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EIGHTEENTH CONGRESS OF THE (= RECEIVED
REPUBLIC OF THE PHILIPPINES ) = oareSEP. 112019
First Regular Session ) | Time: 3
19, BY: =
9 Ss
HOUSE OF REPRESENTATIVES . WwW
u.B.No_4551 NDEXS

Introduced by Rep. Vilma Santos-Recto
6th District of Batangas

AN ACT

EXEMPTING THE SALE OR IMPORTATION OF PETROLEUM PRODUCTS AND
SALE OF ELECTRICITY 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 restore the VAT exemption on the sale or importation
of petroleum products and sale of electricity. In November 2005, Republic Act No. 9337,
otherwise known as the Reformed Value-Added Tax (RVAT) Law, removed the VAT

exemption of these products, among others.

In 2004, the national government (NG) posted a debt and fiscal deficit of P3.8 Trillion
and P 187 Billion, respectively’. As a percentage of GDP, the debt is at 74.4% and fiscal
deficit at 3.7%.’ These figures prompted the government to push for some fiscal measures
such as the enactment of the RVAT Law to avert a fiscal crisis and lower the risk of default
in debt payment.

The primary objective of the RVAT Law is to widen the tax base by removing a
number of products and services from the list of exempt transactions under the National
Internal Revenue Code of 1997, as amended, thereby increasing revenue collections. This is
in line with the principle that in order for the VAT system to be effective, it should be broad-
based and with limited exemptions.

* Source of ase Data: Bureau of Treasury
» Soure of Bae Data: Bureau of Treaty


The VAT reform provides a steady revenue stream for the government to finance
various infrastructure projects and social programs. Likewise, it has played a major role in
averting a looming financial crisis in 2004 and in weathering the 2008 global financial crisis.

Undoubtedly, the VAT reform has produced significant and positive effects on our
economy. In fact, 2018 figures would show that our economy has since recovered as the NG
debt-to-GDP ratio greatly improved at 41.8% and NG deficit-to-GDP at 3.2%. However, as
a consequence, such effect is also inflationary. VAT is an indirect tax that is passed on to the
consumers of goods and services. Therefore, its imposition on the sale of certain products
particularly petroleum products and electricity has the effect of increasing the prices of basic
goods and services.

In December 2017, another revenue generating measure but with inflationary impact
was enacted, Republic
(TRAIN) Law. It was intended to finance, at least partially, the Build, Build, Build Program

Act No. 10963, or the Tax Reform for Acceleration and Inclusion
and other social services of the government. However, this law imposes additional excise tax
on petroleum products, and just like the VAT, it has the effect of increasing the prices of
goods and services.

The increased excise taxes and the imposition of VAT on petroleum products are too
much of a burden on the consumers. To mitigate such burden, it is high time to restore the

VAT exemption of petroleum products and se,

In view of the foregoing, the approval of this#

* soureof asc Dats Bureau of Teasry



EIGHTEENTH CONGRESS OF THE )

REPUBLIC OF THE PHILIPPINES )
First Regular Session )
HOUSE OF REPRESENTATIVES

H. B. No. 4551

Introduced by Rep. Vilma Santos-Recto
6th District of Batangas

AN ACT
EXEMPTING THE SALE OR IMPORTATION OF PETROLEUM PRODUCTS AND
SALE OF ELECTRICITY 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 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. Value-Added Tax on Sale of Services and Use or Lease of

Properties.

(A) Rate and Base of Tax. — There shall be levied, assessed and collected,

a value-added tax equivalent to twelve percent (12%) of gross receipts derived

from the sale or exchange of services, including the use or lease of properties.

"The phrase ‘sale or exchange of services’ means the performance of all

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kinds of services in the Philippines for others for a fee, 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
distributors of cinematographic films; persons engaged in milling, processing,
manufacturing or repacking goods for others; proprietors, operators or keepers of
hotels, motels, rest houses, 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


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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,
cooperatives]; services of franchise grantees of feleetrie-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 likewise include:

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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) 20,

Sx;

“(AA) Sale of drugs and medicines prescribed for diabetes, high cholesterol,
and hypertension beginning January 1, 2019; fand}

“(BB) SALE OR IMPORTATION OF PETROLEUM PRODUCTS ;

“(CC) SALE OR IMPORTATION OF RAW MATERIALS TO BE
USED BY THE BUYER OR IMPORTER HIMSELF IN THE
MANUFACTURE OF PETROLEUM PRODUCTS;

“(DD) SALE OF ELECTRICITY BY GENERATION COMPANIES,
TRANSMISSION BY ANY ENTITY, AND DISTRIBUTION COMPANIES,
INCLUDING ELECTRIC COOPERATIVES; AND

“{BB} (EE) 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 Three million pesos (P3,000,000).

“Q) xxx.”


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Sec. 3. Implementing Rules and Regulations (IRR). ~ Within thirty (30) days from the
effectivity of this Act, the Secretary of Finance, upon the recommendation of the
Commissioner of Internal Revenue, shall promulgate the necessary rules and regulations for
its effective implementation.

Sec. 4. Repealing Clause. ~ All laws, acts, decrees, executive orders, issuances, and
rules and regulations or parts thereof which are contrary to and inconsistent with this Act are
hereby repealed, amended or modified accordingly.

Sec. 5. Effectivity. - This Act shall take effect fifteen (15) days after its complete
publication in the Official Gazette or in at least two (2) newspapers of general circulation.

Approved,