REPUBLIC ACT NO.

9337

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 the House of Representatives of the Philippines in

Congress assembled:

Section 1. Section 27 of the National Internal Revenue Code of 1997, as amended, is

hereby further amended to read as follows:

"SEC. 27. Rates of Income Tax on Domestic Corporations. -

(A) In General. - Except as otherwise provided in this Code, an income tax

of thirty-five percent (35%) is hereby imposed upon the taxable income
derived during each taxable year from all sources within and without the
Philippines by every corporation, as defined in Section 22(B) of this Code
and taxable under this Title as a corporation, organized in, or existing
under the laws of the Philippines: Provided, That effective January 1,
2009, the rate of income tax shall be thirty percent (30%).

xxx.

The corporate income tax rate shall be applied on the amount computed by
multiplying the number of months covered by the new rate within the
fiscal year by the taxable income of the corporation for the period, divided
by twelve.

xxx.

(B) x x x .

(C) Government-owned or -Controlled Corporations, Agencies or

Instrumentalities. - The provisions of existing special or general laws to
the contrary notwithstanding, all corporations, agencies, or
instrumentalities owned or controlled by the Government, except the
Government Service and Insurance System (GSIS), the Social Security
System (SSS), the Philippine Health Insurance Corporation (PHIC), and
the Philippine Charity Sweepstakes Office (PCSO), shall pay such rate of
tax upon their taxable income as are imposed by this Section upon
corporations or associations engaged in a similar business, industry, or
activity.

(D) x x x .

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 (E) x x x ."

Section 2. Section 28(A)(1) and (B)(1) and (5)(b) of the same Code, as amended, are
hereby further amended to read as follows:

"SEC. 28. Rates of Income Tax on Foreign Corporations. -

(A) Tax on Resident Foreign Corporations. -

(1) In General. - Except as otherwise provided in this Code, a

corporation organized, authorized, or existing under the laws of
any foreign country, engaged in trade or business within the
Philippines, shall be subject to an income tax equivalent to thirty-
five percent (35%) of the taxable income derived in the preceding
taxable year from all sources within the Philippines: Provided,
That effective January 1, 2009, the rate of income tax shall be
thirty percent (30%).

xxx.

The corporate income tax rate shall be applied on the amount

computed by multiplying the number of months covered by the
new rate within the fiscal year by the taxable income of the
corporation for the period, divided by twelve.

xxx.

(B) Tax on Nonresident Foreign Corporation. -

(1) In General. - Except as otherwise provided in this Code, a

foreign corporation not engaged in trade or business in the
Philippines shall pay a tax equal to thirty-five percent (35%) of the
gross income received during each taxable year from all sources
within the Philippines, such as interests, dividends, rents, royalties,
salaries, premiums (except reinsurance premiums), annuities,
emoluments or other fixed or determinable annual, periodic or
casual gains, profits and income, and capital gains, except capital
gains subject to tax under subparagraph 5(c): Provided, That
effective January 1, 2009, the rate of income tax shall be thirty
percent (30%).

(2) x x x .

(3) x x x .

(4) x x x .

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 (5) Tax on Certain Incomes Received by a Nonresident Foreign
Corporation. -

(a) x x x ;

(b) Intercorporate Dividends. - A final withholding tax at

the rate of fifteen percent (15%) is hereby imposed on the
amount of cash and/or property dividends received from a
domestic corporation, which shall be collected and paid as
provided in Section 57(A) of this Code, subject to the
condition that the country in which the nonresident foreign
corporation is domiciled, shall allow a credit against the tax
due from the nonresident foreign corporation taxes deemed
to have been paid in the Philippines equivalent to twenty
percent (20%), which represents the difference between the
regular income tax of thirty-five percent (35%) and the
fifteen percent (15%) tax on dividends as provided in this
subparagraph: Provided, That effective January 1, 2009, the
credit against the tax due shall be equivalent to fifteen
percent (15%), which represents the difference between the
regular income tax of thirty percent (30%) and the fifteen
percent (15%) tax on dividends;

(c) x x x ."

Section 3. Section 34(B)(1) of the same Code, as amended, is hereby further amended to
read as follows:

"SEC. 34. Deductions from Gross Income. -

(A) x x x .

