Republic of the Philippines

Congress of the Philippines

Metro Manila

Twelfth Congress
Third Regular Session

Begun and held in Metro Manila, on Monday, the twenty-second day of July, two
thousand three.

REPUBLIC ACT NO. 9238 February 05, 2004 (lapsed)

AN ACT AMENDING CERTAIN SECTIONS OF THE NATIONAL INTERNAL

REVENUE CODE OF 1997, AS AMENDED, BY EXCLUDING SEVERAL SERVICES
FROM THE COVERAGE OF THE VALUE-ADDED TAX AND RE-IMPOSING THE
GROSS RECEIPTS TAX ON BANKS AND NON-BANK FINANCIAL
INTERMEDIARIES PERFORMING QUASI-BANKING FUNCTIONS AND OTHER
NON-BANK FINANCIAL INTERMEDIARIES BEGINNING JANUARY 01, 2004

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

Congress assembled:

Section 1. Section 108 of the National Internal Revenue Code of 1997, as amended, is
hereby further amended to read as follows:

"(A) Rate and Base of Tax. – There shall be levied, assessed and collected, a
value-added tax equivalent to ten percent (10%) of the gross receipts, derived
from the sale or exchange of services, including the use or lease of properties.

"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,
resthouses, 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, air and water relative to their transport of goods or cargoes;
services of franchise grantees of telephone and telegraph, radio and
television broadcasting and all other franchise grantees except those
under Section 119 of this Code; [services of banks, non-bank financial
 intermediaries and finance companies;] 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) The lease or the use of or the right or privilege to use any copyright,
patent, design or model plan, secret formula or process, goodwill,
trademark, trade brand or other like property or right;

(2) The lease or the use of, or the right to use of any industrial,
commercial or scientific equipment;

(3) The supply of scientific, technical, industrial or commercial knowledge

or information;

(4) The supply of any assistance that is ancillary and subsidiary to and is
furnished as a means of enabling the application or enjoyment of any such
property, or right as is mentioned in subparagraph (2) or any such
knowledge or information as is mentioned in subparagraph (3);

(5) The supply of services by a nonresident person or his employee in

connection with the use of property or rights belonging to, or the
installation or operation of any brand, machinery or other apparatus
purchased from such non resident person;

(6) The supply of technical advice, assistance or services rendered in

connection with technical management or administration of any scientific,
industrial or commercial undertaking, venture project or scheme;

(7) The lease of motion picture films, films, tapes and discs; and

(8) The lease or the use of or the right to use radio, television, satellite
transmission and cable television time.

Lease of properties shall be subject to the tax herein imposed irrespective

of the place where the contract of lease or licensing agreement was
executed if the property is leased or used in the Philippines.

The term "gross receipts" means the total amount of money or its
equivalent representing the contract price, compensation, service fee,
rental or royalty, including the amount charged for materials supplied with
the services and deposits and advance payments actually or constructively
received during the taxable quarter for the services performed or to be
performed for another person, excluding value-added tax.

(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) Processing, manufacturing or repacking goods for other persons doing
business outside the Philippines which goods are subsequently exported,
where the services are paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP);

(2) Services other than those mentioned in the preceding paragraph, 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) Services rendered to persons or entities whose exemption under

special laws or international agreements to which the Philippines is a
signatory effectively subjects the supply of such services to zero percent
(0%) rate;

(4) Services rendered to vessels engaged exclusively in international

shipping; and

(5) Services performed by subcontractors and/or contractors in processing

converting, or manufacturing goods for an enterprises whose export sales
exceed seventy percent (70%) of total annual production.

(c) Determination of Tax. - The tax shall be computed by multiplying the total

amount indicated in the official receipt by one-eleventh (1/11)."

Section . 2. Section 109 of the same Code is hereby amended by rewording paragraph
(l) and inserting additional paragraphs after (z) which shall now read as follows:

"SEC. 109. Exempt Transactions. - The following shall be exempt from the value-
added tax.

(a) Sale of nonfood agricultural products; marine and forest products in

their original state by the primary producer or the owner of the land
where the same are produced;

(b) Sale of cotton and cotton seeds in their original state; and copra;

(c) Sale or important 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 and paragraph (a) 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, salting, broiling, roasting, smoking or stripping, Polished and/or
husked rice, com grits, raw cane sugar and molasses, and ordinary salt
shall be considered in their original state;
(d) Sale or importation of fertilizers; seeds, seeding 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, aguarium fish, zoo animals
and other animals generally considered as pets);

(e) Sale or importation of coal and natural gas, in whatever form or state,
and petroleum products (except lubricating oil, processed gas, grease,
wax and petrolatum) subject to excise tax imposed under title VI;

(f) Sale or importation of raw materials to be used by the buyer or

importer himself in the manufacture of petroleum products subject to
excise tax, except lubricating oil, processed gas, grease, wax and
petrolatum;

(g) Importation of passenger and/or cargo vessels or more than five

thousand tons (5,000), whether coastwise or ocean-going, including
engine and spare parts of said vessels to be used by the importer himself
as operator thereof;

(h) Importation of personal and households 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
exemp from customs duties under the Tariff and Customs Code of the
Philippines;

(i) 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 person 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;

