,
<
FIFTEENTH CONGRESS
)
REPUBLIC OF THE PHILIPPINES
)
FIRST REGULAR SESSION
)
HOUSE OF REPRESENTATIVES
Introduced
by Representative
Rufus B. Rodriguez and
Representative
Maximo B. Rodriguez, Jr.
House Bill No._4_4_99
EXPLANATORY NOTE
The
motor
vehicle
manufacturing
industry
has
extensive
downstream
linkages,
mainly with
basic and critical
heavy industries
(e.g. iron and steel,
chemicals, rubber); and upstream linkages with tertiary industries such as transport
services and distribution of goods. Thus, a progressive motor vehicle manufacturing
industry is considered a key driver of industrialization and economic development.
In developed
countries like the United States, Japan and Germany,
the
vehicle
manufacturing
industry
forms
the
core
of
its industrial
strength.
The
importance of the industry was even more highlighted during the 2008 Global
Financial Crisis, when these developed
economies
quickly took to action
and
implemented
measures
in support
of the vehicle
manufacturing
industry.
The
emerging economies
Brazil, Russia, India and China also put high priority on
developing a domestic vehicle manufacturing industry.
In ASEAN,
member-states
with
manufacturing
capabilities
such
as
the
Philippines,
Thailand,
Malaysia
and
Indonesia
continuously
develops
and
implements
strategic
development
programs!
policies
for
motor
vehicle
manufacturing as a key strategy for industrialization.
The Philippines first implemented its motor vehicle development program in
1973. Among
others,
the
program
was
aimed
at developing
a local vehicle
manufacturing industry that would effectively encourage the development of vehicle
parts manufacturing and auto-supporting industries. The government envisioned the
industry as a major source of manufacturing
value-added,
and therefore
has
potentially high economic contributions.


Since
the
implementation
of
the
Motor
Vehicle
Development
Program
(MVDP), substantial investments estimated at Php100 billion were put in place in
manufacturing operations, about 75,000 jobs were generated and the annual export
revenues from locally-produced
parts reached over US$3 Billion in 2010. At the
same time, technology transfer has Significantly contributed to the improvement of
production process and product quality; and automotive skills development programs
have raised the levels of Filipino workmanship and capabilities. It is clear that the
motor vehicle manufacturing
industry plays an important role in socio-economic
development.
However, the Philippines was not able to develop the competitive capacities
of its motor vehicle manufacturing industry. The small domestic market base did not
support
economic
scale
in
manufacturing
operations.l'
Moreover,
policy
inconsistencies and the weak regulatory framework have eroded the market base for
new vehicles and consequently, the parts manufacturing industry.
As a result, investments have been limited and the parts manufacturing and
auto-supporting industries were not fully-oevetoped." Majority of parts manufacturers
are classified as small and medium enterprises (SME), with limited market access
opportunities. In fact, about 90% of the total export revenues from vehicle parts and
components are generated by Multi-National Companies (MNCs), which account for
less than 10% of local parts manufacturers.
In contrast,
other ASEAN
automotive
industries
benefited from
a large
domestic market base and generally consistent automotive policies, and therefore, a
more attractive investment destination for vehicle manufacturing. In comparison to
our ASEAN neighbors, the Philippines lagged in terms of cost-competitiveness.
Structural
inefficiencies
and
the
increasing
pressure
from
trade
liberalization
continue
to
put tremendous
pressure
on the
domestic
vehicle
manufacturing
industry. In 2010, it was estimated that the cost of locally manufactured vehicle is
higher by 15% in comparison to vehicles produced in other ASEAN production
bases.
The vehicle manufacturing industry offers exceptional growth opportunities. A
study conducted by the University of Asia and the Pacific showed that the motor
!L2009 Domestic Market Volume: Thailand - 548K; Indonesia - 486K; Philippines - 132K
1.1 Comparative number of parts suppliers: Thailand - 1,800; Indonesia - 564; Philippines - 256


vehicle manufacturing is a key industry in the Philippine economy, with one of the
highest output, household income and employment multiplier effects. The study
estimated
that
an
additional
Php100
billion
investments
in
motor
vehicle
manufacturing
would result to Php357 Billion additional
output,
Php27.2 Billion
household income and 169,000 jobs. Such is the potential contribution of vehicle
manufacturing
because
it
creates
production
complementarities
among
many
industries in the economy."
