Republic of tne Philippines
HOUSE OF REPRESENTATIVES
Quezon City

NINETEENTH CONGRESS
First Regular Session

House Bill No, 4335

Introduced by Rep. ANGELO MARCOS BARBA
2nd District, Hocos Norte

EXPLANATORY NOTE

‘The Philippines, as an archipelagic country and, by far, the 4'* biggest
shipbuilding nation in the world, possesses great potential in terms of
propelling the country’s global competitiveness in the field of Shipbuilding
and Ship Repair Industry in the international arena. Therefore, there needs to
have a legislation that will ensure the overall promotion of the industry and its
developments, and will likewise support the workers in the industry.

This bill will promote investments and ensure the development of a viable
shipbuilding and ship repair industry in the Philippines. Moreover, the Bill
shall grant incentives such as Exemption from Value-Added Tax, Income Tax
Holiday, Additional Deduction for Labor Expense, Tax Credit on Domestic
Capital Equipment, Employment of Foreign Nationals and Incentives for
Registered (Department of Trade and Industry, Bureau of Investment)
Shipbuilding and Ship Repair Entities located in SBSR ECO Park.

Being its overarching goal, it is important to pass this bill to holistically
promote ail Philippine shipbuilding ship repair industry--attract private
capital to invest in the shipbuilding industry by creating a healthy and
competitive investment and operating environment; provide necessary
assistance and incentives for the continued growth of the Philippine
shipbuilding and ship repair industry; encourage the improvement and
upgrading of the existing Philippine shipping and naval fleet; enhancement of
the Filipino shipyard workers’ skills to meet international standards; and,
eucourage the development of a viable shipbuilding and ship repair indus*ry
te support the expansion and moderaization of the Philippine shipping and
naval fleet and its strict adherence to safety standards which will ensure the
seaworthiness of all sea-borne structures.

In view of the foregoing, the swift approval of this bill is earnestly sought.

ANGE! COS BARBA


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

NINTEENTH CONGRESS
First Regular Session

ne EK)

House Bill No.

Introduced by Rep. ANGELO MARCOS BARBA
24 District, Ilocos Norte

AN ACT PROMOTING THE DEVELOPMENT OF PHILIPPINE
SHIPBUILDING AND SHIP REPAIR INDUSTRY ORDAINING
REFORMS IN GOVERNMENT POLICIES TOWARDS
SHIPBUILDING AND REPAIR IN THE PHILIPPINES, AND FOR
OTHER FURPOSES

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

CHAPTER I
GENERAL PROVISIONS

SECTION 1. Short Title. — This Act shall be known as the “Shipbuilding
Development Act of 2022.”

SECTION 2. Declaration of Policy. - The state recognizes the role of the
shipbuilding and ship repair industry as one of the vital components of the
maritime sector and that it plays a key role in the economic growth of the
country.

As such, it is important that the Philippine maritime industry also
develops and enhances the quality of its capacity and capability for mass water
transportation as well as for its maritime and naval forces. The Philippines
needs continues modernization and expansion of its domestic shipping fleet to
attain more growth and competitive advantage in the domestic sphere.

To attain these objectives, it is hereby declared the policy of the State to:
(a) promote all Philippine shipbuilding ship repair industry; (b) attract private
capital to invest in the shipbuilding industry by creating a healthy and
competitive investment and operating environment; (c) provide necessary
assistance and incentives for the continued growth of the Philippine
shipbuilding and naval fleet; (d) enhancement of the Filipino shipyard
workers’ skills to meet international standards; (e ) encourage the
development of a viable shipbuilding and ship repair industry to support the
expansion and modernization of the Philippine shipping and naval fleet and
its strict adherence to safety standards which will ensure the seaworthiness of
all sea-borne structures.


