SIXTEENTH CONGRESS OF THE REPUBLIC ) 
OF THE PHILIPPINES 
) 
First Regular Session 
) 
SENATE 
S, B. No. 
462 
Introduced by Senator Ralph G. Recto 
Explanatory Note 
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In 2<)04, members of the 13th Congress enacted Republic Act (R.A.) No. 9337 or the law 
that expanded the value-added taxation system in the country. This piece oflegislation increased 
the VAT to 12% and expanded the tax base to include fuel, electricity and the transport 
industries, among others. 
From its deliberation in Congress and up to its eventual enactment and implementation, 
R.A. No. 9337 appears to be one of the most heavily-debated tax measures ever to have been 
brought to the halls of Congress and before the bar of public opinion. 
There was strong opposition to the measure as it was seen to be an additional burden to 
the general public. However, its proponents believed that it was necessary to enact such a law 
owing to the prevailing economic conditions at that time. 
The tax measure is one of the recommended solutions to address a looming fiscal crisis 
brought about by an unprecedented increase in national debt. 
In 2004, the country's debt-to-GDP ratio was at 74.4%, a record high. Debt service, 
including principal and interest payments, was equivalent to 85.1%1 of government revenues, 
while infrastructure and other capital expenditures were only 10.9% of government expenditures 
for the same year. 
The country's total foreign borrowing was over P3 trillion while foreign reserves fell. It 
was also at this time when the country was receiving downgrades in credit ratings from 
international credit rating agencies due to the deterioration in public finances. 
To arrest the downward trend of the national government finances, drastic measures were 
needed to be implemented to increase revenues. One such measure was the enactment of R.A. 
No. 9337, which had generated more funds for infrastructure and social services and allowed the 
government to cut down on borrowings for its projects since 2004. 
. 
However, the prevailing conditions in 2004 no longer exist today and an amendment to 
R.A. No. 9337 should be in order. 
This bill seeks to authorize the President of the Republic of the Philippines to reduce the 
VAT rate from 12% to 10% if the national debt as a percentage ofGDP ofthe previous year does 
not exceed fifty-five percent (55%). The author believes that nearly nine years after the 
enactment of R.A. No. 9337, the VAT rate can be reduced to 10% in order to unburden the 
general public as the existing conditions when the law was passed are no longer present at this 
time. 
I Source: http://www.treasury.gov.ph/statdatalyearly/yrJor_debtservice.pdf(Accessed on March 20, 2013) 


The debt-to-GDP ratio slightly went up from 50.9% in 2011 to 51.4% in 20122, but still, a 
far cry from the 74.4% in 2004. A low debt-to-GDP ratio indicates that an economy is able to 
produce a large number of goods and services and profit high enough to pay back debt. The 
Aquino administratjon said it is committed to cutting the debt-to-GDP ratio to 42.8%3 in 2016. 
Also, forecasts of international financial institutions indicate that the peso will further strengthen 
this year. 4 
. 
The reduction of the VAT rate from 12% to 10% therefore would be a welcome relief for 
the general public now burdened with high prices of commodities brought about by the 
continuing volatility of crude oil prices in the world market. 
In view of the foregoing, the passage of this measure is sincerely sought. 
o 
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2 NG Debt Indicators. Source: http·llwww.treasury.gov.phlstotdatalyearlylyr _debtindicator.pdf(Accessed on March 18,2013) 
3 Philippine Development Plan 2011-2016 Results Matrices. http://www.nedo.gov.ph/PDPlrm/pdprm2011-2016.pdf(Accessedon 
March 19,2013) 
'Bank of America-Merrill Lynch (BofA) said it expects the peso to average 41 to a dollar by the first quarter of 2013. Source: 
http://www.philstar.com/business/2012/11/04/863006/peso-seen-hit-30I-next-year (Accessed on March 21, 
2013); 
and 
Metrobank's economic weather report forecasts that the peso will be supported by the solid take up of capital flows and still 
robust OFW (Overseas Filipino Workers) remittances. Source: http://www.philstar.com!cebu-business/2013/01l15/897160/peso-
further-strengthen-2013 (Accessed on March 21, 2013) 


SIXTEENTH CONGRESS OF THE REPUBLIC ) 
OF THE PHILIPPINES 
) 
First Regular Session 
) 
SENATE 
S. B. No. 
Introduced by Senator Ralph G. Recto 
AN ACT 
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AUTHORIZING THE PRESIDENT OF THE REPUBLIC OF THE PHILIPPINES TO 
LOWER THE RATE OF VALUE ADDED TAX TO TEN PERCENT (10%), AMENDING 
FOR THE PURPOSE SECTIONS 106 (A), 107 (A) AND 108 (A) OF THE NATIONAL 
INTERNAL REVENUE CODE OF 1997, AS AMENDED BY REPUBLIC ACT (R.A.) NO. 
9337 
Be it I enacted by the Senate and House of Representatives of the Philippines in Congress 
assembled: 
1 
SECTION. 1. Section 106 paragraph (A) ofthe National Internal Revenue Code of 1997, 
2 
as amended by R.A. No. 9337, is hereby further amended to read as follows: 
3 
"SEC. 106. Value-Added Tax on Sale of Goods or Properties. 
