. FIFTEENTH CONGRESS OF THE 
REPUBLIC OF THE PHILIPPINES 
Third Regular Session 
) 
) 
) 
SENATE 
S.No. 3378 
INTRODUCED BY SENATOR FRANKLIN M. DRILON 
EXPLANATORY NOTE 
The provision of tax incentives is one of the fiscal strategies to encourage desired 
economic activities or social behaviors. In the Philippines, tax incentives are used to promote 
investments that are deemed to have a significant impact on economic growth and 
development. 
Several Inves.tment Promotion Agencies (IPAs) administer tax incentives 
provided under various investment incentive laws, to registered investors, domestic or 
foreign, and located within or outside designated economic zones. 
Similarly, there are a number of special laws that provide tax incentives to non-
investment activities. These activities are being encouraged with the hope of enhancing the 
welfare of certain groups or sectors in the society. In fact, countries in different stages of 
development use tax incentives, when necessary, to satisfy the government's socio-economic 
goals. 
Considering the beneficial purposes of tax incentives, it is of prime importance to 
ensure that the same are met or fulfilled. It is therefore critical to instill transparency in the 
system of tax incentives, an undertaking that is aligned with the present Administration's 
battle cry of open and good governance. 
Transparency, in itself, is a factor III creating a better fiscal and investment 
environment. It empowers all stakeholders -- the government, the business sector, and civil 
society in general -- by allowing for greater public scrutiny of the government's actions, 
which, in tum, enhances the certainty and predictability of government policy formulation 
and implementation. 
r 
In the Philippines, the effectiveness of tax incentives as a fiscal tool to promote 
economic and social objectives is yet to be determined. The lack of empirical evidence that 
directly links incentives to intended benefits results in protracted debates on their true worth. 
Nonetheless, in terms of their fiscal cost, there are numerous findings from local and 
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international studies and literature on how much tax incentives Gost to the goven1lllent. 
Reside (2004) found that the Income Tax Holiday (lTH) incentive administered by the Board 
of Investments, by itself, represents around one percent (1 %) of the country's Gross 
Domestic Product (GDP). In his 2011 research on non-investment tax incentives, on the 
other hand, Reside partially estimated the cost of non-investment tax incentives at 1.3 percent 
ofGDP. 
The concept of tax expenditure accounting or producing a tax expenditure statement 
improves the transparency of the tax system. It is noted, however, that the present system of 
accounting for tax expenditures in the annual budget or the General Appropriations Act 
(GAA) only includes tax incentives granted to National Government Agencies and 
Government-Owned or -Controlled Corporations (GOCCs) The bulk of tax incentives which 
are those granted to private individuals and corporations, are not accounted for; hence, the 
magnitude of these incentives remain largely unknown. 
The proposed measure aims to address this serious infonnation gap without posing 
additional administrative burden to investors. For the most part, the bill will create a Tax 
Expenditure Account (TEA) in the annual national budget to reflect the amount of tax 
incentives granted to private individuals and corporations to foster transparency in the present 
system of granting tax incentives. 
Considering the significant benefits of this measure, utmost consideration and passage 
of this bill is earnestly sought. 
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FIFTEENTH CONGRESS OF THE 
REPUBLIC OF THE PHILIPPINES 
Third Regular Session 
) 
) 
) 
, , 
SENATE' 
S.No. 3378 
INTRODUCED BY SENATOR FRANKLIN M. DRILON 
AN ACT ESTABLISHING A SYSTEM FOR TAX INCENTIVES 
MANAGEMENT AND TRANSPARENCY, AND FOR OTHER PURPOSES 
Be it enacted by the Senate and the House of Representatives of the Philippines in Conqress 
assembled: 
SECTION 1. Title. - This Act shall be known as "The Tax Incentives Management 
and Transparency Act." 
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SECTION 2. Declaration of Policy. - It is hereby declared the policy of the State to 
promote hscal prudence and transparency in the proper management and grant of tax 
incentives by developing means to measure the government's fiscal exposure from these 
expenditures and to enable the govemment to analyze and rationalize the fiscal cost and at the 
same time optimize the economic impact and benefit incidence of such incentives. 
SECTION 3. Dejinition of Terms. - As used herein, 
a. "Investment Promotions Agencies (IPAs)" shall refer to govemment entities 
created by law, executive order, decree or other issuance, in charge of promoting 
investments, administering tax and non-tax incentives, and/or overseeing the operations of 
the different economic zones and freeports in accordance with their respective charters. 
These include the Board ofInvestments (BOI), Philippine Economic Zone Authority (PEZA), 
Bases Conversion Development Authority (BCDA), Subic Bay Metropolitan Authority 
(SBMA), Clark Development Corporation (CDC), Poro Point Management Corporation 
(PPMC), Bataan Technology Park, Inc. (BTPI), Cagayan Economic Zone Authority (CEZA), 
Zamboanga City Special Economic Zone Authority 
(ZCSEZA), Phividec Industrial 
Authority (PIA), Aurora Pacific Economic Zone and Freeport Authority (APECO), Authority 
of the Freeport Area of Bataan (AF AB), Tourism Infrastructure And Enterprise Zone 
Authority (TIEZA), and all other similar authorities that may be created by law in the future. 
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b. "Other Government Agencies" shall refer to government agencies other than IP As 
which administer tax exemptions of any kind to any specific entities and/or class of persons 
by reason of any law. 
c. "Tax Expenditures" shall refer to grants of tax incentives or tbose special 
provisions that give tax exemptions or preferential tax treatment to qualified finns in their 
registered investment activities or to special groups or individuals as a form of assistance for 
the purpose of encouraging celiain economic behavior or for other public interest purposes or 
policies declared by law. 