SECTION 3. Definition of Terms. — As used in and for purposes of this
Act, the following terms, whether in singular or plural, are hereby defined as
follows:

(a) “Act” refers to the Shipbuilding Development Act of 2021;

(b) “MARINA’ refers to the Maritime Industry Authority;

(©) “MARINA-registered shipbuilding and ship repair entities” refer to
shipyards owned;

(d) “Ship” or “Vessel” may be used interchangeably and shall mean any
kind, class, or type of craft or artificial contrivance capable of floating
in water, designed to be used, or capable of being used, as a means of
floating in water transport in the domestic trade for the carriage of
passengers or cargo, or both, utilizing its own motive power or that of
another;

(e) “Shipbuilding” shall mean the design, construction, launching, and
outfitting of all types of ships and watercraft;

(® “Ship repair” shall mean the overhaul, refurbishment, renovation,
improvement, or alternation of the hull, machineries, equipment,
outfits, and components of all types of ships;

(g) “Shipbuilding and Ship Repair Entities” refer to the citizens of the
Philippines, or a commercial partnership owned by majority of
Filipinos, or a corporation incorporated under the laws of the
Philippines, the capital of which is owned or controlled in any
proportion by Filipinos or foreign nationals, or by both such Filipinos
or foreign nationals, or by corporations whether Filipino or
foreign-owned, which is duly authorized by the Administration to
engage in the business of shipbuilding and/or ship repair or to
otherwise operate a shipyard, graving dock, or marine repair yards;

(h) “Shipyard” refers to the shipbuilding or repair facilities which have the
capability to put vessels out of water in a drydock or to put vessels
above the water surface in order to effect ship work on vessels,
appendages, structure, machinery, and equipment;

(i “Spare parts” shall mean the replacement parts or components of a
vessel, including but not limited to, its hull, engines, machineries,
equipment, appurtenances, necessaries, accessories, articles, supplies,
materials, steel plates, aluminum plates, other metal plates,
communications equipment, and other parts or components thereof,
installed aboard the ship necessary for its safe and efficient navigation
and operation;

() “Tax incentives” refers to fiscal incentives such as those which come
from in the form of Income Tax Holidays (ITYH), exemptions,
deductions, credits, or exclusions from the tax base, as provided by law,
to RBEs;


(k) “Technologically Improved hu!l material” refers to a combination of
two or more constituent materials with significantly different physical
and chemical properties that when combined, produce a material that
is stronger, lighter, or resistant to corrosion or electricity such as FRP,
carbon fiber (graphite), Kevlar, quartz, polyester, and other similar
materials.

CHAPTER II
INVESTMENT INCENTIVES

SECTION 4. Incentives to Shipbuilding and Ship Repair Industry. ~ To
promote investments and to ensure the development of a viable shipbuilding,
and ship repair industry in the Philippines, this incentive is hereby granted:

Exemption from Value-Added Tax on the domestic purchase
and/or importation of capital equipment, machinery, spare parts,
life-saving and navigational equipment, raw materials such as steel
plates and other metal plates including marine-grade aluminum plates
or steel or other technologically improved hull material to be used in
the construction, repair, renovation, alteration, modification,
conversion, or maintenance of the hull of any vessel operated or to be
operated in the domestic trade. Unless the domestic purchase and/or
importation of capital equipment, machinery, spare parts, life-saving
and navigational equipment and/or any materials are to be used in the
construction, repair, renovaticn, alteration, modification, conversion,
or maintenance of the hull of any marine vessel operated or to be
operated within the Philippine waters or the high seas, or in the
construction, repair, expansion, renovation, alteration, modification,
or rehabilitation of its shipyard facilities, such exemption from VAT
shall be availed of within five (5) years from the effectivity of this Act.

‘The domestic purchase and/or importation of this article under Sec.
4(a) of this Act shall be granted exemption from VAT subject to the
following conditions:

a. That said articles are not manufactured domestically in sufficient
quantity of comparable quality and at reasonable prices;

b. That said articles are directly imported by MARINA-registered
shipbuilding and ship repai: entities;

c. That said articles are reasonably needed and will be used
exclusively by the MARINA-registered shipbuilding and ship repair
entities in its transport operations;

d. That the approval of MARINA was obtained prior to the domestic
purchase and/or importation of articles under Sec. 4(a) shall be
granted to all MARINA-registered shipbuilding and ship repair
entities unless otherwise stated by law; and


e. That exemption from VAT on any sale, transfer, or disposal of a
ship built domestically to a registered shipowner or operator,
provided that such transaction was granted prior approval from the
MARINA.