(B) Interest. -

(1) In General. - The amount of interest paid or incurred within a

taxable year on indebtedness in connection with the taxpayer's
profession, trade or business shall be allowed as deduction from
gross income: Provided, however, That the taxpayer's otherwise
allowable deduction for interest expense shall be reduced by forty-
two percent (42%) of the interest income subjected to final tax:
Provided, That effective January 1, 2009, the percentage shall be
thirty-three percent (33%).

x x x."

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Section 4. Section 106 of the same Code, as amended, is hereby further amended to read
as follows:

"SEC. 106. Value-Added Tax on Sale of Goods or Properties. -

(A) Rate and Base of Tax. - There shall be levied, assessed and collected
on every sale, barter or exchange of goods or properties, a value-added tax
equivalent to ten percent (10%) of the gross selling price or gross value in
money of the goods or properties sold, bartered or exchanged, such tax to
be paid by the seller or transferor: 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
of the 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 1/2%).

(1) x x x .

(2) The following sales by VAT-registered persons shall be

subject to zero percent (0%) rate:

(a) Export Sales. - The term 'export sales' means:

(1) x x x ;

(2) x x x ;

(3) x x x ;

(4) x x x ;

(5) x x x; and

(6) The sale of goods, supplies, equipment

and fuel to persons engaged in international
shipping or international air transport
operations.

(b) x x x .

(c) x x x .

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 (B) x x x .

(C) x x x .

Section 5. Section 107 of the same Code, as amended, is hereby further amended to read
as follows:

"SEC. 107. Value-Added Tax on Importation of Goods. -

(A) In General. - There shall be levied, assessed and collected on every

importation of goods a value-added tax equivalent to ten percent (10%)
based on the total value used by the Bureau of Customs in determining
tariff and customs duties, plus customs duties, excise taxes, if any, and
other charges, such tax to be paid by the importer prior to the release of
such goods from customs custody: Provided, That where the customs
duties are determined on the basis of the quantity or volume of the goods,
the value-added tax shall be based on the landed cost plus excise taxes, if
any: Provided, further, 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 of the 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 1/2%).

(B) x x x ."

Section 6. Section 108 of the same Code, as amended, is hereby further amended to read
as follows:

"SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. -

(A) Rate and Base of 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 of the following
conditions has been satisfied:

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 (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 1/2%).

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 property, whether personal or real;
warehousing services; lessors or distributors of cinematographic films;
persons engaged in milling, processing, 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 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 all other franchise
grantees except 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'
shall likewise include:

(1) x x x ;

(2) x x x ;

(3) x x x ;

(4) x x x ;

(5) x x x ;

(6) x x x ;

(7) x x x ;

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 (8) x x x .

(B) Transactions Subject to Zero Percent (0%) Rate. - The following

services performed in the Philippines by VAT-registered persons shall be
subject to zero percent (0%) rate:

(1) x x x ;

(2) Services other than those mentioned in the preceding paragraph

rendered to a person engaged in business conducted outside the
Philippines or to a nonresident person not engaged in business who
is outside the Philippines when the services are performed, the
consideration for which is paid for in acceptable foreign currency
and accounted for in accordance with the rules and regulations of
the Bangko Sentral ng Pilipinas (BSP);

(3) x x x ;

(4) Services rendered to persons engaged in international shipping

or international air transport operations, including leases of
property for use thereof;

(5) x x x ;

(6) Transport of passengers and cargo by air or sea vessels from the
Philippines to a foreign country; and

(7) Sale of power or fuel generated through renewable sources of

energy such as, but not limited to, biomass, solar, wind,
hydropower, geothermal, ocean energy, and other emerging energy
sources using technologies such as fuel cells and hydrogen fuels.

Section 7. Section 109 of the same Code, 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) Sale or importation of agricultural and marine food products in their

original state, livestock and poultry of a kind generally used as, or yielding
or producing foods for human consumption; and breeding stock and
genetic materials therefor.

