Murang Bilihin at Serbisyong Medikal Act

Office of tyr sent you! TWENTIETH CONGRESS OF THE ) REPUBLIC OF THE PHILIPPINES FEB 12 P2:24 First Regular Session RECEIVED BY: SENATE 1857 S. No. _ Introduced by Senator Loren Legarda AN ACT REDUCING THE COST OF BASIC GOODS, ESSENTIAL UTILITIES, AND MEDICAL SERVICES BY EXPANDING VALUE-ADDED TAX EXEMPTIONS, AND AMENDING FOR THE PURPOSE SECTION 109 OF THE NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED EXPLANATORY NOTE Art. VI, Sec. 28 of the 1987 Constitution explicitly directs Congress to "evolve a progressive system of taxation." A progressive tax system is one where the tax burden increases as the taxpayer's ability to pay increases. This means tax laws shift the tax burden toward higher-income individuals and luxury consumption, while providing relief to low-income earners.' In principle, the tax burden should not fall disproportionately on those with the most vulnerable. Since tax, particularly, the Value-Added Tax or VAT, is inherently regressive, it renders the poor to spend a much larger percentage of their little income on basic goods than a wealthy person does, exempting necessities like raw food, water, and medicine, and basic health care, has been a direct constitutional mechanism to mitigate this and prevent the tax system from becoming an instrument of oppression against the poor. Therefore, this bill aims to exempt basic goods including over-the-counter *Department of Finance. (2017, February 3). CTRP is "progressive" as it will shift the tax burden to the rich, and provide subsidies to poor families-DOF. https://www.dof.gov.ph/ctrp-is-progressive-as-it-will-shift-tax-burden-to-rich-provide-subsidies-to-poor-f amilies-dof/

drugs, essential utilities, and medical-professional services from VAT. Its removal is expected to result in an immediate reduction in the retail price of basic goods such as food, water, medical services and products. With cheaper, more accessible basic goods, people generally ease-off in paying additional obligations than they can bear. VAT-free medical care on the other hand encourages individuals, particularly the poor, to seek early diagnosis avoiding advanced stages of treatment. Further, in light of systemic challenges regarding public fund mismanagement, there is a pressing need to rationalize the VAT framework for individual consumers. The relationship between the taxpayer and the State is one of reciprocal obligation: the citizen provides the 'lifeblood' of the government through taxes, and the State, in return, provides protection and services. When corruption diverts these resources, the public trust of the State is breached. Prioritizing public benefit requires a shift toward tax rationalization and it starts by lowering VAT to alleviate the burden on ordinary citizens while enforcing strict expenditure accountability to ensure every peso serves the common good. We must pivot toward a model of stringent expenditure oversight, ensuring that revenue collection is strictly commensurate with the execution of tangible, high-impact public projects. While this is the aim, there is still the need to provide adequate economic adjustments to fiscal policy, such as broadening the VAT base targeting the wealthy, to maintain revenue collection and simplify tax administration to create a good tax system that balances efficiency with social justice.? In view of the foregoing, the immediate passage of this measure is earnestly sought. LOREN LEGARDA *Congressional Policy and Budget Research Department. (2017). Value added tax in the Philippines: Revenue performance and the proposed reform (Discussion Paper No. DP2017-01). House of Representatives of the Philippines. https://cpbrd.congress.gov.ph/wp-content/uploads/2023/09/DP2017-01_Value_Added_Tax.pdf

Ofier of the endols TWENTIETH CONGRESS OF THE FEB 12 P2:24 REPUBLIC OF THE PHILIPPINES First Regular Session ) 10V RECEIVED BT: SENATE 1857 S. No. _ Introduced by Senator Loren Legarda AN ACT REDUCING THE COST OF BASIC GOODS, ESSENTIAL UTILITIES, AND MEDICAL SERVICES BY EXPANDING VALUE-ADDED TAX EXEMPTIONS, AND AMENDING FOR THE PURPOSE SECTION 109 OF THE NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED Be it enacted by the Senate and the House of Representatives of the Philippines in Congress assembled

Section 1. Short Title. - This Act shall be known as the "Murang Bilihin at

2 Serbisyong Medikal Act."

Sec. 2. Declaration of Policy. - It is hereby declared the policy of the State to

s promote social justice, protect the right of the people to health, ensure access to 6 basic necessities and essential services, and mitigate the impact of inflation and 7 rising costs of living, especially on low-income and vulnerable households. In furtherance of this policy, the State recognizes that value-added tax • exemptions may be granted for basic goods, essential utilities, and indispensable 1e medical services that are directly related to daily subsistence, public health, and 11 human dignity, without undermining the overall integrity, efficiency, and 12 sustainability of the tax system. As a matter of policy, the State affirms that fiscal sustainability shall be 14 pursued not through the indiscriminate or regressive expansion of consumption 15 taxes, but through the effective plugging of tax leakage, the strengthening of tax 16 administration, and the strict enforcement of existing tax laws against evasion, 17 avoidance, and abuse.

Accordingly, the State shall ensure that the imposition and administration of 2 value-added tax are calibrated to prioritize affordability of food, medicines, utilities, 3 medical services, and basic connectivity, while maintaining fiscal responsibility 4 through targeted, well-defined, and properly implemented exemptions that benefit 5 ordinary consumers and households.