SECTION 5. Incentives for Board of Investments-Registered
Shipbuilding and Ship Repair Entities. ~ Pursuant to the requirements set
forth under Executive Order (EO) No. 226, otherwise known as “The Omnibus
Investments Code of 1987,” registered shipbuilders shall be granted the
following incentives to the extent engaged in a preferred area of investment:

(a) Income Tax Holiday.

1. For four (4) years from the operation of shipbuilding and ship repair
entities, the newly registered shipbuilding company shall be fully
exempt from income taxes levied by the National Government. Subject
to such guidelines as may be prescribed by the Board, the income tax
exemption will be extended for another year in each of the following
causes:

i. the project meets the prescribed ratio of capital equipment to
number of workers set by the Board;

ii. utilization of indigenous raw materials at rates set by the Board;

iii. the net foreign exchange savings or earnings amount to at least
USD 500,000.00 annually during the first 4 years of operation. The
preceding paragraph notwithstanding, no registered pioneer
shipbuilding companies may avail of these incentives for a period
exceeding five (5) years.

2. For a period of two (2) years from operation, registered expanding
shipbuilding companies shall be entitled to an exemption from income
taxes levied by the National Government proportionate to their
expansion under such terms and conditions as the Board may
determine: Provided, however, that during the period within which
this incentive is availed of by the expanding company it shall not be
entitled to additional deduction for incremental labor expenses.

3. The provision of Article 7 (14) of EO 226 notwithstanding, registered
shipbuilding companies shall aot be entitled to any extension of this
incentive.

4. For a period of 4 years for new or existing registered shipbuilding
and ship repair entities with at least four thousand (4,000) employees
and produce vessels with a minimum of seven hundred (700) gross
tonnage and seventy percent (70%) of such vessels produced are for
export.

5. For a period of 4 years for new or existing shipbuilding and ship
repair entities with at least one thousand (1,000) employees and


produce vessels with a minimum of two hundred fifty (250) gross
tonnage and for domestic sale.

(b ) Additional Deduction for Labor Expense.

For the first five (5) years from registration, a registered shipbuilding
and ship repair entities shall be allowed an additional deduction from
taxable income of fifty percent (50%) of the wages corresponding to
the increment in the number of direct labor for skilled and unskilled
workers if the project meets the prescribed ratio of capital equipment
to number of workers set by the Board; Provided, That this additional
deduction shall be doubled if the activity is located in less developed
areas as defined in Article 40 of Executive Order No. 226 (EO 226).

(c) Tax Credit on Domestic Capital Equipment.

A tax credit equivalent to one hundred percent (100%) of the value of
the national internal revenue taxes and custom duties that would have
been waived on machinery, equipment, and spare parts, had these
items been imported shall be given to the new and expanding
registered shipbuilder which purchases machinery, equipment and
spare parts from a domestic manufacturer: Provided, that:

(a) the said equipment, machinery, and spare parts are reasonably
needed and will be used exclusively by the registered shipbuilder in the
manufacture of its products, unless prior approval of the Board is
secured for the part-time utilization of said equipment in a
non-registered activity to maximize usage thereof;

(2) the equipment would have qualified for tax and duty-free
importation under paragraph (c) hereof;

(3) the approval of the Board was obtained by the registered
enterprises; and

(4) the purchase is made within five (5) years from the date of
effectivity of the Code. If the registered shipbuilder sells, transfers, or
disposes of these machinery, equipment, and spare parts, the
provisions in the preceding paragraph for such disposition shall apply.

(d) Employment of Foreign Nationals.