A study conducted by Deloitte Touche Tohmatsu also reached the same
conclusions, i.e. the development of a world-class vehicle manufacturing industry will
substantially increase real gross domestic product, real aggregate investments, real
exports and real wages leading to increase in employment."
However, these potential economic benefits may only be reaped by improving
the competitiveness of the domestic vehicle manufacturing industry. The continued
viability of the industry will primarily depend on the effectiveness and sustainability of
the policy and business environment, an important government role highlighted in a
study conducted by the Philippine Institute for Development Studies.Q/
Considering the foregoing, the immediate passage of this proposed measure
is earnestly sought.
f1/!;f-
MAXIMO
B. RO~~GUEZ,
JR
11 Terosa C., 2010. "Economic
Impact of the Philippine
Automotive
Manufacturing
Industry: Production
Linkages
&
Multiplier Effects". University of Asia and the Pacific, Philippines.
11 Stanford 1.,2009. "Five Minutes to Midnight: The Future of Philippine Automotive Industry". Deloitte Touche Tohmatsu,
Australia.
II Aldaba
R., 2008. "Globalization
and the Need
for Strategic
Government-Industry
Cooperation
in the Philippine
Automotive Industry". Philippine Institute for Development Studies, Philippines.


FIFTEENTH CONGRESS
)
REPUBLIC OF THE PHILIPPINES
)
FIRST REGULAR SESSION
)
HOUSE OF REPRESENTATIVES
Introduced by Representative Rufus B. Rodriguez and
Representative Maximo B. Rodriguez, Jr.
House Bill No.._4_4_99
AN ACT
TO
STRENGTHEN
THE
COMPETITIVENESS
OF
THE
PHILIPPINE
MOTOR
VEHICLE MANUFACTURING INDUSTRY
Be it enacted by the Senate and House of Representatives
of the Philippines in
Congress assembled:
ARTICLE I
TITLE AND DECLARATION OF POLICIES
SECTION
1. Title. - This act shall be known as "The Philippine Motor Vehicle
Manufacturing Industry Act".
SECTION 2. Declaration of Policy. - The national economy shall be developed by
promoting industrialization through competitive industries and by encouraging private
enterprise. Recognizing that the Philippine Motor Vehicle Manufacturing Industry
forms the core of the country's industrial strength, and its vital role in economic
development and nation-building, the following are the declared policies of the State:
(a) The State shall develop a comprehensive policy that will accelerate the
sound development of the Philippine Motor Vehicle Manufacturing Industry thereby
contributing to industrial capital formation and employment generation;
(b) The State shall ensure a balanced transition to open trade at minimal risk
to the Philippine
Motor Vehicle
Manufacturing
Industry
by fully developing
its
competitive capacities and promoting greater participation in a globalized economy
through increased export;
(c) The
State
shall
promote the maximum
scale
integration
of vehicle
manufacturing and the manufacture of its parts and components;
(d) The State shall encourage technology transfer and advances and promote
automotive
skills
development
as means to drive
the
competitiveness
of
the
Philippine Motor Vehicle Manufacturing Industry;


(e) The State shall integrate motor vehicle manufacturing
into the overall
transport
policies
to
optimize
the
growth
of
the
Philippine
Motor
Vehicle
Manufacturing Industry and ensure sustainable transportation development.
SECTION 3. Definition of Terms. - For purposes of this Act, the following terms are
defined as follows:
(a) "Board
of Investments
(BOI)" refers to an attached
agency of the
Department of Trade and Industry created under Republic Act No. 5186.
(b) "Department of Trade and Industry (DTI)" refers to the government agency
created pursuant to Executive Order No. 133.
