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FOURTEENTH CONGRESS OF THE REPUBLIC) 
First Regular Session 
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OF THE PHILIPPINES 
Introduced by Senator GREGORIO B. HONASAN II 
EXPLANATORY NOTE 
During the early part of the 13'h Congress, our legislators passed into law 
priority revenue measures that can help subsidize the meager income of the 
government in solving the country's ballooning public sector deficit. In 2005, the 
country's deficit reached almost P200 billion, not to mention the accumulated 
$600 billion NAPOCOR debt which the national government is obligated to 
shoulder. 
In order to alleviate if not totally eliminate the looming economic crisis out 
of proportion, Congress passed three revenue measures hoping to put the 
country's financial position to a balanced budget within ten years as follows: 
Lateral Attrition Law; and 
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Indexation of Sin Taxes Law 
Reformed Value Added Tax (RVAT) Law 
RA 9337 or more popularly known as the Reformed Value Added Tax 
(RVAT) was perceived to be the highest income generating scheme for the 
government from among the three measures passed into law during the last 
Congress. It is said that RVAT can easily propel an additional estimated amount 
between P55 to 60 billion every year. 
After 2 years of implementation, the Department of Finance has reported 
that the effect of the law placed our country back into a positive outlook. In fact, 
MOODY'S CREDIT RATING AGENCY" and "STANDARDS & POOR has 
upgraded its credit ratings to our country from a point that almost reached a 
critical level. 
The RVAT law actually plays a pivotal role in salvaging the country from 
falling into a deeper crisis. However, its repercussions in increasing the amount 
of commodity prices including prices of basic goods in the market brought 
ordinary citizens particularly the poor and the working class into an outrage. 
This proposed legislation intends to remedy the predicaments of our 
citizens particularly on the inflationary effects of RVAT by introducing 
amendments to RA (3337. A devise technically known to economist as 
"absorption method", will be put in place to derail the impact of the VAT measure 
directly to the end consumers. The scheme will simply divide the burden of the 
levied 12% VAT between the sellers and the buyers in equal proportion to 
prevent end consumers from paying the entire VAT charges on commodities. 


The suggested 50-50 method will not in any way decrease the present 
12% VAT being collected. As compared to the traditional method in applying VAT 
charges, the implications of this proposal will be: 
9 BUSINESS/TRADERS WILL START SHARING BURDEN OF VAT 
PAYMENT WITH BUYERS; 
9 INCREASE OR DECREASE OF BUSINESSTTRADERS’ SHARE IN 
OUTPUT TAX AS PRICE MARK-UP OF GOODS FOR SALE 
INCREASES OR DECREASES; 
k SAME VAT INCOME ON THE PART OF THE GOVERNMENT; and 
9 LOWER PRICE OF GOODS ON THE PART OF THE FINAL 
CONSUMERS 
With this method, the seller cannot increase their price as a strategy to 
recover their supposed 50% share of output VAT considering that any amount of 
increase of goods for sale would correspondingly increase their 50% share of tax 
levied. While a lower price imposition can possibly totally eliminate payment of 
VAT. 
This proposal is actually nothing as compared to the way other countries 
would protect their citizens from VAT impositions. As testified during the hearings 
on RVAT law during the last Congress, in China the VAT slapped on Capital 
Equipment of corporations were not allowed to be passed to the market and yet it 
did not bring the business activity into a slow down. 
Considering the urgency of this bill, 
of this measure is 
earnestly sought. 
GRE OR10 B. HONASAN II 
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FOURTEENTH CONGRESS OF THE REPUBLIC) 
OF THE PHILIPPINES 
1 
-7 
IdW -6 , '  
First Regular Session 
) 
Introduced by Senator GREGORIO B. HONASAN II 
AN ACT 
PROVIDING FOR A DEVISE TO MITIGATE THE IMPACT OF THE 
REFORMED VALUE ADDED TAX (RVAT) TO THE PRICE OF BASIC 
COMMODITIES BY WAY OF ADOPTING A SCHEME TO DIVIDE THE 
PAYMENT OF VAT BETWEEN THE SELLER AND BUYER, AMENDING FOR 
THE PURPOSE CERTAIN PROVISIONS OF REPUBLIC ACT NO. 9337 
OTHERWISE KNOWN AS AN 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 House of Representatives of the Philippines in 
Congress assembled: 
SECTION. 1. - In order for the end-consumers to avoid and eliminate the 
burden of shouldering in its entirety the additional charges brought about by the 
imposition of Value Added Tax on the price of commodities, Sec. 4 of RA 9337 
is hereby amended to read as follows: 
Sec. 4. Section 105 of the same Code, as amended, is hereby further 
amended to read as follows: 
"SEC. 105. Persons Liable. - Any person who, in the course 
of trade or business, sells barters, exchanges, leases goods or 
properties, renders services, and any person who imports goods 
shall be subject to the value-added tax (VAT) imposed in Sections 
106 to 108 of this Code. 
The value-added tax is an indirect tax and the amount of tax may 
be shifted or passed TO NO MORE THAN FIFTY PERCENT (50%) 
AS PART OF OUTPUT TAX on to the buyer, transferee or lessee 
of the goods, properties or services. This rule shall likewise apply to 
existing contracts of sale or lease of goods, properties or services 
at the time of the effectivity of Republic Act No. 7716. 
xxx 
xxx 