Subject to the provisions of Sec. 29 of Commonwealth Act (C.A.) 613,
as amended, a registered shipbuilder may employ foreign nationals in
supervisory, technical or advisory positions for a period not exceeding
five (5) years from its registration, extendible for limited period at the
discretion of the Board: Provided, however, That when the majority of
the capital stock of a registered shipbuilder is owned by foreign
investors, the position of president, treasurer, and general manager or
their equivalents may be retained by foreign nationals beyond the
period set forth herein.


Foreign nationals under employment contract within the purview of
this incentive, their spouse and unmarried children under twenty-one
(21) years of age, who are not excluded by Sec. 29 of C.A. 613, as
amended, shall be permitted to enter and reside in the Philippines
during the period of employment of such foreign nationals.

A registered shipbuilding and ship repair entities shall train Filipinos
‘as understudies of foreign nationals in administrative, supervisory,
and technical skills and shall submit annual reports on such training to
the Board.

SECTION 6. Incentives for Registered (BOI) Shipbuilding and Ship
Repair Entities Located in SBSR ECO Park. ~

(a) Income Tax Holiday for 4-8 years

(b) Special 5% tax rate on gross income after the lapse of ITH

(©) Tax and duty exemption on imported capital equipment

(d) Exemption from 12% input VAT on allowable local purchase of
goods and services (e.g., communication charges)

(©) Unregistered use of consigned equipment
Employment of foreign nationals

CHAPTER III
SBSR FINANCING PROGRAM

SECTION 7. MARINA, in partnership with government financial
institutions, shall provide financial and technical assistance, training and
consultancy services, which will promote, develop, and foster sustainable and
progressive maritime industry.

CHAPTER IV
SBSR COMPLIANCE TECHNICAL COUNCIL

SECTION 8. Standards and Regulations Compliance. — MARINA shall
promulgate a set of standards and regulations which all MARINA-registered
shipbuilding and ship repair entities are required to comply with in order to
avail of the incentives granted under this Act.

MARINA shall have the power to promulgate the set of standards and
regulations for compliance, which shall be revised every three (3) years. Such
standards shall be formulated by MARINA in coordination with ail necessary
government agencies.

SECTION 9. SBSR Compliance Technical Council. — Pursuant to the
immediately preceding section, there shall be created, for purposes of this Act,
an Shipbuilding and Ship Repair (SBSR) Compliance Technical Council,
which shall accredit the shipyard facilities and materials used by registered
shipbuilding and ship repair entities. The coordinating council shall be
comprised of ten (10) members that shall include representatives from the



private and public sector. The following shall be de facto members of the
coordinating council:

= Department of Finance (DOF)
* Bureau of Internal Revenue (BIR)
= Department of Transportation (DOTr)
« Maritime Industry Authority (MARINA)
Philippine Ports Authority (PPA)
« Philippine Coast Guard (PCG)
«Department of Trade and Industry (DTI)
¢ Bureau of Incentives (BOI)
= Department of Labor and Employment (DOLE)
= Department of Science and Technology (DOST)
= Department of Environment and Natural Resources (DENR)
* Environmental Management Bureau (EMB)

SECTION 10. Powers and Functions of the SBSR Compliance Technical
Council. — The standards SBSR Compliance Technical Council shall have the
power and authority to:

1. Actas chair of the SBSR Compliance Technical Council in coordination
with other concerned Agencies;

2. Set guidelines on the establishment of an SBSR ECO Industrial Park;

3. Supervise, inspect, and evaluate all registered shipyard facilities to
ensure and enforce compliance with the safety standards and other
regulations in accordance with applicable conventions and regulations;

4. Implement standards for the evaluation and inspection of shipyard
facilities and vessels;

5. Require all domestic shipbuilders or repairers to comply with the
operational and safety standards for shipyards set by applicable
conventions and regulations, maintain their respective shipyards in
updated and serviceable order in accordance with the standards of the
International Maritime Organization (IMO);

6. Set off safety standards for all existing and new shipyard facilities in
accordance with applicable conventions and regulations;

7. Submit to the MARINA its findings and recommendations on the
compliance of the shipyard to the standards; and

8. Promulgate such rules of procedures for the availment of the
incentives provided for under this Act: Provided, That such rules and
regulations cannot change or in any way amend or be contrary to the
intent and purposes of this Act.

