippines was not able to develop the competitive capacities of its
motor vehicle manufacturing industry. The small domestic market base did not support
economic scale in manufacturing operations. Moreover, policy inconsistencies and the
weak regulatory framework have eroded the market base for new vehicles and
consequently, the parts manufacturing industry.

‘As a result, investments have been limited and the parts manufacturing and auto-
‘supporting industries were not fully-developed.” Majority of parts manufacturers are
classified as small and medium enterprises (SME), with limited market access opportunities.
In fact, about 90% of the total export revenues from vehicle parts and components are
generated by Multi-National Companies (MNCs), which account for less than 10% of local
parts manufacturers.

42009 Domestic Market Volume: Thailand — 548K; Indonesia — 486K; Philippines — 132K

» Comparative number of parts suppliers: Thailand — 1,800; Indonesia — 564; Philippines - 256


In contrast, other ASEAN automotive industries benefited from a large domestic
market base and generally consistent automotive policies, and therefore, a more attractive
investment destination for vehicle manufacturing. In comparison to our ASEAN neighbors,
the Philippines lagged in terms of cost-competitiveness. Structural inefficiencies and the
increasing pressure from trade liberalization continue to put tremendous pressure on the
domestic vehicle manufacturing industry. In 2010, it was estimated that the cost of locally
manufactured vehicle is higher by 15% in comparison to vehicles produced in other ASEAN
production bases.

The vehicle manufacturing industry offers exceptional growth opportunities. A study
conducted by the University of Asia and the Pacific showed that the motor vehicle
manufacturing is a key industry in the Philippine economy, with one of the highest output,
household income and employment multiplier effects. The study estimated that an additional
Php100 billion investments in motor vehicle manufacturing would result to Php357 Billion
additional output, Php27.2 Billion household income and 169,000 jobs. Such is the potential
contribution of vehicle manufacturing because it creates production complementarities
among many industries in the economy.”

Astudy conducted by Deloitte Touche Tohmatsu also reached the same conclusions,
ie. the development of a world-class vehicle manufacturing industry will substantially
increase real gross domestic product, real aggregate investments, real exports and real
wages leading to increase in employment.”

However, these potential economic benefits may only be reaped by improving the
competitiveness of the domestic vehicle manufacturing Industry. The continued viability of
the industry will primarily depend on the effectiveness and sustainability of the policy and
business environment, an important government role highlighted in a study conducted by the
Philippine Institute for Development Studies.”

Considering the foregoing, the immediate passage of this proposed measure is

eamestly sought
MAXIMO, Up JR

¥ Terosa C., 2010. “Economic Impact of the Philippine Automotive Manufacturing Industry: Production Linkages &
“Multiplier Effects”, University of Asia and the Pacific, Philippines.

¥ Stanford J, 2009. “Five Minutes fo Midnight: ‘The Future of Philippine Automotive Industry”. Deloitte Touche Tohmatsu,
Australia,

 Aldaba R., 2008, “Globalization and the Need for Strategic Govemment-Industry Cooperation in the Philippine
Automotive Industry”. Philippine Institute for Development Studies, Philippines.



SEVENTEENTH CONGRESS )
REPUBLIC OF THE PHILIPPINES )
First Regular Session

HOUSE OF REPRESENTATIVES

__Introduced by Representative Maximo B.

1685

House Bill No.

AN ACT
TO STRENGTHEN THE COMPETITIVENESS OF THE PHILIPPINE MOTOR VEHICLE
MANUFACTURING INDUSTRY

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

ARTICLE!
TITLE AND DECLARATION OF POLICIES

SECTION 1. Title. - This act shall be known as “The Philippine Motor Vehicle Manufacturing
Industry Act’.

SECTION 2. Declaration of Policy. - The national economy shall be developed by
promoting industrialization through competitive industries and by encouraging private
enterprise. Recognizing that the Philippine Motor Vehicle Manufacturing Industry forms the
core of the country's industrial strength, and its vital role in economic development and
nation-building, the following are the declared policies of the State:

(a) The State shall develop a comprehensive policy that will accelerate the sound
development of the Philippine Motor Vehicle Manufacturing Industry thereby contributing to
industrial capital formation and employment generation;

(b) The State shall ensure a balanced transition to open trade at minimal risk to the
Philippine Motor Vehicle Manufacturing industry by fully developing its competitive capacities
and promoting greater participation in a globalized economy through increased export;

(c) The State shall promote the maximum scale integration of vehicle manufacturing
and the manufacture of its parts and components;

(d) The State shall encourage technology transfer and advances and promote
automotive skills development as means to drive the competitiveness of the Philippine Motor
Vehicle Manufacturing Industry;

(e) The State shall integrate motor vehicle manufacturing into the overall transport
Policies to optimize the growth of the Philippine Motor Vehicle Manufacturing Industry and
ensure sustainable transportation development.