SECTION. 2. - Sec. 8 of RA 9337 is hereby amended to read as 
follows: 
"SEC 8. Section 110 of the same Code, as amended, is hereby 
further amended to read as follows: 
"Sec. I 
IO. Tax Credits. - 
"(A) Creditable Input Tax. - 
"(1) Any input tax evidenced by a VAT invoice or official receipt 
issued in accordancu with Section 113 hereof on the following 
transactions shall be creditable against the output tax: 
"(a) Purchase or importation of goods: 
"(i) For sale; or 
"(ii) For conversion into or intended to form part of a finished 
product for sale including packaging materials; or 
"(iii) For use as supplies in the course of business; or 
"(iv) For use as materials supplied in the sale of service; or 
"(v) For use in trade or business for which deduction for 
depreciation or amortization is allowed under this Code. 
"(b) Purchase of services on which a value-added tax has actually 
been paid. 
"(2) The input tax on domestic purchase or importation of goods or 
properties by a VAT-registered person shall be creditable: 
"(a) To the purchaser upon consummation of sale and on 
importation of goods or properties; and 
"(b) To the importer upon payment of the value-added tax prior to 
the release of the goods from the custody of the Bureau of 
Customs. 
"Provided, That the input tax on goods purchased or imported in a 
calendar month for use in trade or business for which deduction for 
depreciation is allowed under this Code, shall be spread evenly 
over the month of acquisition and the fifty-nine (59) succeeding 
months if the aggregate acquisition cost for such goods, excluding 
the VAT component thereof, exceeds One million pesos 
(PI ,000,000): Provided, however, That if the estimated useful life of 
the capital good is less than five (5) years, as used for depreciation 
purposes, then the input VAT shall be spread over such a shorter 
period: Provided, finally, that in the case of purchase of services, 
lease or use of proporlies, the input tax shall be creditable to the 
purchaser, lessee or licensee upon payment of the compensation, 
rental, 
royalty 
or 
fee. 
"(3) A VAT-registered person who is also engaged in transactions 


not subject to the value-added tax shall be allowed tax credit as 
follows: 
"(a) Total input tax which, can be directly attributed to transactions 
subject 
to 
value-add 
tax; 
and 
"(b) A ratable portion of any input tax which cannot be directly 
attributed to either activity. 
"The term 'input tax' means the value-added tax due from or paid 
by a VAT-registered person in the course of his trade or business 
on importation of goods or local purchase of goods or services, 
including lease or use of property, from a VAT-registered person. It 
shall also include the transitional input tax determined in 
accordance 
with 
Section 
11 1 
of 
this 
Code. 
"The term 'output tax' means the value-added tax due on the sale 
or lease of taxable goods or properties or services by any person 
registered or required to register under Section 236 of this Code. 
PROVIDED, HOWEVER, THAT THE FIFTY PERCENT (50%) 
SHARE OF THE VAT-REGISTERED PERSON OR SELLER, 
TRANSFEROR, LESSOR IN ACCORDANCE TO SECTION 1 
HEREOF SHALL BE TREATED AS PART OF THE INPUT TAX 
CREDITABLE AGAINST THE OUTPUT TAX 
"(6) 
Excess Output or Input Tax. - If at the end of any taxable 
quarter the output tax exceeds the input tax, the excess shall be 
paid by the VAT-registered person. If the input tax exceeds the 
output tax, the excess shall be carried over to the succeeding 
quarter or quarters: Provided, That the input tax inclusive of input 
VAT carried over from the previous quarter that may be credited in 
every quarter shall not exceed seventy percent (70%) of the output 
VAT: Provided, however, That any input tax attributable to zero- 
rated sales by a VAT-registered person may at his option be 
refunded or credited against other internal revenue taxes, subject to 
the 
provisions 
of 
Section 
112. 
"(C) Determination of Creditable Input Tax. - The sum of the excess 
input tax carried over from the preceeding month or quarter and the 
input tax creditable to a VAT-registered person during the taxable 
month or quarter shall be reduced by the amount of claim for refund 
or tax credit for value-added tax and other adjustments, such as 
purchase returns or allowances and input tax attributable to exempt 
sale. 
"The claim for tax credit referred to in the foregoing paragraph shall 
include not only those filed with the Bureau of Internal Revenue but 
also those filed with other government agencies, such as the Board 
of Investments and the Bureau of Customs." 
SEC. 3. Repealing Clause. - All laws, Presidential Decrees, Issuances, 
Executive Orders, Letters of Instruction, rules or regulations inconsistent with the 
provision of this Act is hereby repealed or modified accordingly. 


SEC. 4. Effecfivify Clause. - This Act shall take effect fifteen (15) days 
from the date of its publication in at least two (2) newspapers of general 
circulation. 
Approved,