Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila

FIFTEENTH CONGRESS

Second Regular Session

HOUSE BILL No,__ 5°93

Introduced by Representative Pedro P. Romualdo

EXPLANATORY NOTE

The Philippine motor vehicle industry plays a major role in the
development of our national economy.

For more than three (3) decades, the State has pursued the
development of the Philippine motor vehicle industry through the
implementation of varying protectionist schemes of fiscal incentives and
trade barriers. These fiscal incentives and trade barriers were instituted for
the purpose of enticing major automotive industry players to establish their
manufacturing and/or assembly facilities in the Philippines, to generate
employment, to promote skills training and technology transfer to Filipino
workers, as well as to lower the cost of acquiring motor vehicles for the
average Filipino consumer.

These fiscal incentives were, however, made available only to a small
number of automotive companies which established assembly facilities in
the country, At present, these fiscal incentives benefit only the motor
vehicle assemblers registered under the Motor Vehicle Development
Program (MVDP) of the Government.

Notwithstanding the institution of fiscal incentives and trade barriers
intended to favor the local motor vehicle industry, industry growth has been


weak compared to those in other major ASEAN economies. Consumer
demand for motor vehicles in the Philippines remains low, with motor
vehicle prices continuing to be beyond the reach of the average Filipino
consumer. Neither have these fiscal incentives spurred local motor vehicle
manufacturing.

With the entry into effect of the Common Effective Preferential Tariff
(CEPT) scheme under the ASEAN Free Trade Agreement, imports from
other ASEAN countries, including Completely Built-Up motor vehicles
(CBUs), enjoy a zero-tariff rating, while CBU imports from other countries
are subject to tariff rates between 20% to 30%. Taking advantage of the
zero-tariff rating under the CEPT, local motor vehicle assemblers which are
registered under the MDVP have been importing more CBUs from other
ASEAN countries. As of 2010, CBU imports constituted fifty-six percent
(56%) of local sales of motor vehicles. Despite the zero-tariff rating under
the CEPT, local prices of motor vehicles remain beyond the reach of most
Filipino consumers. This has resulted in price distortions, in that a CBU
imported from an ASEAN country will have a lower landed cost than a
similarly-priced CBU imported from a non-ASEAN country.

The selective grant of fiscal incentives only to motor vehicle
assemblers which are registered under the MVDP has, therefore, become
antithetical to fair trade and competition within the Philippine motor vehicle
industry. CBU imports from other ASEAN countries enjoy a zero-tariff
rating, while those imported from non-ASEAN countries are charged
varying tariff levels. Prices of motor vehicles in the Philippines have, thus,
become distorted.

More importantly, many of the major multinational motor vehicle
assemblers registered under the MVDP have been importing more models
from other ASEAN counties, rather than assembling them in the Philippines.
Yet, these enterprises continue to benefit from fiscal incentives granted by
the Philippines. The selective grant of fiscal incentives to these enterprises
has not achieved its goal. On the contrary, the fiscal incentives granted to
them by the Government only served to give MVDP-registered enterprises a
distinct, unfair and unwarranted advantage over CBU importers which are
not registered under the MVDP.


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This proposed Bill aims to level the playing field between and among
multinational automotive companies, which have established assembly
facilities in the Philippines, but which are now importers of a greater number
of CBU units, and also, for CBU importers. The proposed bill provides for
the formulation and adoption of a fiscal incentives package to be granted
uniformly to motor vehicle manufacturers, assemblers and importers which
operate in the Philippines. It also provides for the formulation and adoption
of an additional fiscal incentives package for automotive enterprises which
make significant direct investments in the Philippines and export their
products to other countries.

With the enactment into law of this proposed Bill, it is envisioned that
prices of motor vehicles in the Philippine market will be significantly
reduced, thus, making motor vehicles available to more Filipino consumers.

Approval of this House Bill is earnestly and urgently recommended.



Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila
FIFTEENTH CONGRESS

Second Regular Session

HOUSE BILL No. _5693 ~

Introduced by Representative Pedro P. Romualdo

AN ACT
TO PROMOTE COMPETITIVENESS AND FAIR COMPETITION
IN THE PHILIPPINE MOTOR VEHICLE INDUSTRY THROUGH
THE RATIONALIZATION OF THE GRANTING OF FISCAL
INCENTIVES

Be it enacted by the Senate and House of Representatives of the Philippines in

Congress assembled:

Section 1. Declaration of Policy. - Recognizing that the Philippine motor
vehicle industry contributes significantly to the economic growth of the nation, the
following are hereby declared to be the policies of the State:

(a) The State shall develop a comprehensive policy that will accelerate
the development of the Philippine motor vehicle industry;

(b) The State shall ensure free and fair trade in the Philippine motor
vehicle industry by fully developing its competitive capacities and promoting
greater participation in a globalized economy through increased export;

(c) The State shall encourage technology transfer and advances and
promote automotive skills development as means to drive the competitiveness of
the Philippine motor vehicle industry; and


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4 (d) The State shall provide equal treatment in terms of taxes imposed,

privileges and benefits granted, as well as in the rules and regulations issued to

govern motor vehicle importers, manufacturers, assemblers, dealers, and the like.

6 Section 2. Definition of Terms. - As used in this Act, the following terms
7 shall have the following meanings:

i} (a) “Motor vehicle” refers to any vehicle propelled by any power other
40 than muscular power using the public thoroughfares and highways. The following

11 __ shall not be considered as motor vehicles:

13 (i) Road rollers, trolley cars, street sweepers, sprinklers, lawn
4 mowers, bulldozers, graders, fork lifters, amphibian trucks and
15 cranes, if not used on a public thoroughfare or highway

17 (ii) Vehicles that run only on tracks or rails, and

19 (iii) Traction engines of all kinds used exclusively for agricultural

20 purposes.

21

22 (b) “Motor vehicle industry” shall refer to the manufacture, assembly and/

23 or importation of brand-new motor vehicles in the Philippines.

25 (c) “Motor vehicle industry participant” or “participant” shall mean an

26 individual, partnership, corporation or other person or entity engaged in the

manufacture, assembly and importation of brand-new motor vehicles in the
28 Philippines, duly registered with the Board of Investments in accordance with

22 Section 5 of this Act.

3 (4) A “brand-new motor vehicle” shall refer to a motor vehicle which is
32 of (i) current or advance year model in the country of its origin or manufacture, or

33 (ji) of a year model immediately preceding the year in the country of its origin or


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manufacture, provided that, the motor vehicle has a mileage of not more than two
hundred (200) kilometers and the motor vehicle was acquired by the importer from
the manufacturer or dealer as the first owner.

(e) “Fiscal incentives” shall mean benefits and privileges, both financial
and non-financial, granted by the State to industries, or parts of industries, for the
purpose, among others, of increasing investments, promoting development,
increasing local employment and advancing technology transfer to the Philippines.
‘The term shall include, but shall not be limited to:

(i) __ Income and/or excise tax holidays;

(ii) Reduction in income tax or excise tax rates;

(iii) Reduction in import duty rates or exemption from import duties
and taxes;

(iv) Net operating loss carry-overs;

(v) Special or additional deductions on expenses incurred for
research and development;

(vi) Tax and/or duty free importation of capital equipment and
training equipment;

(vii) Exemption from the payment of regulatory fees; and
(viii) Acceleration in the depreciation period of fixed assets.

Section 3. Rationalization of the Grant of Fiscal Incentives - Within one
:
(1) year from the effectivity of this Act, the Board of Investments (BOI) shall


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formulate and, with the approval of the President, adopt and implement a “Fiscal
Incentives Package” for the motor vehicle industry. This fiscal incentives package,

to be known as:

(1.) “Fiscal Incentives Package A for the Motor Vehicle Industry,” shall

apply and be available to all motor vehicle industry participants.