SECTION 11. Shipyard Facility Safety Standards. ~ All new and existing
Philippine shipbuilding or repair yard facilities shall undergo a safety
standard compliance test prior to commencing operations. The committee, in
coordination with MARINA, shall have the power to inspect the shipyard
facilities of registered shipbuilding and ship repair entities. The MARINA
shall adopt the findings of the Committee during the shipyard evaluation and
use the same as basis to recommend further operation, renovation or closure
of a shipyard facility. The committee shall promulgate such safety standards


for the test in accordance with those set by the IMO. Such standards shall be
published in newspapers of general circulation.

SECTION 12. Shipbuilding and Ship Repair Safety Standards. — All
ships built by or commissioned from registered shipbuilding and ship repair
entities shall undergo a safety and seaworthiness test prior to departing from
the shipyard facility. MARINA shall have the power to inspect all such vessels
and all equipment on board to ensure compliance with the safety standards.

MARINA shall promulgate such safety and seaworthiness standards for
the test in accordance with those set by the international organizations related
to shipbuilding. Such standards shall be published in newspapers of general
circulation.

CHAPTER V
RESTRICTIONS ON SHIP IMPORTATION,

SECTION 13. - Three (3) years from the effectivity of this Act, and every
three (3) years therefrom, MARINA shall evaluate the capability of domestic
shipbuilders and the capacity of registered shipyards to construct new vessels,
including larger classed vessels for operation within the Philippine territorial
waters.

After every evaluation, MARINA shall provide an assessment evaluation to
the domestic shipbuilder or domestic shipyard indicating its capability and
capacity level in accordance with the rules and regulations promulgated by
MARINA.

In the first year of evaluation, the MARINA shall determine the capability
of MARINA-registered shipyards to build new vessels below 500 Gross
Tonnage (GT). If upon evaluation, the capability of MARINA-registered
shipyards to build classed vessels below 500 GT in quantities sufficient to
meet domestic demand is proven, then all domestic shipowners/operators
shall be discouraged from importing new or previously owned vessels that are
less than 500 GT for the domestic trade and vessels built in
MARINA-registered shipyards shall be given priority for entry in the
Philippines Registry and allowed to operate in the domestic trade.

CHAPTER VI
SBSR RESEARCH AND DEVELOPMENT

SECTION 14. The development and prototyping of noble type vessels
using alternative source of energy and other emerging technologies related to
maritime activities such as, but not limited to, maritime safety shall be in
coordination with the Philippine Council for Industry, Energy and Emerging,
Technology Research and Development (PCIEERD) of the Department of
Science and Technology (DOST). The vessel (prototype) produced shall be
registered as shipbuilding and ship repair entities for such purposes shall be
registered as classified exclusively for marine research production. Prototype
vessels (for definition) is under the ownership of its Research and
Development (R&D) agency/ies and shall likewise be granted Pioneer Status


in accordance with the provisions of the Omnibus Investments Code in case
produced and commercialized by a local ship builder.

SECTION 15. Incentives on SBSR Research and Development. —

1. R&D initiatives of the DOST are exempted from the regulatory
guidelines to the ship registration and classification provided that the
plans are duly reviewed and approved by the SBSR staff.

2. The prototype vessel produced through DOST-GIA (Department of
Science and Technology-Grants-in-Aid Program) and tagged as marine
research production, may operate for a period of one (1) year as part of
its performance testing related to research, development, and
demonstration.

3. MARINA-SBSR through the cooperation of the DOST-GIA will craft a
policy that will provide a clear adoption policy on the use of locally
developed R&D marine research production, one (1) month after the
completion of the vessel.

4. The technology adaptors (ship operators/manufacturers) that will
adopt locally developed R&D marine research through a duly notarized
technology transfer agreement/technology licensing are entitled to
research tax break for a period of five (5) years.

CHAPTER VIL
SBSR RESEARCH AND DEVELOPMENT

SECTION 16. — MARINA, in partnership with TESDA and CHED, shall
spearhead the development of training programs such as competency
standards, training regulations, competency assessment tools and
competency-based curriculum development in the SBSR.