Products classified under this paragraph shall be considered in their

original state even if they have undergone the simple processes of
preparation or preservation for the market, such as freezing, drying,

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salting, broiling, roasting, smoking or stripping. Polished and/or husked
rice, corn grits, raw cane sugar and molasses, ordinary salt, and copra shall
be considered in their original state;

(B) Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish,

prawn, livestock and poultry feeds, including ingredients, whether locally
produced or imported, used in the manufacture of finished feeds (except
specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals
and other animals generally considered as pets);

(C) Importation of personal and household effects belonging to the

residents of the Philippines returning from abroad and nonresident citizens
coming to resettle in the Philippines: Provided, That such goods are
exempt from customs duties under the Tariff and Customs Code of the
Philippines;

(D) Importation of professional instruments and implements, wearing

apparel, domestic animals, and personal household effects (except any
vehicle, vessel, aircraft, machinery, other goods for use in the manufacture
and merchandise of any kind in commercial quantity) belonging to persons
coming to settle in the Philippines, for their own use and not for sale,
barter or exchange, accompanying such persons, or arriving within ninety
(90) days before or after their arrival, upon the production of evidence
satisfactory to the Commissioner, that such persons are actually coming to
settle in the Philippines and that the change of residence is bona fide;

(E) Services subject to percentage tax under Title V;

(F) Services by agricultural contract growers and milling for others of

palay into rice, corn into grits and sugar cane into raw sugar;

(G) Medical, dental, hospital and veterinary services except those rendered
by professionals;

(H) Educational services rendered by private educational institutions, duly

accredited by the Department of Education (DEPED), the Commission on
Higher Education (CHED), the Technical Education And Skills
Development Authority (TESDA) and those rendered by government
educational institutions;

(I) Services rendered by individuals pursuant to an employer-employee

relationship;

(J) Services rendered by regional or area headquarters established in the

Philippines by multinational corporations which act as supervisory,
communications and coordinating centers for their affiliates, subsidiaries

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or branches in the Asia-Pacific Region and do not earn or derive income
from the Philippines;

(K) Transactions which are exempt under international agreements to

which the Philippines is a signatory or under special laws, except those
under Presidential Decree No. 529;

(L) Sales by agricultural cooperatives duly registered with the Cooperative

Development Authority to their members as well as sale of their produce,
whether in its original state or processed form, to non-members; their
importation of direct farm inputs, machineries and equipment, including
spare parts thereof, to be used directly and exclusively in the production
and/or processing of their produce;

(M) Gross receipts from lending activities by credit or multi-purpose

cooperatives duly registered with the Cooperative Development Authority;

(N) Sales by non-agricultural, non-electric and non-credit cooperatives

duly registered with the Cooperative Development Authority: Provided,
That the share capital contribution of each member does not exceed
Fifteen thousand pesos (P15,000) and regardless of the aggregate capital
and net surplus ratably distributed among the members;

(O) Export sales by persons who are not VAT-registered;

(P) Sale of real properties not primarily held for sale to customers or held
for lease in the ordinary course of trade or business, or real property
utilized for low-cost and socialized housing as defined by Republic Act
No. 7279, otherwise known as the Urban Development and Housing Act
of 1992, and other related laws, residential lot valued at One million five
hundred thousand pesos (P1,500,000) and below, house and lot, and other
residential dwellings valued at Two million five hundred thousand pesos
(P2,500,000) and below: Provided, That not later than January 31, 2009
and every three (3) years thereafter, the amounts herein stated shall be
adjusted to their present values using the Consumer Price Index, as
published by the National Statistics Office (NSO);

(Q) Lease of a residential unit with a monthly rental not exceeding Ten
thousand pesos (P10,000) 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);

(R) Sale, importation, printing or publication of books and any newspaper,

magazine, review or bulletin which appears at regular intervals with fixed

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 prices for subscription and sale and which is not devoted principally to the
publication of paid advertisements;

(S) Sale, importation or lease of passenger or cargo vessels and aircraft,

including engine, equipment and spare parts thereof for domestic or
international transport operations;

(T) Importation of fuel, goods and supplies by persons engaged in

international shipping or air transport operations;

(U) Services of banks, non-bank financial intermediaries performing

quasi-banking functions, and other non-bank financial intermediaries; and

(V) 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 and/or receipts do not exceed the amount of One
million five hundred thousand pesos (P1,500,000): 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) A VAT-registered person may elect that Subsection (1) not apply to its sale of
goods or properties or services: Provided, That an election made under this
Subsection shall be irrevocable for a period of three (3) years from the quarter the
election was made."