SECTION 3. Definition of Terms. - For purposes of this Act, the following terms are defined
as follows:

(a) “Board of Investments (BOl)" refers to an attached agency of the Department of
Trade and Industry created under Republic Act No. 5186.


(b) “Department of Trade and Industry (DTI)" refers to the government agency
created pursuant to Executive Order No. 133.

(c) “Investments Priorities Plan (IPP)" refers to the overall plan prepared by the BO!
in accordance with the provisions of Executive Order No. 226 otherwise known as the
Omnibus Investment Code of 1987, as amended.

(d) “Motor Vehicle Manufacturing Industry’ encompasses enterprises that are
engaged in the manufacture of motor vehicles and its parts and accessories,

(e) "Manufacture of Motor Vehicles” refers to the activities classified under Section D,
Division 34, Group 341 of the United Nations (UN) International Standard Industrial
Classification of All Economic Activities (ISIC) Revision (Rev.) 3, which includes the
manufacture of passenger cars, commercial vehicles, buses, trolley-buses and coaches,
motor vehicle engines, chassis fitted with engines and other motor vehicles.

This also refers to the activities classified under Section D, Division 36, Group 369,
Class 3691 of UN ISIC Rev. 3, which includes the manufacture of motorcycles (including
mopeds) and cycles fitted with an auxiliary engine, whether or not with attached side-car,
and “delivery or "sporting" motorcycles

(f) “Manufacture of Parts and Accessories of Motor Vehicles” refers to the activities
classified under Section D, Division 34, Group 343 of the UN ISIC Rev. 3, which includes the
manufacture of parts and accessories for motor vehicles including their bodies and engines:
brakes, gear boxes, axles, road wheels, suspension shock absorbers, radiators, silencers,
exhaust pipes, clutches, steering wheels, steering columns and steering boxes and other
parts and accessories not elsewhere classified.

This also refers to the manufacture of bodies (coachwork) for motor vehicles, engines
for motorcycles, side-cars, and parts and accessories of motorcycles.

(g) “Medium-Term Philippine Development Plan (MTPDP)" refers to the master plan
for economic development implemented by the National Economic Development Authority
(NEDA), which identifies growth sectors for the next six (6) years and defines the programs,
policies, strategies and action plans to attain economic development goals.

(h) “Philippine Export Development Plan (PEDP)" refers to the rolling three-year
export development plan prepared by the DTI, which defines the country’s annual and
medium-term export thrusts, strategies, programs and projects jointly implemented by the
government, export and concerned sectors.

ARTICLE Il
ORGANIZATION, INSTITUTIONAL SUPPORT AND STRATEGIES

SECTION 4. Lead Agency. - The DTI through the BOI shall be the lead agency mandated
to implement the provisions and attain objectives of this Act.

SECTION 5. National Motor Vehicle Manufacturing Development Plan. — The President
of the Republic of the Philippines shall approve a rolling three-year National Motor Vehicle
Manufacturing Development Plan, hereinafter referred to as the “Plan’, prepared by the BO!
and formulated in consultation with concerned stakeholders, and which shall be validated
and updated annually

The Plan, which shall be integrated into the PEDP and the MTPDP, shall define the
Industry's annual and medium-term manufacturing and export targets, and programs and
strategies to support manufacturing and export thrusts. The Plan shall also identify priority
development products, which shall be characterized by high manufacturing value-added and
with high potential for economic efficiency, as the primary focus of incentives.