(c) "Investments Priorities Plan (IPP)" refers to the overall plan prepared by
the BOI in accordance with the provisions of Executive Order No. 226 otherwise
known as the Omnibus Investment Code of 1987, as amended.
(d) "Motor Vehicle Manufacturing Industry" encompasses enterprises that are
engaged in the manufacture of motor vehicles and its parts and accessories.
(e) "Manufacture of Motor Vehicles" refers to the activities classified under
Section D, Division 34, Group 341 of the United Nations (UN) International Standard
Industrial Classification of All Economic Activities (ISIC) Revision (Rev.) 3, which
includes the manufacture of passenger cars, commercial vehicles, buses, trolley-
buses and coaches, motor vehicle engines, chassis fitted with engines and other
motor vehicles.
This also refers to the activities classified under Section D, Division 35, Group
359, Class 3591 of UN ISIC Rev. 3, which includes the manufacture of motorcycles
(including mopeds) and cycles fitted with an auxiliary engine, whether or not with
attached side-car, and "delivery" or "sporting" motorcycles
(f) "Manufacture of Parts and Accessories of Motor Vehicles" refers to the
activities classified under Section D, Division 34, Group 343 of the UN ISIC Rev. 3,
which includes the manufacture of parts and accessories for motor vehicles including
their bodies and engines: brakes, gear boxes, axles, road wheels, suspension shock
absorbers, radiators, silencers, exhaust pipes, clutches, steering wheels, steering
columns
and steering
boxes and other
parts and accessories
not elsewhere
classified.
This also refers to the manufacture of bodies (coachwork) for motor vehicles,
engines for motorcycles, side-cars, and parts and accessories of motorcycles.
(g) "Medium-Term
Philippine Development
Plan (MTPDP)"
refers to the
master plan for economic development implemented
by the National Economic
Development Authority (NEDA), which identifies growth sectors for the next six (6)
years and defines the programs, policies, strategies and action plans to attain
economic development goals.
(h) "Philippine Export Development Plan (PEDP)" refers to the rolling three-
year export development plan prepared by the DTI, which defines the country's


annual and medium-term export thrusts, strategies, programs and projects jointly
implemented by the government, export and concerned sectors.
ARTICLE
11
ORGANIZATION,
INSTITUTIONAL
SUPPORT
AND STRATEGIES
SECTION 4. Lead Agency. - The DTI through the BOI shall be the lead agency
mandated to implement the provisions and attain objectives of this Act.
SECTION 5. National Motor Vehicle Manufacturing Development Plan. - The
President of the Republic of the Philippines shall approve a rolling three-year
National Motor Vehicle Manufacturing Development Plan, hereinafter referred to as
the "Plan", prepared by the BOI and formulated in consultation with concerned
stakeholders, and which shall be validated and updated annually.
The Plan, which shall be integrated into the PEDP and the MTPDP, shall
define the Industry's annual and medium-term manufacturing and export targets, and
programs and strategies to support manufacturing and export thrusts. The Plan shall
also identify priority development products, which shall be characterized by high
manufacturing value-added and with high potential for economic efficiency, as the
primary focus of incentives.
.
SECTION 6.
Motor Vehicle Manufacturing
Development
Council. -
For the
purpose of coordinating the formulation and implementation
of policy reforms to
support the Plan, the Motor Vehicle Manufacturing Development Council, hereinafter
referred to as the "Council", shall be created to act as the central policy coordinating
body and national advisory committee.
SECTION 7. Composition of the Council. - The Council shall be composed of the
following:
(a) Undersecretary for Industry and Investments of the Department of Trade
and Industry as Chairman;
(b) Deputy Director General of the National Economic Development Authority;
(c) Undersecretary of the Department of Finance;
(d) Undersecretary of the Department of Environment and Natural Resources;
(e) Undersecretary of the Department of Energy;
(f) Undersecretary of the Department of Transportation and Communication;
(g) Undersecretary of the Department of Labor and Employment;
(h) Four (4) representatives from the private sector, one of whom shall be
appointed as Vice Chairman
Other heads of executive agencies, private organizations or individuals can be
called upon by the Council to attend any Council meeting and to assist the Council to
resolve issues and problems that concern their respective offices.