Section 8. Section 110 of the same Code, as amended, is hereby further amended to read
as follows:

"SEC. 110. Tax Credits. -

(A) Creditable Input Tax. -

(1) Any input tax evidenced by a VAT invoice or official receipt

issued in accordance 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

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 (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
(P1,000,000): 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 properties,
the input tax shall be creditable to the purchaser, lessee or
licensee upon payment of the compensation, rental, royalty
or fee.

(3) x x x .

xxx.

(B) 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

11
 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) x x x .

x x x ."

Section 9. Section 111 of the same Code, as amended, is hereby further amended to read
as follows:

"SEC. 111. Transitional/ Presumptive Input Tax Credits. -

(A) Transitional Input Tax Credits. - A person who becomes liable to

value-added tax or any person who elects to be a VAT-registered person
shall, subject to the filing of an inventory according to rules and
regulations prescribed by the Secretary of Finance, upon recommendation
of the Commissioner, be allowed input tax on his beginning inventory of
goods, materials and supplies equivalent to two percent (2%) of the value
of such inventory or the actual value-added tax paid on such goods,
materials and supplies, whichever is higher, which shall be creditable
against the output tax.

(B) Presumptive Input Tax Credits. -

Persons or firms engaged in the processing of sardines, mackerel and milk, and in
manufacturing refined sugar, cooking oil and packed noodle based instant meals,
shall be allowed a presumptive input tax, creditable against the output tax,
equivalent to four percent (4%) of the gross value in money of their purchases of
primary agricultural products which are used as inputs to their production.

x x x.

Section 10. Section 112 of the same Code, as amended, is hereby further amended to read
as follows:

"SEC. 112. Refunds or Tax Credits of Input Tax. -

(A) Zero-Rated or Effectively Zero-Rated Sales. - Any VAT-registered

person, whose sales are zero-rated or effectively zero-rated may, within
two (2) years after the close of the taxable quarter when the sales were
made, apply for the issuance of a tax credit certificate or refund of
creditable input tax due or paid attributable to such sales, except

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 transitional input tax, to the extent that such input tax has not been applied
against output tax: Provided, however, That in the case of zero-rated sales
under Section 106(A)(2)(a)(1), (2) and (b) and Section 108 (B)(1) and (2),
the acceptable foreign currency exchange proceeds thereof had been duly
accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is
engaged in zero-rated or effectively zero-rated sale and also in taxable or
exempt sale of goods of properties or services, and the amount of
creditable input tax due or paid cannot be directly and entirely attributed to
any one of the transactions, it shall be allocated proportionately on the
basis of the volume of sales: Provided, finally, That for a person making
sales that are zero-rated under Section 108 (B)(6), the input taxes shall be
allocated ratably between his zero-rated and non-zero-rated sales.

(B) Cancellation of VAT Registration. - A person whose registration has

been cancelled due to retirement from or cessation of business, or due to
changes in or cessation of status under Section 106(C) of this Code may,
within two (2) years from the date of cancellation, apply for the issuance
of a tax credit certificate for any unused input tax which may be used in
payment of his other internal revenue taxes.

(C) Period within which Refund or Tax Credit of Input Taxes shall be
Made. - In proper cases, the Commissioner shall grant a refund or issue
the tax credit certificate for creditable input taxes within one hundred
twenty (120) days from the date of submission of complete documents in
support of the application filed in accordance with Subsection (A) hereof.

x x x.

(D) Manner of Giving Refund. - Refunds shall be made upon warrants

drawn by the Commissioner or by his duly authorized representative
without the necessity of being countersigned by the Chairman,
Commission on Audit, the provisions of the Administrative Code of 1987
to the contrary notwithstanding: Provided, That refunds under this
paragraph shall be subject to post audit by the Commission on Audit."

Section 11. Section 113 of the same Code, as amended, is hereby further amended to read
as follows:

"SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons.

-

(A) Invoicing Requirements. - A VAT-registered person shall issue:

(1) A VAT invoice for every sale, barter or exchange of goods or

properties; and

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 (2) A VAT official receipt for every lease of goods or properties,
and for every sale, barter or exchange of services.