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forth additional fiscal incentives for motor vehicle industry participants which can

iscal Incentives Package B for the Motor Vehicle Industry,” setting

meet these specific requirements:

(a) Have made a direct investment into the Philippines
totaling at least Two billion pesos (Php2,000,000,000.00) for research
and development, expansion or improvement of plants and other
manufacturing or assembly facilities, and/or labor skills training and
technology transfer; and

(b) Exported at least forty percent (40%) of the their
respective annual production outputs, with a value of at least One
billion pesos (Php1,000,000.00) per annum per participant, to other

countries.

Both fiscal incentives set forth in this Section can be availed of by qualified
motor vehicle industry players. Provided, however, that motor vehicle industry
players shall continue to enjoy and benefit from the fiscal incentives from existing
issuances prior to the formulation, approval, adoption and implementation of the

fiscal incentives packages in this Act.

Provided, Further, that any amendment or revision of the fiscal incentives
packages under this Act shall not be enforceable and implemented without the

approval of the President.


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Provided, Furthermore, that the Department of Trade and Industry (DTI)
and Board of Investment (BOI) shail jointly recommend to increase, but shall not
reduce, the criteria for a participant's entitlement to, and availment of, the fiscal
incentives granted under “Fiscal Incentives Package B for the Motor Vehicle
Industry every five (5) years thereafter from the effectivity of this Act and after
proper determination of the level of participation and compliance of motor vehicle
industry players based on the yearly official report of the Board of Investments
(BO!) and the Department of Trade and Industry (DTI) to the Office of the
President (OP).

Section 4. Equalization of the Grant of Fiscal Incentives. - The
fiscal incentives granted under “Fiscal Incentives Package A for the Motor Vehicle
Industry,” shall apply and be available to all motor vehicle industry participants
equally and without discrimination, The fiscal incentives granted under “Fiscal
Incentives Package B for the Motor Vehicle Industry,” shall also apply and be
available to all motor vehicle industry participants which meet the criteria therefor
set forth in Section 3 of this Act uniformly, equally and without discrimination.

Pending the adoption and implementation of the fiscal incentive packages
referred to in Section 3 of this Act, the fiscal incentives available to motor vehicle
manufacturers and assemblers under the Motor Vehicle Development Program
established under Executive Order No. 156, Series of 2002 and Executive Order
No. 877-A, Series of 2010 shall be apply and be made available to all motor
vehicle industry participants.

Section 5. Registration of Motor Vehicle Industry Participants. - As a
prerequisite for their availment of the fiscal incentives referred to in Sections 3 and
4 of this Act, motor vehicle industry participants must first register with the Board
of Investments (BOI). The Board of Investments is hereby authorized to determine
the documentary requirements and to prescribe and collect the fees necessary for
such registration. The Board of Investments shall prepare and maintain a roster of


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motor vehicle industry participants which have been registered pursuant to the
provisions of this Act and shall post the updated list in their website. The Board of
Investments shall, upon prior notice to the participant concerned, remove such
participant from the roster and revoke its registration if the participant ceases to be
engaged in the manufacture, assembly or importation of motor vehicles in the
Philippines.

Section 6. Implementing Rules and Regulations. - Within three (3)
months from effectivity of this Act, the Department of Trade and Industry shall,
promulgate such rules and regulations as may be necessary for the implementation
of this Act.

Section 7. Repealing clause. — Any law, presidential decree or issuance,
executive order, administrative rule or regulation contrary to or inconsistent with
the provisions of this Act is hereby repealed, modified or amended accordingly.

Section 8. Separability Clause. — If any of the provision of this Act is
held unconstitutional or invalid, the remainder of the Act or the provision not

otherwise affected shall remain valid and subsisting.

Section 9. Effectivity Clause. — This Act shall take effect fifteen (15) days
after its publication in two (2) newspapers of general circulation.