CHAPTER VIII
NATIONAL DEFENSE AND ARMED FORCES
AND OTHER GOVERNMENT VESSELS

SECTION 17. National Defense and Armed Forces and Other
Government Vessels. — Vessels built exclusively for the sue of any branch of
the Armed Forces and other government vessels of the Philippines shall be
treated as a sale to government and shall be exempt from national internal
revenue taxes: Provided, That the vessels meet the standards and
requirements of the specific branch of the Armed Forces of the Philippines
(AFP): Provided, further, That the registered shipbuilding and ship repair
entities is awarded or granted the Project or commission in accordance with
the rules and regulations for the bidding purposes.

CHAPTER VIII
FEES, FINES, AND PENALTIES

SECTION 18. Fees, Fines, and Penalties. - MARINA, upon notice and
hearing and a determination of the existence of any breach or violation of the
provision of this Act or any rules and regulations issued pursuant thereto,
shall have the power and authority to:


(1) Suspend or revoke any certificates of public convenience, license,
permit, accreditation, or other form of authority issued to any
domestic shipowner/operators who shall violate any provision of this
Act or any rules and regulations issued pursuant thereto or any
condition imposed on such certificate of public convenience, license,
permit, or accreditation;

(2) Impose a fine on domestic shipowner/operator who shall operate
without a valid certificate of public convenience, license, permit,
accreditation, or other form of authority;

(g) Impose a fine on a domestic shipowner/operator in an amount to be
determined by the MARINA for refusing to accept, or to carry
passenger or cargo without just cause, or for engaging in any
prejudicial, discriminatory, or disadvantageous act towards any class
of passengers or shippers;

(4) Impose a fine on any domestic shipowner/operator in an amount to be
determined by the MARINA or suspend, revoke the certificate of public
convenience of such domestic shipowner/operator or both, who shall
fail to meet the standards of such safety or who refuses to comply with
or violates safety regulations imposed by the MARINA or fails to
maintain its vessel in safe and serviceable condition;

(5) Impose a fine on any domestic shipowner/operator in an amount to be
determined by the MARINA or impose such other penalty including
the revocation of any certificate or license who fails to procure or
renew required insurance policies;

(6) Impose a fine on any domestic shipowner/operator in an amount to be
determined by the MARINA or impose such penalty including the
revocation of any certificate of license who fails to meet or maintain
safe manning requirements; and

(7) Impose such other fines and penalties the MARINA may deem
necessary and appropriate in order to enforce the provision of this Act.

CHAPTER X
IMPLEMENTING RULES AND REGULATIONS

SECTION 19. Implementing Rules and Regulations. - MARINA shall
promulgate the necessary rules and regulations and issuances for the
implementation of this Act within one (1) year from its effectivity.

MARINA shall likewise coordinate with the necessary administrative
agencies for the full implementation of this Act.

Provided, That such rules and regulations and issuances cannot amend or
contradict the intent of any of the provisions and purposes of this Act.


MARINA shall convene every year and assess the need for any
amendments to the implementing rules and regulations.

CHAPTER XI
FINAL PROVISIONS

SECTION 20. Separability Clause. — If, for any reason, any section,
subsection, sentence, clause, or term of this Act is held to be illegal, invalid, or
unconstitutional, such parts not affected by such declaration shall remain in
full force and effect.

SECTION 21. Repealing Clause. - The provisions of C.A. 146, insofar as
the same applies to the operation, management control and regulation of
vessels, lines, ferries, watercraft, and the like, as well as the provisions of
Presidential Decree (PD) 474, EO 125/125A, R.A. No. 9295 and such other
laws, PDs, Eos, issuances, rules, and regulations or parts thereof, which are
inconsistent with the provisions of this Act, are hereby repealed, amended, or
modified accordingly.

SECTION 22. Effectivity. - This Act shall take effect after fifteen (15)

days following its publication in at least two (2) newspapers of general
circulation.

Approved,