4 
"(AJ Rate and Base of Tax. - There shall be levied, assessed and collected on 
5 
every sale, barter or exchange of goods or properties, a value-added tax 
6 
equivalent to TWELVE PERCENT (12%) [ten percent (10%)] of the gross 
7 
selling price or gross value in money of the goods or properties sold, bartered 
8 
or exchanged, such tax to be paid by the seller or transferor : Provided, That 
9 
the President, upon the recommendation of the Secretary of Finance, shall 
10 
[,effective January 1,2006, raise] LOWER the rate of value-added tax to TEN 
11 
PERCENT (10%) IF THE [twelve percent (12%), after any of the following 
12 
conditions has been satisfied: 
13 
"(i) Value-added tax collection as a percentage of Gross Domestic 
14 
Product (GDP) of the previous year exceeds two and four-fifth percent 
IS 
(24/5%); or 
16 
"(ii)] National government DEBT [deficit] as a percentage of GROSS 
17 
DOMESTIC PRODUCT (GDP) of the previous year DOES NOT 
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1 
EXCEED FIFTY-FIVE PERCENT (55%). [exceeds one and one-half 
2 
percent (1 Yz%).] 
3 
"(1) xxx 
4 
"(2) xxx." 
5 
SEC. 2. Section 107 paragraph (A) of the National Internal Revenue Code of 1997, as 
6 
amended by R.A. No. 9337, is hereby further amended to read as follows: 
7 
"SEC. 107. Value-Added Tax on Importation of Goods. 
8 
"(A) In General. - There shall be levied, assessed and collected on every 
9 
importation of goods a value-added tax equivalent to TWELVE PERCENT 
10 
(12%) [ten percent (10%)] based on the total value used by the Bureau of 
11 
Customs in determining tariff and customs duties, plus customs duties, excise 
-
12 
taxes, if any, and other charges, such tax to be paid by the importer prior to the 
13 
release of such goods from customs custody: Provided, That where the customs 
14 
duties are determined on the basis of the quantity or volume or the goods, the 
15 
value-added tax shall be based on the landed cost plus excise taxes, if any: 
16 
Provided, further, That the President, upon the recommendation of the 
17 
Secretary of Finance, shall [, effective January 1, 2006, raise] LOWER the rate 
18 
of value-added tax to TEN PERCENT (10%) IF THE [twelve percent (12%), 
19 
after any of the following conditions has been satisfied: 
20 
"(i) Value-added tax collection as a percentage of Gross Domestic 
21 
Product (GDP) of the previous year exceeds two and four-fifth percent 
22 
(24/5%); or 
23 
"(ii)] National government DEBT [deficit] as a percentage of GROSS 
24 
DOMESTIC PRODUCT (GDP) of the previous year DOES NOT 
25 
EXCEED FIFTY-FIVE PERCENT (55%). [exceeds one and one-half 
26 
percent (1 Yz%).) 
27 
"xxx." 
28 
SEC. 3. Section 108 paragraph (A) of the National Internal Revenue Code of 1997, as 
29 
amended by RA. No. 9337, is hereby further amended to read as follows: 
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1 
"SEC. 108. Value-Added Tax on Sale of Services and Use or Lease of 
2 
Properties. -
3 
"(A}Rate and Base of Tax. - There shall be levied, assessed and collected, a 
4 
value-added tax equivalent to TWELVE PERCENT (12%) 
[ten percent 
5 
(10%)] of gross receipts derived from the sale or exchange of services, 
6 
including the use or lease of properties: Provided, That the President, upon the 
7 
recommendation of the Secretary of Finance, shall [, effective January 1, 2006, 
8 
raise] LOWER the rate of value-added tax to TEN PERCENT (10%) IF THE 
9 
[twelve percent (12%), after any of the following conditions has been satisfied: 
10 
"(i) Value-added tax collection as a percentage of Gross Domestic 
11 
Product (GDP) of the previous year exceeds two and four-fifth _percent 
12 
(24/5%); or 
13 
"(ii)] National government DEBT [deficit] as a percentage of GROSS 
14 
DOMESTIC PRODUCT (GDP) of the previous year DOES NOT 
15 
EXCEED FIFTY-FIVE PERCENT (55%). [exceeds one and one-half 
16 
percent (1 Yz%).] 
17 
"xxx." 
18 
SEC. 4. Implementing Rules and Regulations (IRR). - Within sixty (60) days upon 
19 
approval of this Act, the Secretary of Finance, upon recommendation by the Commissioner of 
20 
Internal Revenue, shall issue the IRR for the effective implementation of this Act. 
21 
SEC. 5. Repealing Clause. - All laws, acts, decrees, executive orders, issuances, and 
22 
rules and regulations or parts thereof which are contrary to and inconsistent with this Act are 
23 
hereby repealed, amended or modified accordingly. 
24 
SEC. 6. Effectivity. - This Act shall take effect fifteen (15) days after its complete 
25 
publication in the Official Gazette or in at least two (2) newspapers of general circulation. 
Approved, 
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