FOURTEENTH CONGRESS 
1 
REPUBLIC OF THE PHILIPPINES 
) 
First Regular Session 
, -SEP\TATE 
BILL ~ 0 . 2 4  
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EXPLANATORY NOTE 
In 2004, Republic Act 9337 was passed into law. The measure allowed 
President Gloria Macapagal-Arroyo to increase the VAT rate to 12% and expand 
its coverage to encompass additional goods, including gasoline and other oil 
products. The reason given for the imposition was the same: the country needed 
the revenues to jump-start the economy which was mired in a deep fiscal crisis. 
Three years after the expanded value-added tax was imposed, the 
economy has not substantially ‘improved, despite the claims of publicists of the 
current administration. Filipinos are still mostly poor, hungry, unemployed and 
stalled by an uncertain future. 
In the main, the current tax system of the country has remained 
regressive,” according to the 2007 Country Report on the Philippines of Social 
Watch, an international watchdog citizens’ network on poverty eradication. For 
example, for the year 2006, the total projected revenue of P969 billion ($18.9 
billion), P566 billion ($11 billion) would be from indirect or regressive taxes and 
non-tax revenue. This constitutes 59% of total projected revenue. On the other 
hand, projected direct taxes total P402 billion ($7.8 billion), which amounts to 41% 
of total revenue. 
I, 
Social Watch notes that tax administration in the Philippines has 
traditionally been perceived as ”both corrupt and inefficient.” Government tax 
collection agencies are considered ”flagships of corruption.” In spite of the efforts 
of administrators to change this unsavory image, public perception has remained 
largely the same. Inefficiency and corruption have resulted in the non-collection 
of significant amounts of government revenue. 
One factor responsible for inadequate revenue collection is the practice of 
granting tax incentives to attract investors. While the government passes new tax 
measures or collect existing taxes, it also grants incentives and tax benefits. A 
study of the House of Representatives in 2006 on foregone revenue due to 
incentives found that this amounted to P150 billion ($2.9 billion); on the other 
hand, the projected financing needs of the government for 2006 amounted to P125 
billion ($2.4 billion). ”Obviously, foregone revenue could have covered all or at 
least a part of the government’s financing requirements” said Social Watch. 
A study from the University of the Philippines further notes that the fiscal 
incentives granted by the Board of Investments in 2004 aIone resulted in a 
negative economic benefit of F55.72 billion ($1.1 billion). This means that the 
amount of foregone revenues due to tax- and duty-free privileges was higher than 


the amount of economic benefits resulting from the investments for which these 
perks were provided. Thus, while foreign investors are benefiting significantly 
from tax incentives, host countries like the Philippines are losing heavily and 
have to turn to regressive taxes and borrowing to cover urgent financing needs. 
A questionable government policy of onerous debt service or paying off 
debts that were wasted, mismanaged and tainted with corruption has only 
perpetuated the regressive cycle. According to Social Watch, the percentage share 
of interest payments in the national budget has been steadily rising for the past 
eight years. In 1999, 18% of the national budget went to interest payments; this 
rose to 32% of the budget in 2006. In contrast, the percentage shares of social 
services and all other sectoral expenditures have declined, while interest 
payments continue to rise. In 1999,34% of the budget went to social expenditures, 
but this went down in 2006 to 28% of the budget. Economic development 
expenditures also took a beating, from 25% of the 1999 budget to 19% in 2006. 
The report of Social Watch International is echoed by studies of 
independent think-tank organizations that have also expressed serious concern 
on the worsening social inequity in the Philippines despite the imposition of 
additional taxes. 
IBON Philippines, an advocacy research organization, reports that even as 
tax revenues have increased, the government has been cutting back further on the 
budget for social services - already grossly insufficient to begin with but 
declining in real terms since 1997. Real public spending on education fell to 
P1,331 per Filipino in the recently-approved 2007 budget after reaching a high of 
P1,503 in 2002. Health spending is now down to just P111.78 per Filipino. 
It should be noted that the declining allocations for these vital services are 
happening amid long-standing gross neglect. The Department of Education 
admits that there is a lack of 20,517 teachers (assuming a ratio of 45 students to 
one teacher), 45,775 classrooms (assuming 45 students to a classroom), 3.2 million 
seats and 67 million textbooks in school year 2006-07. 
