PRES

ines
a 2013

SIXTEENTH CONGRESS )
REPUBLIC OF THE PHILIPPINES —)
FIRST REGULAR SESSION )

HOUSE OF REPRESENTATIVES

Introduced by Representative Rufus B. Rodriguez and
Representative Maximo B. Rodriguez, Jr.

3390

House Bill No.

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
(MVP), 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 USS$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.“ 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-developed.” 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

412009 Domestic Market Volume: Thailand ~ $48K; Indonesia ~ 486K; Philippines ~ 132K

¥ Comparative numberof 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.”

Considering the foregoing, the immediate passage of this proposed measure
is earnestly sought.

RUFPS B. ROD} EZ

MAXIMO B, LE en JR

¥ Terosa C., 2010. “Economic Impact of the Philippine Automotive Manufacturing Industry: Production Linkages &
Multiplier Effects”. University of Asia and the Pacific, Philippines.

¥ Stanford J., 2009. “Five Minutes to Midnight: The Future of Philippine Automotive Industry”. Deloitte Touche Tohmatsu,
Australia

¥ ‘Aldaba R, 2008. “Globalization and the Need for Strategic Govemment-Industry Cooperation in the Philippine
‘Automotive Industry”, Philippine Institute for Development Studies, Philippines.



SIXTEENTH 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. 390

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 |
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;

(@) 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 (BOl)" 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 II
ORGANIZATION, INSTITUTIONAL SUPPORT AND STRATEGIES

SECTION 4, Lead Agency. - The DTI through the BO! 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 Plar 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 DT! 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 Ill
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 incu

(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 BO! 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 BO!
within five (6) 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.

(@) 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;

(ji) These are reasonably needed and will be used exclusively for
training projects; and

(ii) Prior approval of the BO! 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 BO! 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.

() 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;

(li) These are reasonably needed and will be used exclusively in the
manufacture of motor vehicle parts and accessories; and

(iii) Prior approval of the BO! 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 BO! 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 BO! 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 BO! 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,