(B) Information Contained in the VAT Invoice or VAT Official Receipt. -

The following information shall be indicated in the VAT invoice or VAT
official receipt:

(1) A statement that the seller is a VAT-registered person, followed

by his taxpayer's identification number (TIN);

(2) The total amount which the purchaser pays or is obligated to

pay to the seller with the indication that such amount includes the
value-added tax: Provided, That:

(a) The amount of the tax shall be shown as a separate item

in the invoice or receipt;

(b) If the sale is exempt from value-added tax, the term

"VAT-exempt sale" shall be written or printed prominently
on the invoice or receipt;

(c) If the sale is subject to zero percent (0%) value-added

tax, the term "zero-rated sale" shall be written or printed
prominently on the invoice or receipt;

(d) If the sale involves goods, properties or services some

of which are subject to and some of which are VAT zero-
rated or VAT-exempt, the invoice or receipt shall clearly
indicate the breakdown of the sale price between its
taxable, exempt and zero-rated components, and the
calculation of the value-added tax on each portion of the
sale shall be shown on the invoice or receipt:

Provided, That the seller may issue separate invoices or receipts for
the taxable, exempt, and zero-rated components of the sale.

(3) The date of transaction, quantity, unit cost and description of

the goods or properties or nature of the service; and

(4) In the case of sales in the amount of one thousand pesos

(P1,000) or more where the sale or transfer is made to a VAT-
registered person, the name, business style, if any, address and
taxpayer identification number (TIN) of the purchaser, customer or
client.

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 (C) Accounting Requirements. - Notwithstanding the provisions of Section
233, all persons subject to the value-added tax under Sections 106 and 108
shall, in addition to the regular accounting records required, maintain a
subsidiary sales journal and subsidiary purchase journal on which the daily
sales and purchases are recorded. The subsidiary journals shall contain
such information as may be required by the Secretary of Finance.

(D) Consequence of Issuing Erroneous Vat Invoice or Vat Official Receipt.

-

(1) If a person who is not a VAT-registered person issues an invoice

or receipt showing his Taxpayer Identification Number (TIN),
followed by the word "VAT":

(a) The issuer shall, in addition to any liability to other

percentage taxes, be liable to:

(i) The tax imposed in Section 106 or 108 without

the benefit of any input tax credit; and

(ii) A 50% surcharge under Section 248 (B) of this

code;

(b) The VAT shall, if the other requisite information

required under Subsection (B) hereof is shown on the
invoice or receipt, be recognized as an input tax credit to
the purchaser under Section 110 of this Code.

(2) If a VAT-registered person issues a VAT invoice or VAT official

receipt for a VAT-exempt transaction, but fails to display
prominently on the invoice or receipt the term "VAT-exempt Sale",
the issuer shall be liable to account for the tax imposed in Section
106 or 108 as if Section 109 did not apply.

(E) Transitional Period. - Notwithstanding Subsection (B) hereof,

taxpayers may continue to issue VAT invoices and VAT official receipts for
the period July 1, 2005 to December 31, 2005, in accordance with Bureau
of Internal Revenue administrative practices that existed as of December
31, 2004."

Section 12. Section 114 of the same Code, as amended, is hereby further amended to read
as follows:

"SEC. 114. Return and Payment of Value-Added Tax. -

(A) x x x .

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 (B) x x x .

(C) Withholding of Value-Added Tax. - The Government or any of its

political subdivisions, instrumentalities or agencies, including
government-owned or -controlled corporations (GOCCs) shall, before
making payment on account of each purchase of goods and services which
are subject to the value-added tax imposed in Sections 106 and 108 of this
Code, deduct and withhold a final value-added tax at the rate of five
percent (5%) of the gross payment thereof: Provided, That the payment for
lease or use of properties or property rights to nonresident owners shall be
subject to ten percent (10%) withholding tax at the time of payment. For
purposes of this Section, the payor or person in control of the payment
shall be considered as the withholding agent.

x x x ."

Section 13. Section 116 of the same Code, as amended, is hereby further amended to read
as follows:

"SEC. 116. Tax on Persons Exempt from Value-Added Tax (VAT). - Any person
whose sales or receipts are exempt under Section 109 (V) of this Code from the
payment of value-added tax and who is not a VAT-registered person shall pay a
tax equivalent to three percent (3%) of his gross quarterly sales or receipts:
Provided, That cooperatives shall be exempt from the three percent (3%) gross
receipts tax herein imposed."