SECTION 6. Motor Vehicle Manufacturing Development Council. - For the purpose of
Coordinating the formulation and implementation of policy reforms to support the Plan, the
Motor Vehicle Manufacturing Development Council, hereinafter referred fo as the “Council”
shall be created to act as the central policy coordinating body and national advisory
committee

SECTION 7. Composition of the Council, - The Council shall be composed of the
following

(a) Undersecretary for Industry and Investments of the Department of Trade and
Industry as Chairman;

(b) Deputy Director General of the National Economic Development Authority;

(c) Undersecretary of the Department of Finance:

(d) Undersecretary of the Department of Environment and Natural Resources:

(e) Undersecretary of the Department of Energy;

(f) Undersecretary of the Department of Transportation and Communication:

(9) Undersecretary of the Department of Labor and Employment:

(h) Four (4) representatives from the private sector, one of whom shall be appointed
as Vice Chairman

Other heads of executive agencies, private organizations or individuals can be called
upon by the Council to attend any Council meeting and to assist the Council to resolve
issues and problems that concem their respective offices.

Likewise, such heads of executive agencies, private organizations or individuals shall
recbond fo the queries of the Council within two (2) weeks from the time such queries are
received.

SECTION 8. Duties of the Council. - The Council shall function solely as a central policy
coordinating body and national advisory committee, and shall have the following duties

(a) The Council shall advise the DT! Secretary on the implementation of the Plan
and provide a means of ensuring regular contact between the Government and the motor
vehicle manufacturing industry,

(b) The Council shall provide a forum for discussing and proposing solutions to
motor vehicle manufacturing industry-related problems, and emerging industry issues

(c) The Council shall recommend ways to ensure that the Philippines becomes a
more attractive investment destination for motor vehicle manufacturing in the ASEAN
region, and that the Government timely responds to the challenges facing the industry

SECTION 9. Appointment of Private Sector Representatives. — Upon the effectivity of
this Act, the President of the Republic of the Philippines shall appoint four (4) private sector
representatives to the Council who shall serve for a term of two (2) years.

FECTION 10. Meetings of the Council. - The Council shall meet once a month, provided,
That the Chairman may convene the Council anytime whenever he deems it necessary,

SECTION 11. Operation of the Council. - The Council shall immediately function one (1)
month after the effectivity of this Act.

ARTICLE Il
INVESTMENTS INCENTIVES

SECTION 12. incentives for Manufacturers of Motor Vehicles, - Enterprises engaged in
Te manufacture of motor vehicles duly registered with the BOI as participant under the
Motor Vehicle Development Program (MVDP), shall be entitled to the following incentives


(a) income Tax Holiday. ~ For five (6) years from commercial operations, the
enterprise shall be exempt from income taxes levied by the National Government, Provided,
That investment in new basic model or full model change shall be treated as a new
investment and shall therefore be entitled to a fresh package of incentives

(b) Net Operating Loss Camy-Over. - A net operating loss incurred during the first
three (3) years of operations shall be carried over as a deduction from taxable income for the
seven (7) consecutive taxable years immediately following the year of such loss, Provided,
however, That the net operating loss shall be computed in accordance with the provisions of
the National Internal Revenue Code and its implementing Revenue Regulations, any
provision of this Act to the contrary notwithstanding, except that income not taxable either in
whole or in part under this or other laws shall be included in gross income.

(c) Accelerated Depreciation, - At the option of the taxpayer and in accordance with
the procedure established by the Bureau of Internal Revenue, fixed assets may be (1)
depreciated to the extent of not more than twice as fast as normal rate of depreciation or
depreciated at normal rate of depreciation if expected life is ten years or less; or (2)
depreciated over any number of years between five years and expected life if the latter is
more than ten (10) years; and the depreciation thereon allowed as a deduction from taxable
income: Provided, That’ the taxpayer notifies the Bureau of intemal Revenue at the
beginning of the depreciation period which depreciation rate allowed by this section will be
used by it.

‘(d) Deduction on Training Expenses. In addition to the allowable ordinary and
necessary expenses on training which are fully deductible under the provisions of the
National internal Revenue Code, expenses incurred in training schemes approved by the
appropriate agency shall be eligible for deduction during the financial year the expenses
were incurred:

(i). Expenses incurred in providing employee training shall be eligible for
single deduction; and
(ii) Expenses incurred in providing training to Small and Medium Enterprise

(SME) parts manufacturers shall be eligible for double deduction.