Likewise,
such
heads
of
executive
agencies,
private
organizations
or
individuals shall respond to the queries of the Council within two (2) weeks from the
time such queries are received.


"
.
SECTION 8. Duties of the Council. - The Council shall function solely as a central
policy coordinating
body and national
advisory committee,
and shall have the
following duties:
(a) The Council shall advise the OTI Secretary on the implementation of the
Plan and provide a means of ensuring regular contact between the Government
and the motor vehicle manufacturing industry.
(b) The Council shall provide a forum for discussing and proposing solutions
to motor vehicle manufacturing industry-related problems, and emerging industry
issues.
(c) The Council shall recommend ways to ensure that the Philippines
becomes a more attractive investment destination for motor vehicle manufacturing
in the ASEAN region, and that the Government timely responds to the challenges
facing the industry.
SECTION
9. Appointment
of Private
Sector Representatives. -
Upon the
effectivity of this Act, the President of the Republic of the Philippines shall appoint
four (4) private sector representatives to the Council who shall serve for a term of
two (2) years.
SECTION 10. Meetings of the Council. - The Council shall meet once a month,
provided, That the Chairman may convene the Council anytime whenever he deems
it necessary.
SECTION 11. Operation of the Council. - The Council shall immediately function
one (1) month after the effectivity of this Act.
ARTICLE III
INVESTMENTS INCENTIVES
SECTION
12. Incentives for Manufacturers of Motor Vehicles. - Enterprises
engaged in the manufacture of motor vehicles duly registered with the BOI as
participant under the Motor Vehicle Development Program (MVDP), shall be entitled
to the following incentives:
(a) Income Tax Holiday. - For five (5) years from commercial operations, the
enterprise shall be exempt from income taxes levied by the National Government,
Provided, That investment in new basic model or full model change shall be treated
as a new investment and shall therefore be entitled to a fresh package of incentives.
(b) Net Operating Loss Carry-Over. - A net operating loss incurred during the
first three (3) years of operations shall be carried over as a deduction from taxable
income for the seven (7) consecutive taxable years immediately following the year of
such loss, Provided, however, That the net operating loss shall be computed in
accordance with the provisions of the National Internal Revenue Code and its
implementing
Revenue
Regulations,
any provision
of this Act
to the contrary
notwithstanding, except that income not taxable either in whole or in part under this
or other laws shall be included in gross income.
(c) Accelerated
Depreciation.
- At
the
option
of
the
taxpayer
and
in
accordance with the procedure established by the Bureau of Internal Revenue,' fixed
assets may be (1) depreciated to the extent of not more than twice as fast as normal
rate of depreciation or depreciated at normal rate of depreciation if expected life is
ten years or less; or (2) depreciated over any number of years between five years


and expected life if the latter is more than ten (10) years; and the depreciation
thereon allowed as a deduction from taxable income: Provided, That the taxpayer
notifies the Bureau of Internal Revenue at the beginning of the depreciation period
which depreciation rate allowed by this section will be used by it.
(d) Deduction on Training Expenses. In addition to the allowable ordinary and
necessary expenses on training which are fully deductible under the provisions of the
National Internal Revenue Code, expenses incurred in training schemes approved
by the appropriate agency shall be eligible for deduction during the financial year the
expenses were incurred:
(i)
Expenses incurred in providing employee training shall be eligible
for single deduction; and
(ii) Expenses
incurred
in providing training
to Small and Medium
Enterprise (SME) parts manufacturers shall be eligible for double deduction.
(e) Double Deduction on Research and Development. - Expenses incurred
for research and development
activities shall eligible for double deduction from
taxable income.
(f) Tax and Duty Free Importation of Capital Equipment. - The importation of
machinery, equipment and accompanying spare parts imported in the name of the
manufacturer as consignee shall be exempt to the extent of one hundred percent
(100%) of the duties and taxes payable thereon, Provided, That the importation
comply with the following conditions:
(i)
These are not manufactured domestically in sufficient quantity, of
comparable quality and at reasonable prices;
(ii) These are reasonably needed and will be used exclusively in the
manufacture of motor vehicles; and
(iii) Prior approval of the BOI was obtained for the importation of such
machinery, equipment and accompanying spare parts.