Section 14. Section 117 of the same Code, as amended, is hereby further amended to read
as follows:

"SEC. 117. Percentage Tax on Domestic Carriers and Keepers of Garages. -

Cars for rent or hire driven by the lessee; transportation contractors, including
persons who transport passengers for hire, and other domestic carriers by land for
the transport of passengers (except owners of bancas and owners of animal-drawn
two wheeled vehicle), and keepers of garages shall pay a tax equivalent to three
percent (3%) of their quarterly gross receipts.

x x x ."

Section 15. Section 119 of the same Code, as amended, is hereby further amended to read
as follows:

"SEC. 119. Tax on Franchises. - Any provision of general or special law to the
contrary notwithstanding, there shall be levied, assessed and collected in respect
to all franchises on radio and/or television broadcasting companies whose annual
gross receipts of the preceding year does not exceed Ten million pesos

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 (P10,000,000), subject to Section 236 of this Code, a tax of three percent (3%)
and on gas and water utilities, a tax of two percent (2%) on the gross receipts
derived from the business covered by the law granting the franchise: Provided,
however, That radio and television broadcasting companies referred to in this
Section shall have an option to be registered as a value-added taxpayer and pay
the tax due thereon: Provided, further, That once the option is exercised, said
option shall be irrevocable.

x x x ."

Section 16. Section 121 of the same Code, as amended, is hereby further amended to read
as follows:

"SEC. 121. Tax on Banks and Non-Bank Financial Intermediaries Performing

Quasi-Banking Functions. - There shall be collected a tax on gross receipts
derived from sources within the Philippines by all banks and non-bank financial
intermediaries in accordance with the following schedule:

(a) On interest, commissions and discounts from lending activities as well

as income from financial leasing, on the basis of remaining maturities of
instruments from which such receipts are derived:

Maturity period is five years or less 5%

Maturity period is more than five years 1%

(b) On dividends and equity shares and net income of subsidiaries 0%

9; (c) On royalties, rentals of property, real or personal, profits,

from

9; exchange and all other items treated as gross income under

Section 32 of this Code 7%

9; (d) On net trading gains within the taxable year on foreign

currency, debt

9; securities, derivatives, and other similar financial instruments

7%

Provided, however, That in case the maturity period referred to in paragraph (a) is
shortened thru pre-termination, then the maturity period shall be reckoned to end
as of the date of pre-termination for purposes of classifying the transaction and
the correct rate of tax shall be applied accordingly.

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 Provided, finally, That the generally accepted accounting principles as may be
prescribed by the Bangko Sentral ng Pilipinas for the bank or non-bank financial
intermediary performing quasi-banking functions shall likewise be the basis for
the calculation of gross receipts.

Nothing in this Code shall preclude the Commissioner from imposing the same
tax herein provided on persons performing similar banking activities."

Section 17. Section 148 of the same Code, as amended, is hereby further amended to read
as follows:

"SEC. 148. Manufactured Oils and Other Fuels. - There shall be collected on
refined and manufactured mineral oils and motor fuels, the following excise taxes
which shall attach to the goods hereunder enumerated as soon as they are in
existence as such:

(a) x x x ;

(b) x x x ;

(c) x x x ;

(d) x x x ;

(e) Naphtha, regular gasoline and other similar products of distillation, per
liter of volume capacity, Four pesos and thirty-five centavos (P4.35):
Provided, however, That naphtha, when used as a raw material in the
production of petrochemical products or as replacement fuel for natural
gas-fired-combined cycle power plant, in lieu of locally-extracted natural
gas during the non-availability thereof, subject to the rules and regulations
to be promulgated by the Secretary of Energy, in consultation with the
Secretary of Finance, per liter of volume capacity, Zero (P0.00): Provided,
further, That the by-product including fuel oil, diesel fuel, kerosene,
pyrolysis gasoline, liquefied petroleum gases and similar oils having more
or less the same generating power, which are produced in the processing
of naphtha into petrochemical products shall be subject to the applicable
excise tax specified in this Section, except when such by-products are
transferred to any of the local oil refineries through sale, barter or
exchange, for the purpose of further processing or blending into finished
products which are subject to excise tax under this Section;

