SIXTEENTH CONGRESS OF THE REPUBLIC ) 
OF THE PHILIPPINES 
) 
First Regular Session 
) 
SENATE 
",aGO 
S.No. __ _ 
Introduced by Senator Ralph G. Recto 
Explanatory Note 
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This measure provides for the inclusion of services of tollway operators to the 
transactions that are exempt from the Value-Added Tax (VAT). Lawmakers, renowned tax 
experts and economists consistently maintained that the legislative intent is to exempt tollway 
fee from VAT in the passage of the Expanded Value-Added Tax Law in 1994. 
However, the BIR in 2010 ruled that tollway operators are liable for VAT,! since the 
services of tollway operators are not listed among exempt transactions. Likewise, the Supreme 
Court said: "Tax exemptions must be justified by clear statutory grant and based on language in 
the law too plain to be mistaken.,,2 
. 
For 18 years, the Bureau of Internal Revenue (BIR) never collected VAT from the 
tollway operation industry on the assumption that it is VAT-exempt. 
Further, no revenue 
projections referred to V AT on tollway fee collection in the budget deliberations of the previous 
administrations. Nor, was it identified as a source of funding in any budget presentation by the 
Department of Finance. Only lately had the BIR announced that VAT collection on tollway 
operations is expected to generate from around Phpl.3 Billion3 to Php~.3 Billion.4 
To collect VAT on tollway operations is a breach of the campaign promise that the 
Aquino administration shall not impose new taxes amitl incessant fuel price hikes. This bill 
reiterates that campaign promise that rightfully took into consideration the need to secure the 
welfare of consumers, among who are users oftollways. 
The imposition of VAT will trigger increases in prices of basic goods and services ferried 
through the tollways. The Department of Trade and Industry stressed that a 10 percent rise in 
transport cost results to a one percent increase in food prices,. in the Philippines.5 Similarly, the 
cost of operations of the various manufacturing, Business.Process Outsourcing, passenger and 
cargo transport hub operators and others will incur huge transport expenditures and experience 
disruptions in their business expectations considering that the tollways link up freeports, special 
economic zbnes, regional food production areas and financial centers with the population centers 
, 
in rural, urban and highly-urbanized areas. Among these are the Subic Clark Tarlac Expressway, 
North Luzon Expressway, Star Tollway, and South Luzon Expressway, among others. 
Furthermore, VAT on services of tollway operators had never formed part of the 
contracts or agreements between the Government and investors under the various Public-Private-
Partnership--Build"Operate-Transfer programs, the core of the government's economic resiliency 
plan. 
I Memorandum Circular No. 63-2010 dated July 10,2010 
2 G. R. No. 193007 (Renata B, Diaz and Aurora Ma. F, Timbol vs. The Secretary of Finance and the Commissioner of Internal 
Revenue). July 19. 2011 
3 ~jr.gov.ph/webadmjn1/pdf/primer on tollway. pdf (Accessed on March 21, 2013) 
<I http://www.5unstar.com.ph/manlla/local-news/2011/10/01/palace~warJ1s-profiteers~vat-toliways-starts-182592 (Accesser;i on March 
21, 2013) 
5 http://www.bloomberg.com/news/print/2011-01-27/phillpp!ne-food-prjces-may-rise-1-on-transport-costs-correct-.htm!(Accessed on 
March 21. 2013) 


Tollway operation is an inherent component of PPP in order to build the necessary road 
infrastructures that government cannot fund by itself. Privately-built toll facilities through the 
various modes of PPP consequently become publicly-owned at the conclusion / termination / 
expiration of the contract or agreement. As such, they should not be subject to V AT considering 
that tollway operators are merely stepping into the shoes of government in constructing these 
roads for public convenience for a reasonable rate of return on their investments. 
Through the amendments to Sections 108 and 109 of the National Internal Revenue Code 
of 1997, the bill underscores the legislative policy of exempting tollway operators from VAT and 
complies with the SC exhortation that the exemption must be expressly provided for by law. 