(e) Double Deduction on Research and Development. - Expenses incurred for
research and development activities shall eligible for double deduction from taxable income

(f) Tax and Duty Free Importation of Capital Equipment. - The importation of
machinery, equipment and accompanying spare parts imported in the name of the
manufacturer as consignee shall be exempt to the extent of one hundred percent (100%) of
the duties and taxes payable thereon, Provided, That the importation comply with the
following conditions:

(i) These are not manufactured domestically in sufficient quantity, of
comparable quality and at reasonable prices;

(li) These are reasonably needed’ and will be used exclusively in the
manufacture of motor vehicles; and

(iii) Prior approval of the BO! was obtained for the importation of such
machinery, equipment and accompanying spare parts.

Provided further, That such machinery, equipment and accompanying spare parts
shall not be sold, transferred or disposed without prior approval of the BO! within five (5)
years from date of acquisition, in which case the manufacturer as consignee and the
vendee, transferee, or assignee shall be solidariy liable to pay twice the amount of the duty
and tax exemption given it.

(g) Tax and Duty Free Importation of Training Equipment. - The importation of
equipment, tools and implements for in-house training projects and imported in the name of
the manufacturer as consignee shall be exempt to the extent of one hundred percent (100%)
of the duties and taxes payable thereon, Provided, That the importation comply with the
following conditions

(i) These are not manufactured domestically in sufficient quantity, of
comparable quality and at reasonable prices;


(ii) These are reasonably needed and will be used exclusively for training
projects; and
(iil) Prior approval of the BOI was obtained for the importation of such
equipment, tools and implements
Provided further, That such equipment, tools and implements shall not be sold,
transferred or disposed without prior approval of the BO! within five (5) years from date of
acquisition, in which case the manufacturer as consignee and the vende, transferee, or
assignee shall be solidarily liable to pay twice the amount of the duty and tax exemption
given it
(h) Qualified enterprises availing of incentives provided under this Act and its
Implementing Rules and Regulations shall still be eligible to incentives and privileges
provided for by other special laws
(i) Executive Order No. 226, otherwise known as the Omnibus Investment
Code of 1987, Provided, That the manufacture of motor vehicles shalll regularly form
part of the IPP as a preferred area for investments, unless otherwise declared by law;
(ii) Republic Act No. 7844, otherwise known as the Export Development Act
of 1994;
(ili) Republic Act No, 7916, otherwise known as the Special Economic Zone
Act of 1995, as amended;
(iv) Issuances implementing the Motor Vehicle Development Program
Provided, That the enterprise shall register under the aforestated laws and that there
is no double availment of the same incentives.

SECTION 13, Incentives for Manufacturers of Motor Vehicle Parts and Accessories. -
Enterprises engaged in the manufacture of motor vehicle parts and accessories shall be
entitied to the following incentives:

(a) Income Tax Holiday. - For five (6) years from commercial operations, the
enterprise shall be exempt from income taxes levied by the National Government, Provided,
That investment in new parts and components shall be treated as a new investment and
shall therefore be entitled to a fresh package of incentives.

(b) Net Operating Loss Camy-Over. - A net operating loss incurred during the first
three (3) years of operations shall be carried over as a deduction from taxable income for the
seven (7) consecutive taxable years immediately following the year of such loss, Provided,
however, That the net operating loss shall be computed in accordance with the provisions of
the National Internal Revenue Code and its implementing Revenue Regulations, any
provision of this Act to the contrary notwithstanding, except that income not taxable elther in
whole or in part under this or other laws shall be included in gross income

(c) Accelerated Depreciation. - At the option of the taxpayer and in accordance with
the procedure established by the Bureau of Internal Revenue, fixed assets may be (1)
depreciated to the extent of not more than twice as fast as normal rate of depreciation or
depreciated at normal rate of depreciation if expected life is ten years or less; or (2)
depreciated over any number of years between five years and expected life if the latter is
more than ten (10) years; and the depreciation thereon allowed as a deduction from taxable
income: Provided, That the taxpayer notifies the Bureau of Intemal Revenue at the
beginning of the depreciation period which depreciation rate allowed by this section will be
used by it.

(d) Deduction on Training Expenses. in addition to the allowable ordinary and
necessary expenses on training which are fully deductible under the provisions of the
National internal Revenue Code, expenses incurred in training schemes approved by the
appropriate agency shall be eligible for deduction during the financial year the expenses
were incurred

(i) Expenses incurred in providing employee training shall be eligible for
single deduction; and

(li) Expenses incurred in providing training to Small and Medium Enterprise
(SME) parts manufacturers shall be eligible for double deduction.