(f) x x x ;

(g) x x x ;

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 (h) Kerosene, per liter of volume capacity, Zero (P0.00): Provided, That
kerosene, when used as aviation fuel, shall be subject to the same tax on
aviation turbo jet fuel under the preceding paragraph (g), such tax to be
assessed on the user thereof;

(i) Diesel fuel oil, and on similar fuel oils having more or less the same
generating power, per liter of volume capacity, Zero (P0.00);

(j) x x x ;

(k) x x x;

(l) Bunker fuel oil, and on similar fuel oils having more or less the same
generating power, per liter of volume capacity, Zero (P0.00)."

Section 18. Section 151 of the same Code, as amended, is hereby amended to read as
follows:

"SEC. 151. Mineral Products. -

(A) Rates of Tax. - There shall be levied, assessed and collected on

minerals, mineral products and quarry resources, excise tax as follows:

(1) x x x ;

(2) x x x .

Notwithstanding the provision of paragraph (4) of subsection (A) of this Section,

locally extracted natural gas and liquefied natural gas shall not be subject to the
excise tax imposed herein.

x x x ."

Section 19. Section 236 of the same Code, as amended, is hereby further amended to read
as follows:

"SEC. 236. Registration Requirements. -

(A) x x x .

(B) x x x .

(C) x x x .

(D) x x x .

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(E) x x x .

(F) Cancellation of Registration. -

(1) General Rule. - The registration of any person who ceases to be

liable to a tax type shall be cancelled upon filing with the Revenue
District Office where he is registered, an application for
registration information update in a form prescribed therefor;

(2) Cancellation of Value-Added Tax Registration. - A VAT-

registered person may cancel his registration for VAT if:

(a) He makes written application and can demonstrate to

the Commissioner's satisfaction that his gross sales or
receipts for the following twelve (12) months, other than
those that are exempt under Section 109 (A) TO (U), will
not exceed One million five hundred thousand pesos
(P1,500,000); or

(b) He has ceased to carry on his trade or business, and

does not expect to recommence any trade or business
within the next twelve (12) months.

The cancellation of registration will be effective from the

first day of the following month.

(G) Persons Required to Register for Value-added Tax. -

(1) Any person who, in the course of trade or business, sells,

barters or exchanges goods or properties, or engages in the sale or
exchange of services, shall be liable to register for Value-added tax
if:

(a) His gross sales or receipts for the past twelve (12)
months, other than those that are exempt under section 109
(a) to (u), have exceeded One million five hundred
thousand pesos (P1,500,000); or

(b) There are reasonable grounds to believe that his gross

sales or receipts for the next twelve (12) months, other than
those that are exempt under Section 109 (A) to (U), will
exceed one million five hundred thousand pesos
(P1,500,000).

(2) Every person who becomes liable to be registered under

paragraph (1) of this Subsection shall register with the Revenue

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 District Office which has jurisdiction over the head office or
branch of that person, and shall pay the annual registration fee
prescribed in Subsection (B) hereof. If he fails to register, he shall
be liable to pay the tax under Title IV as if he were a VAT-
registered person, but without the benefit of input tax credits for
the period in which he was not properly registered.

(H) Optional Registration for Value-added Tax of Exempt Person. - (1)

Any person who is not required to register for Value-added tax under
Subsection (G) hereof may elect to register for Value-added tax by
registering with the Revenue District Office that has jurisdiction over the
head office of that person, and paying the annual registration fee in
Subsection (B) hereof.

(2) Any person who elects to register under this Subsection shall
not be entitled to cancel his registration under Subsection (F)(2) for
the next three (3) years.

For purposes of Title IV of this Code, any person who has

registered value-added tax as a tax type in accordance with the
provisions of Subsection (C) hereof shall be referred to as a "VAT-
registered person" who shall be assigned only one Taxpayer
Identification Number (TIN).

x x x ."