Hence, the passage of this bill is eamestly sought. 
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S!?ll;~h~ 
{~th-;!' t){ Hi" ;S,tC\rbflJ 
SIXTEENTH CONGRESS OF THE REPUBLIC ) 
OF THE PHILIPPINES 
) 
First Regular Session 
) 
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SENATE 
> 
'. f." I) 
S.No. 
':10', 
Introduced by Senator Ralph G. Recto 
AN ACT 
EXEMPTING TOLLWAY OPERATIONS FROM THE TWELVE PERCENT (12%) 
VALUE ADDED TAX, AMENDING FOR THE PURPOSE SECTIONS 108 AND 109 OF 
THE NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED BY 
REPUBLIC ACT NO. 9337, AND FOR OTHER PURPOSES 
Be it enacted by the Senate and House 0/ Representatives o/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 o/Services and Use or Lease o/Properties.-
"(AJ Rate and Base 0/ Tax. - There shall be levied, assessed and collected, a 
value-added tax equivalent to ten percent (10%) of gross receipts derived from the 
sale or exchange of services, including the use or lease of properties: Provided, 
That the President, upon the recommendation of the Secretary of Finance, shall, 
effective January 1, 2006, raise the rate of value-added tax to twelve percent 
(12%), after any ofthe following conditions has been satisfied: 
"(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) 
of the previous year exceeds two and four-fifth percent (2 4/5%); or 
"(ii) National government deficit as a percentage of GDP of the previous year 
exceeds one and one-half percent (1 \1,%). 
"The phrase 'sale or exchange of services' means the performance of all 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 
Jroperty, whether personal or real; warehousing services; lessors or distributors of 
dinematographic films; persons engaged in milling, processi~g, 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 their 
transport of goods or cargoes, including persons who transport goods or cargoes 
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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, transmission, and 
distribution companies; services of franchise grantees of electric utilities, 
telephone and telegraph, radio and television broadcasting and aU other franchise 
grantees except SERVICES OF TOLLWAY OPERATORS WITH TOLLWAY 
OPERATION CERTIFICATE ISSUED BY THE TOLL REGULATORY 
BOARD AND 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' shal1 likewise include: 
"xxx. " 
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) xxx; 
"kxx· 
. 
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ctJ) Services of banks, non-bank financial intennediaries pe~forming quasi-banking 
functions, other non-bank financial intermediaries; [and] 
"(V) SERVICES OF TOLLWAY OPERATORS WITH TOLLWAY OPERATION 
CERTIFICATE ISSUED BY THE TOLL REGULATORY BOARD; AND 
"(W) rV] 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 andlor 
receipts do not exceed the amount of One million five hundred thousand pesos (PI,500,000): 
Provided, That not later than January 31, 2009 and every three (3) years thereafter, the 
amount herein stated shall be adjusted to its present value using the Consumer Price Index, as 
published by the National Statistics Office (NSO). 
"(2) xxx." 
SEC. 3. Implementing Rules and Regulations (IRR). - Within sixty (60) days upon 
approval of this Act, the Secretary of Finance shall issue the IRR for the effective 
implementation of this Act. 
SEC. 4. Separability Clause. - Any portion or provision of this Act that may be declared 
unconstitutional or invalid shall not have the effect of nullifying other portions or provisions 
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hereof, as long as such remaining portions or provisions can still subsist and be given effect in 
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their entirety. 
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SEC. 5. Repealing Clause. - All laws, acts, decrees, executive orders, issuances, and 
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rules and regulations or parts thereof which are contrary to and inconsistent with this Act are 
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hereby repealed, amended or modified accordingly. 
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SEC. 6. Effectivity. - This Act shall take effect fifteen (15) days after its complete 
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publication in the Official Gazette or in at least two (2) newspapers of general circulation. 
Approved, 
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