Provided further, That such machinery, equipment and accompanying spare
parts shall not be sold, transferred or disposed without prior approval of the BOI
within five (5) years from date of acquisition, in which case the manufacturer as
consignee and the vendee, transferee, or assignee shall be solidarily liable to pay
twice the amount of the duty and tax exemption given it.
(g) Tax and Duty Free Importation of Training Equipment. - The importation of
equipment, tools and implements for in-house training projects and imported in the
name of the manufacturer
as consignee shall be exempt to the extent of one
hundred percent (100%) of the duties and taxes payable thereon, Provided, That the
importation comply with the following conditions:
(i)
These are not manufactured domestically in sufficient quantity, of
comparable quality and at reasonable prices;
(ii) These are reasonably needed and will be used exclusively for
training projects; and
(iii) Prior approval of the BOI was obtained for the importation of such
equipment, tools and implements.
Provided further, That such equipment, tools and implements shall not be
sold, transferred or disposed without prior approval of the BOI within five (5) years
from date of acquisition, in which case the manufacturer as consignee and the
vendee, transferee, or assignee shall be solidarily liable to pay twice the amount of
the duty and tax exemption given it.


(h) Qualified enterprises availing of incentives provided under this Act and its
Implementing Rules and Regulations shall still be eligible to incentives and privileges
provided for by other special laws:
(i) Executive Order No. 226, otherwise known as the Omnibus
Investment Code of 1987, Provided, That the manufacture of motor vehicles
shall regularly form part of the IPP as a preferred area for investments, unless
otherwise declared by law;
(ii) Republic Act No. 7844, otherwise known as the Export
Development Act of 1994;
(iii) Republic Act No. 7916, otherwise known as the Special Economic
Zone Act of 1995, as amended;
(iv) Issuances implementing the Motor Vehicle Development Program.
Provided, That the enterprise shall register under the aforestated laws and
that there is no double availment of the same incentives.
SECTION
13.
Incentives
for
Manufacturers
of
Motor
Vehicle
Parts
and
Accessories. - Enterprises engaged in the manufacture of motor vehicle parts and
accessories shall be entitled to the following incentives:
(a) Income Tax Holiday. - For five (5) years from commercial operations, the
enterprise shall be exempt from income taxes levied by the National Government,
Provided, That investment in new parts and components shall be treated as a new
investment and shall therefore be entitled to a fresh package of incentives.
(b) Net Operating Loss Carry-Over. - A net operating loss incurred during the
first three (3) years of operations shall be carried over as a deduction from taxable
income for the seven (7) consecutive taxable years immediately following the year of
such loss, Provided, however, That the net operating loss shall be computed in
accordance with the provisions of the National Internal Revenue Code and its
implementing
Revenue
Regulations,
any provision
of this Act
to the contrary
notwithstanding, except that income not taxable either in whole or in part under this
or other laws shall be included in gross income.
(c) Accelerated
Depreciation.
- At
the
option
of the
taxpayer
and
in
accordance with the procedure established by the Bureau of Internal Revenue, fixed
assets may be (1) depreciated to the extent of not more than twice as fast as normal
rate of depreciation or depreciated at normal rate of depreciation if expected life is
ten years or less; or (2) depreciated over any number of years between five years
and expected life if the latter is more than ten (10) years; and the depreciation
thereon allowed as a deduction from taxable income: Provided, That the taxpayer
notifies the Bureau of Internal Revenue at the beginning of the depreciation period
which depreciation rate allowed by this section will be used by it.
(d) Deduction on Training Expenses. In addition to the allowable ordinary and
necessary expenses on training which are fully deductible under the provisions of the
National Internal Revenue Code, expenses incurred in training schemes approved
by the appropriate agency shall be eligible for deduction during the financial year the
expenses were incurred:
(i)
Expenses incurred in providing employee training shall be eligible
for single deduction; and
(ii) Expenses
incurred in providing training to Small and Medium
Enterprise (SME) parts manufacturers shall be eligible for double deduction.