(e) Double Deduction on Research and Development. - Expenses incurred for
research and development activities shall eligible for double deduction from taxable income.

(f) Tax and Duty Free Importation of Capital Equipment. - The importation of
machinery, equipment and accompanying spare parts imported in the name of the
manufacturer as consignee shall be exempt to the extent of one hundred percent (100%) of
the duties and taxes payable thereon, Provided, That the importation comply with the
following conditions:

(i) These are not manufactured domestically in sufficient quantity, of
comparable quality and at reasonable prices;

(li) These are reasonably needed and will be used exclusively in the
manufacture of motor vehicle parts and accessories; and

(iii) Prior approval of the BOI was obtained for the importation of such
machinery, equipment and accompanying spare parts.

Provided further, That such machinery, equipment and accompanying spare parts
shall not be sold, transferred or disposed without prior approval of the BO! within five (5)
years from date of acquisition, in which case the manufacturer as consignee and the
vendee, transferee, or assignee shall be solidarily liable to pay twice the amount of the duty
and tax exemption given it.

(g) Tax and Duty Free Importation of Training Equipment. - The importation of
equipment, tools and implements for in-house training projects and imported in the name of
the manufacturer as consignee shall be exempt to the extent of one hundred percent (100%)
of the duties and taxes payable thereon, Provided, That the importation comply with the
following conditions:

(i) These are not manufactured domestically in sufficient quantity, of
comparable quality and at reasonable prices;

(ii) These are reasonably needed and will be used exclusively for training
projects; and

(iii) Prior approval of the BO! was obtained for the importation of such
equipment, tools and implements.

Provided further, That such equipment, tools and implements shall not be sold,
transferred or disposed without prior approval of the BO! within five (5) years from date of
acquisition, in which case the manufacturer as consignee and the vendee, transferee, or
assignee shall be solidarity liable to pay twice the amount of the duty and tax exemption
givenit

(h) Qualified enterprises availing of incentives provided under this Act and its
Implementing Rules and Regulations shall stil be eligible to incentives provided for by other
special laws:

(i) Executive Order No. 226, otherwise known as the Omnibus Investment

Code of 1987, Provided, That the manufacture of motor vehicle parts and

accessories shall regularly form part of the IPP as a preferred area for investments,

unless otherwise declared by law;

(ii) Republic Act No, 7844, otherwise known as the Export Development Act

of 1994;
(ili) Republic Act No. 7946, otherwise known as the Special Economic Zone

Act of 1995, as amended

Provided, That the enterprise shall register under the aforestated laws and that there
is no double availment of the same incentives,

ARTICLE IV
OTHER POLICY MEASURES

SECTION 14. Rationalization Measures. - \n general, the Government shall
formulate and implement rationalization measures in specific areas in need of adjustment, or


where existing policies are challenged, rendered inefficient or obsolete by changing business
environment with the end view of promoting economies of scale, efficiency and productivity.

Such specific areas include, but are not limited to, the rationalization of the excise tax
system for automobiles, To the extent possible under existing laws and international
agreements, the excise tax on automobiles shall be restructured in order to promote local
vehicle manufacturing capability.

SECTION 15. Harmonization Measures. - The Government shall formulate and
implement harmonization measures with the end view of promoting effective regulation and
transparency in rules.

ARTICLE V
FINAL PROVISIONS

SECTION 16. Implementing Rules and Regulations (IRR). - Within three (3)
months from effectivity of this Act, the DT! through the BO! shall, in consultation with all the
stakeholders concerned, promulgate the IRR of this Act.

SECTION 17. Repealing Clause. - Any law, presidential decree or issuance,
executive order, administrative rule or regulation contrary to or inconsistent with the
provisions of this Act is hereby repealed, modified or amended accordingly.

SECTION 18. Separability Clause. - If any of the provision of this Act is held
unconstitutional or invalid, the remainder of the Act or the provision not otherwise affected
shall remain valid and subsisting.

SECTION 19. Effectivity Clause. - This Act shall take effect thirty (30) days after its
publication in two (2) newspapers of general circulation.

Approved,