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

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

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

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

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

accredited by the Department of Education, Culture and Sports (DECS)
and the Commission of Higher Education (CHED), and those rendered by
government educational institutions;
(n) Sale by the artist himself of his works of art, literary works, musical
compositions and similar creations, or his services performed for the
production of such works;

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

relationship;

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

(q) Transaction which are exempt under international agreements to

which the Philippines is a signatory or under special laws, except those
under Presidential Decree Nos. 66, 529 and 1590;

(r) 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;

(s) Sales by electric cooperatives duly registered with the Cooperative

Development Authority or National Electrification Administration, relative
to the generation and distribution of electricity as well as their importation
of machineries and equipment, including spare parts, which shall be
directly used in the generation and distribution of electricity;

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

cooperatives duly registered with the Cooperative Development Authority
whose lending operation is limited to their members;

(u) Sales by non-agricultural, non-electrical 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;

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

(w) 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, house and lot and other residential
dwellings valued at One million pesos (P1,000,000.00) and
below: Provided, That not latter than January 31st of the calendar year
 subsequent to the effectivity of this Act and each each calendar
thereafter, the amount of One million pesos (P1,000,000) shall be
adjusted to its present value using the Costumer Price Index, as published
by the National Statistics Office (NSO);

(x) Lease of a residential unit with a monthly rental not exceeding Eight
thousand pesos (P8,000): Provided, That not latter than January 31 st of
the calendar year subsequent to the effectivity of Republic Act No. 8241
and each calendar year thereafter, the amount of Eight thousand pesos
(P8,000) shall be adjusted to its present value using the Consumer Price
Index as published by the National Statistics Office (NSO);

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

magazine, review of bulletin which appears at regular intervals with fixed
prices for subscription and sale and which is not devoted principally to the
publication of paid advertisements;

(z) 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 Five
hundred fifty thousand pesos (P550,000): Provided, That not later than
January 31st of the calendar year subsequent to the effectivity of Republic
Act No. 8241 and each calendar year thereafter, the amount of Five
hundred fifty thousand pesos (P550,000) shall be adjusted to its present
value using the Consumer Price Index, as published by the National
Statistics Office (NSO);

(aa) Services of banks, non-bank financial intermediaries

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

(bb) services rendered by doctors of medicine duly registered with

the professional regulatory commission (PRC); and

(cc) services rendered by lawyers duly registered with the

Integrated Bar of the Philippines (IBP).

The foregoing exemptions to the contrary notwithstanding, any person whose

sale of goods or properties or services which are otherwise not subject to VAT,
but who issue a VAT invoice or receipt therefor shall, in additional to his liability
to other applicable percentage tax, if any, be liable to the tax imposed in Section
106 or 108 without the benefit of input tax credit, and such tax shall also be
recognized as input tax credit to the purchaser under Section 110, all of this
Code."

Section 3. Section 121 of the National Internal Revenue Code of 1997, as amended, is
hereby restored with amendments 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 (5) years or less . . . . 5%

maturity period is more than five (5) years. . 1%

"(b) on dividends and equity shares in net income of

subsidiaries . . . . . . . . . . 0%

"(c) on royalties, rentals of property, real or personal, profits from

exchange and all other items treated as gross income under section 32 of
this code. . . . . … 5%

"(d) on net trading gains within the taxable year on foreign currency, debt
securities, derivatives and other similar financial instruments …..5%

"Provided, however, that in case the maturity period referred to in paragraph (a)

is shortened thru pretermination, then the maturity period shall be reckoned to
end as of the date of pretermination for purposes of classifying the transaction
and the correct rate shall be applied accordingly.

"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 4. Section 122 of the National Internal Revenue Code of 1997, as amended, is
hereby restored with amendments to read as follows:

"Sec. 122. Tax on Other Non-Bank Financial Intermediaries. – There shall be

collected a tax of five percent (5%) on the gross receipts derived by other non-
bank financial intermediaries doing business in the Philippines, from interest,
commissions, discounts and all other items treated as gross income under this
code: Provided, that interests, commissions and discounts from lending
activities, as well as income from financial leasing, shall be taxed on the basis of
remaining maturities of the instruments from which such receipts are derived, in
accordance with the following schedule:

maturity period is five (5) years or less. …. . 5%

 maturity period is more than five (5) years. . 1%

"Provided, however, that in case the maturity period is shortened thru

pretermination, then the maturity period shall be reckoned to end as of the date
of pretermination for purposes of classifying the transaction and the correct rate
shall be applied accordingly.

"Provided, finally, that the generally accepted accounting principles as may be

prescribed by the Securities and Exchange Commission for other non-bank
financial intermediaries 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 financing activities."

Section 5. Implementing Rules and Regulations. – Within sixty (60) days from the
effectivity of this Act, the Secretary of Finance shall, upon the recommendation of the
Commissioner of Internal Revenue, promulgate the necessary rules and regulations for
the effective implementation of this Act.

Section 6. Repealing Clause. – The provisions of Section 17(b) and the third
paragraph, first sentence of Republic Act No. 7716; Section 11(b) of Republic Act No.
8241; Section 5, Title XIV of Republic Act No. 8424; Section 1(b) of Republic Act No.
8761 and Section 1(b) of Republic Act No. 9010; and all others laws, decrees, orders,
rules and regulations, and issuances or parts thereof inconsistent with this Act are
hereby repealed or modified accordingly.

Section 7. Effectivity Clause. – This Act shall take effect on January 1, 2004.