The burden of health spending is also increasingly borne by FiIipiiios who 
can least afford its high costs, says IBON. Government's share in total health 
expenditures has drastically fallen under the Arroyo administration, with 
possibly the steepest drop in such a short period of time. Health accounts show 
that national and local government's share in total health expenditure was 40.6% 
in 2000 but fell to just 30.3% in 2004. Filipinos are forced to make LIP the difference 
from private sources, primarily out-of-pocket spending. 
TBON stresses that all these fiscally repressive measures have aimed to 
ensure repayments to creditors as well as to assure foreign investors that foreign 
exchange is available for their globally-integrated commercial, financial and 
"pseudo-manufacturing" operations. In 2006, government paid around P854.4 
billion in total public debt service, which is equivalent to P9,935 per Filipino, or 
seven times combined spending on education and health. In nominal terms, this 
is a 211% increase from debt service levels in 2001. "The Arroyo administration 
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has not only brought the country to its worst ever fiscal crisis, it is malting the 
most public debt payments and is the most indebted government in Philippine 
history,” according to the data resource group. 
As it is, the government borrowed P592.4 billion in the first 11 months of 
2006, or slightly less than in the same period the previous year. Over four-fifths of 
this borrowing went straight back to creditors through debt servicing. Although 
government has tried to repay as much debt as it could, total national 
government debt still increased marginally to P3.914 trillion in October 2006 from 
P3.888 trillion in the same period in 2005. 
These pre-payments give the impression that the debt situation is 
improving, to restore government creditworthiness so it can continue to borrow. 
But since these do not address the fundamental roots of the debt problem 
(economic backwardness, trade and investment liberalization, bureaucratic waste 
and corruption), the debt crisis cannot but eventually repeat itself. The 
government in early January 2007 already borrowed $1 billion from the 
international capital market and aims to borrow at least $1.47 billion more in 
official development assistance from the World Bank, Asian Development Bank 
and the Japan Bank for International Cooperation. Some P260 billion are also 
going to be borrowed domestically in 2007. 
In any case, the economy’s financial backwardness and reliance on external 
sources of financing ineans that it remains on a tight leash with government 
economic policy-makers - ”effectively compelled by blackmail not just through 
multilateral lenders but also through financial blackmail by commercial banks 
and through global capital markets,” states IBON. 
Hance, the financial sacrifices the Arroyo government asks Filipinos to 
make through taxation cannot be justified as ”short-term pain for long-term gain” 
since the fiscal squeeze is precisely aimed at furthering the administration’s 
controversial policjes. More than anything else, the Arroyo government’s fiscal 
efforts have been focused on assuring debtors of repayments regardless of their 
impact on the general public. 
Yet, even the sustainability of this approach is in doubt. As has been 
pointed out, the expenditure cuts have been severe and the taxes burdensome. At 
the same time, there remain persistent problems in revenue administration such 
as high tax evasion and persistently over-generous incentives for foreign 
investors. Bureaucratic corruption also continues to bleed government resources. 
The expanded value-added tax under Republic Act 9337 therefore serves 
no other purpose, but to benefit the interest of foreign creditors and not the 
interest of the Filipinos. It is time to repeal this repressive and regressive law that 
has burdened the people for already more than thre 
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FOURTEENTH CONGRESS 
1 
a JuN 30 w . 7 5  
REPUBLIC OF THE PHILIPPINES 
) 
First Regular Session 
1 
L- n 
AN ACT 
REPEALING REPUBLIC ACT 9337, OTHERWISE I<NOWN 
AS THE ACT AMENDING SECTIONS 27,28,34,106, 
107,108,109,110,111,112,113,114,116,117,119, 
121,148,151,236,237 AND 288 OF THE NATIONAL 
INTERNAL REVENUE CODE OF 1997, AS AMENDED, 
AND FOR OTHER PURPOSES 
Be it enacted by the Senate and the House of Representatives of the Philippines in 
Congress assembled: 
Section 1. - Any provision of law to the contrary notwithstanding, Republic Act 
No. 9337 entitled ”THE ACT AMENDING SECTIONS 27, 28, 34, 306, 107, 108, 
109,110,111, 112,113, 114,116,117,119,121,148,151, 236, 237 AND 288 OF THE 
NATIONALINTERNAL REVENUE CODE OF 1997, AS AMENDED, AND FOR 
OTHER PURPOSES” is hereby repealed. 
Section 2. - This Act shall take effect fifteen (15) days after its complete 
publication in a newspaper of general circulation. 
Approved, 
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