(e) Double Deduction on Research and Development. - Expenses incurred
for research and development
activities shall eligible for double deduction from
taxable income.
(f) Tax and Duty Free Importation of Capital Equipment. - The importation of
machinery, equipment and accompanying spare parts imported in the name of the
manufacturer as consignee shall be exempt to the extent of one hundred percent
(100%) of the duties and taxes payable thereon, Provided, That the importation
comply with the following conditions:
(i)
These are not manufactured domestically in sufficient quantity, of
comparable quality and at reasonable prices;
(ii) These are reasonably needed and will be used exclusively in the
manufacture of motor vehicle parts and accessories; and
. (iii) Prior approval of the BOI was obtained for the importation of such
machinery, equipment and accompanying spare parts.
Provided further, That such machinery, equipment and accompanying spare
parts shall not be sold, transferred or disposed without prior approval of the BOI
within five (5) years from date of acquisition, in which case the manufacturer as
consignee and the vendee, transferee, or assignee shall be solidarily liable to pay
twice the amount of the duty and tax exemption given it.
(g) Tax and Duty Free Importation of Training Equipment. - The importation of
equipment, tools and implements for in-house training projects and imported in the
name of the manufacturer
as consignee shall be exempt to the extent of one
hundred percent (100%) of the duties and taxes payable thereon, Provided, That the·
importation comply with the following conditions:
(i)
These are not manufactured domestically in sufficient quantity, of
comparable quality and at reasonable prices;
(ii) These are reasonably needed and will be used exclusively for
training projects; and
(iii) Prior approval of the BOI was obtained for the importation of such
equipment, tools and implements.
Provided further, That such equipment, tools and implements shall not be
sold, transferred or disposed without prior approval of the BOI within five (5) years
from date of acquisition, in which case the manufacturer as consignee and the
vendee, transferee, or assignee shall be solidarily liable to pay twice the amount of
the duty and tax exemption given it.
(h) Qualified enterprises availing of incentives provided under this Act and its
Implementing Rules and Regulations shall still be eligible to incentives provided for
by other special laws:
(i) Executive Order No. 226, otherwise known as the Omnibus
Investment Code of 1987, Provided, That the manufacture of motor vehicle
parts and accessories shall regularly form part of the IPP as a preferred area
for investments, unless otherwise declared by law;
(ii) Republic Act No. 7844, otherwise known as the Export
Development Act of 1994;
(iii) Republic Act No. 7916, otherwise known as the Special Economic
Zone Act of 1995, as amended
Provided, That the enterprise shall register under the aforestated laws and
that there is no double availment of the same incentives.


ARTICLE
IV
OTHER
POLICY
MEASURES
SECTION 14. Rationalization
Measures. - In general, the Government shall
formulate
and implement
rationalization
measures
in specific areas in need of
adjustment,
or where
existing
policies
are challenged,
rendered
inefficient
or
obsolete
by changing
business
environment
with
the
end view
of
promoting
economies of scale, efficiency and productivity.
Such specific areas include, but are not limited to, the rationalization of the
excise tax system for automobiles. To the extent possible under existing laws and
international agreements, the excise tax on automobiles shall be restructured in
order to promote local vehicle manufacturing capability.
SECTION 15. Harmonization
Measures. - The Government shall formulate
and implement harmonization measures with the end view of promoting effective
regulation and transparency in rules.
ARTICLE
V
FINAL PROVISIONS
SECTION 16. Implementing
Rules and RegUlations
(IRR). - Within three (3)
months from effectivity of this Act, the DTI through the BOI shall, in consultation with
all the stakeholders concerned, promulgate the IRR of this Act.
SECTION 17. 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 18. 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 19. Effectivity
Clause. - This Act shall take effect thirty (30) days
after its publication in two (2) newspapers of general circulation.
Approved,