SECTION 4. 
Accounting and Claiming of Tax Incentives. -
The amounts 
pertaining to tax incentives administered by IP As and other government agencies to private 
individuals and corporations, and specified in accordance with a schedule to be prepared by 
the Department of Finance (DOF), shall be treated as both revenue and expenditure of the 
General Frnd. Revenues of all persons, whether natural or juridical, shall be subject to the 
regular tax rate, and the incentives to which they are entitled shall be administered by the 
relevant IP A and/or other government agency by way of utilization of the Tax Expenditure 
Account provided in the succeeding section. 
Registered enterprises qualified for tax incentives shall submit their claim for 
incentives to their respective tax incentive administering body. After review and approval of 
the claim, the IP A or government agency concerned shall be responsible for requesting the 
approved amount from the Department of Budget and Management (DBM). 
SECTION 5. Tax Expenditure Account (TEA). - An account shall be created in the 
annual General Appropriations Act (GAA), from which tax incentives, as may be detennined 
by the IP As and other government agencies in accordance with law, are accounted. 
Notwithstanding the provisions of their respective charters, IP As and other government 
agencies concerned shall account in the TEA all tax incentives that they grant. 
SECTION 6. Automatic Appropriation. - Tax expenditures for purposes of this Act 
are deemed automatically appropriated, provided, that no obligations shall be incurred or 
payments made from the TEA thus automatically appropriated except as issued in the fonn of 
regular budgetary allotments .. 
Notwithstanding the provision under this Section, the Commissioner of Internal 
Revenue 
shall exercise his/her power to make assessments and prescribe additional 
requirements for tax administration and enforcement as specified under Section 6 of the 
National Inte1'11al Revenue Code (NIRC) of 1997, as amended. 
Revenues accounted for by way of the TEA under this Act shall not be included in the 
base for computation of any other budget appropriation such as those for the internal revenue 
allotment of local government units under the Local Government Code of 1991 and for the 
rewards and incentives under the Attrition Act of2005. 
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SECTION 7. Administration, Implementation and Monitoring o/Tax Incentives. -
The IP As and other government agencies concerned shall be responsible for the 
administration and implementation of tax incentives granted to registered enterprises. They 
shall submit to the DOF their respective annual tax expenditures based on computed cost in 
terms of r6venue foregone on the tax incentives granted to their registered enterprises or to 
special gnj>ups, as the case may be, and other data related to the grant of such incentives as 
may be required by the DOF. 
In fulfilling the foregoing requirements, the IP As and other government agencies shall 
also be subject to the power of the Commissioner to obtain information and to summon, 
examine and take testimony of persons under Section 5 ofthe NIRC of 1997, as amended. 
The DOF, together with the Bureau of Internal Revenue (BIR) and the Bureau of 
Customs (BOC), shall create a single database of all tax incentives granted by the IP As and 
other govermnent agencies, monitor the incentives granted, and submit an annual Tax 
Expenditure Report to the President and to the Chainnan of the Committee on 
Appropriations/Finance of both houses of Congress as part of the annual GAA. 
SECTION 8. Non-compliance with Reportorial Requirements; Penalties. - The 
failure of an IP A or other government agency to submit the tax expenditure report and other 
data required herein, by reason of the fault or failure of any registered enterprise, shall be a 
ground for the suspension of the incentives being enjoyed by such registered enterprise or 
special group for the particular taxable year, due to violation of the tenns and conditions of 
its 
registration. Repeated violation shall 
be penalized with 
the 
cancellation of the 
enterprise's registration. 
The DOF shall issue to the concerned IP A or other goverrnnent agency a notice of 
non-compliance with this Act and its implementing rules and regulations, and direct the latter 
to explain its failure to comply and the actions it took to address such failure. The concerned 
IP A or other government agency, if its failure be attributable to the fault or failure of a 
registered enterprise, shall state such fact in its explanation, attach supporting documents 
(such as official requests for submission), and cause the issuance of a notice of violation of 
registration tenns and conditions against the registered enterprise. 
The erring registered enterprise shall then be subject to the aforementioned 
penalties the tenns of and procedure for which shall be prepared by the IP As and other 
government agencies for inclusion in the implementing rules and regulations of this Act, in 
addition to the applicable penalties provided for under the NIRC of 1997, as amended. 
Sl):CTION 9. 
Joint Congressional Oversight Committee. - A Joint Congressional 
Oversight Committee, herein referred to as the Oversight Committee, shall be constitnted in 
accordande with the provisions of this Act. The Oversight Committee shall be composed of 
the Chairperson of the Committee on Appropriations of the House of Representatives, the 
Chairperson of the Committee on Finance of the Senate and three (3) additional members 
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from each House to be designated by the Senate President and the Speaker of the House of 
Representatives. 
The Secretaries of Budget and Management, Trade and Industry and Finance shall 
report to the Oversight Committee on an annual basis the investment performance and the 
corresponding tax expenditures and other relevant data. 
SECTION 10. Implementing Rules and Regulations. - The DOF, in coordination 
with the DBM, BIR and BOC, and in consultation with all IP As and other concerned 
government agencies, shall, within sixty (60) days from the effectivity of this Act, jointly 
promulgate rules and regulations to implement the intent and provisions of this Act. 
SECTION 11. Separability Clause. - In the event that any provision of this Act is 
declared invalid, the other provisions of the Act which are not affected thereby shall remain 
in force and effect. 
SECTION 12. Effectivity. - This Act shall take effect fifteen (15) days after its 
publication in a newspaper of general circulation in the Philippines. 
Approved, 
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