Section 20. Section 237 of the Code, as amended, is hereby amended to read as follows:

"SEC. 237. Issuance of Receipts or Sales or Commercial Invoices. - All persons

subject to an internal revenue tax shall, for each sale and transfer of merchandise
or for services rendered valued at Twenty-five pesos (P25.00) or more, issue duly
registered receipts or sale or commercial invoices, prepared at least in duplicate,
showing the date of transaction, quantity, unit cost and description of merchandise
or nature of service: Provided, however, That where the receipt is issued to cover
payment made as rentals, commissions, compensation or fees, receipts or invoices
shall be issued which shall show the name, business style, if any, and address of
the purchaser, customer or client.

x x x ."

Section 21. Section 288 of the same Code, as amended, is hereby further amended to read
as follows:

"SEC. 288. Disposition of Incremental Revenues. -

(A) x x x .

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 (B) x x x .

(C) x x x .

(D) Incremental Revenue from the Value-added Tax. - Fifty percent (50%)
of the local government unit's share from the incremental revenue from the
value-added tax shall be allocated and used exclusively for the following
purposes:

1. Fifteen percent (15%) for public elementary and secondary

education, to finance the construction of buildings, purchases of
school furniture and in-service teacher trainings;

2. Ten percent (10%) for health insurance premiums of enrolled

indigents as a counterpart contribution of the local government to
sustain the universal coverage of the national health insurance
program;

3. Fifteen percent (15%) for environmental conservation to fully

implement a comprehensive national reforestation program; and

4. Ten percent (10%) for agricultural modernization to finance the

construction of farm-to-market roads and irrigation facilities.

Such allocations shall be segregated as separate trust funds by the

National Treasury and shall be over and above the annual
appropriation for similar purposes.

(E) The amount of fifteen million pesos (P15,000,000) shall be allocated

for a public information and education program to be administered by the
Bureau of Internal Revenue, explaining clearly to businesses their
registration, invoicing and reporting requirements under the Value-added
tax rules. Such program should include seminars and visits to taxpayers to
familiarize them with the tax, and the development and publication of
easy-to-read guides on the Value-added Tax."

Section 22. Franchises of Domestic Airlines. - The provisions of P.D. No. 1590 on the
franchise tax of Philippine Airlines, Inc., R.A. No. 7151 on the franchise tax of Cebu Air,
Inc., R.A. No. 7583 on the franchise tax of Aboitiz Air Transport Corporation, R.A. No.
7909 on the franchise tax of Pacific Airways Corporation, R.A. No. 8339 on the franchise
tax of Air Philippines, or any other franchise agreement or law pertaining to a domestic
airline to the contrary notwithstanding:

(A) The franchise tax is abolished;

(B) The franchisee shall be liable to the corporate income tax;

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 (C) The franchisee shall register for value-added tax under Section 236, and to
account under Title IV of the National Internal Revenue Code of 1997, as
amended, for value-added tax on its sale of goods, property or services and its
lease of property; and

(D) The franchisee shall otherwise remain exempt from any taxes, duties,
royalties, registration, license, and other fees and charges, as may be provided by
their respective franchise agreement.

Section 23. Implementing Rules and Regulations. - The Secretary of Finance shall, upon
the recommendation of the Commissioner of Internal Revenue, promulgate not later than
June 30, 2005, the necessary Rules and Regulations for the effective implementation of
this Act. Upon issuance of the said Rules and Regulations, all former rules and
regulations pertaining to value-added tax shall be deemed revoked.alf-itc

Section 24. Repealing Clause. - The following laws or provisions of laws are hereby
repealed and the persons and/or transactions affected herein are made subject to the
value-added tax subject to the provisions of Title IV of the National Internal Revenue
Code of 1997, as amended:

(A) Section 13 of R.A. No. 6395 on the exemption from value-added tax of
National Power Corporation (NPC);

(B) Section 6, fifth paragraph of R.A. No. 9136 on the zero VAT rate imposed on
the sales of generated power by generation companies; and

(C) All other laws, acts, decrees, executive orders, issuances and rules and
regulations or parts thereof which are contrary to and inconsistent with any
provisions of this Act are hereby repealed, amended or modified accordingly.

Section 25. Separability Clause. - If any provision of this Act is subsequently declared
unconstitutional, the validity of the remaining provisions hereof shall remain in full force
and effect.

Section 26. Effectivity Clause. - This Act shall take effect on July 1, 2005.

Approved,

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