Sec. 3. Amendment of Section 109 of the National Internal Revenue Code of

7 1997, as amended. — "SEC. 109. Exempt Transactions. (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from the VAT "(A) xxx "(B) xxx "(C) xxx "(D) xxx "(E) xxx "(F) xxx "(G) Medical, dental, hospital and veterinary services-except those rendered by professionals INCLUDING SERVICES RENDERED BY DOCTORS, DENTISTS, AND OTHER DULY LICENSED RENDERED MEDICAL PRACTITIONERS, WHETHER INDEPENDENTLY OR THROUGH MEDICAL CLINICS, HOSPITALS, OR SIMILAR FACILITIES; PROVIDED, THAT SERVICES WHICH ARE ELECTIVE, COSMETIC, AESTHETIC, OR PRIMARILY INTENDED TO ENHANCE PHYSICAL APPEARANCE,

INCLUDING BUT NOT LIMITED TO COSMETIC DERMATOLOGY, AESTHETIC SURGERY, ANTI-AGING TREATMENTS, AND SIMILAR PROCEDURES NOT MEDICALLY NECESSARY FOR THE DIAGNOSIS, TREATMENT, OR PREVENTION OF DISEASE, SHALL REMAIN SUBJECT TO VALUE-ADDED TAX." "(H) xxx "(I) xxx "(J) xxx "(K) xxx "(L) xxx "(M) xxx "(N) xxx "(O) xxx "(P) xxx "(Q) xxx "(R) xxX "(S) xxx "(T) xxx

"(U) xxx "(V) xxx "(W) xxx "(X) xxx "(Y) xxx "(Z) xxx "(AA) XXX "(BB) xxx "(CC) SALE OR IMPORTATION OF BASIC OVER-THE-COUNTER MEDICINES AND ESSENTIAL FIRST-AID MEDICAL SUPPLIES FOR THE PREVENTION, RELIEF, OR TREATMENT OF COMMON AND NON-CHRONIC CONDITIONS, INCLUDING MEDICINES FOR FEVER, COUGH, COLD, FLU, BODY PAIN, HYPERACIDITY, ALLERGIES, DIARRHEA, AND OTHER SIMILAR BASIC AILMENTS, AS WELL AS BASIC VITAMINS AND MINERAL PREPARATIONS WITH FDA-APPROVED THERAPEUTIC OR PROPHYLACTIC CLAIMS, AND ANTISEPTICS, BANDAGES, GAUZE, MEDICAL ALCOHOL, THERMOMETERS, AND OTHER ESSENTIAL MEDICAL CONSUMABLES: PROVIDED, THAT THIS EXEMPTION SHALL NOT APPLY TO FOOD SUPPLEMENTS, WELLNESS PRODUCTS, OR OTHER ITEMS WITHOUT APPROVED THERAPEUTIC CLAIMS, AS MAY BE DETERMINED BY THE DEPARTMENT OF HEALTH AND THE FOOD AND DRUG ADMINISTRATION;"

"(DD) SALE OR IMPORTATION OF BASIC COMMODITIES NECESSARY FOR DAILY SUBSISTENCE AND HOUSEHOLD USE WHICH ARE NOT OTHERWISE EXEMPT UNDER THIS SECTION, INCLUDING BUT NOT LIMITED TO BASIC PROCESSED FOOD PRODUCTS SUCH AS CANNED FISH, CHICKEN, BEEF AND OTHER MEAT PRODUCTS, INSTANT AND DRIED NOODLES, BREAD AND BASIC BAKERY PRODUCTS, MILK AND BASIC DAIRY PRODUCTS; BASIC COOKING AND FOOD PREPARATION INPUTS INCLUDING COOKING OIL, SOY SAUCE, VINEGAR, AND FISH SAUCE; AND BASIC HOUSEHOLD NECESSITIES AND CONSUMABLES INCLUDING LAUNDRY AND DISHWASHING SOAP OR DETERGENT, TOILET PAPER, SANITARY NAPKINS, BABY DIAPERS, ADULT DIAPERS, AND OTHER SIMILAR ESSENTIAL ITEMS: PROVIDED, THAT WITH RESPECT TO CANNED PRODUCTS AND INSTANT AND DRIED NOODLES, THE EXEMPTION SHALL APPLY ONLY TO BASIC, NON-PREMIUM, AND NON-SPECIALTY VARIANTS PRIMARILY CONSUMED AS LOW-COST MEAL SUBSTITUTES, AND SHALL EXCLUDE PREMIUM, GOURMET, OR SPECIALTY CANNED GOODS AND NOODLES MARKETED PRIMARILY FOR TASTE, BRANDING, OR NOVELTY, INCLUDING IMPORTED OR BRANDED VARIANTS PRICED ABOVE A SUBSISTENCE THRESHOLD, AS MAY BE DEFINED BY THE DEPARTMENT OF FINANCE IN COORDINATION WITH THE DEPARTMENT OF TRADE AND INDUSTRY; PROVIDED, FURTHER, THAT SUCH SUBSISTENCE THRESHOLD MAY TAKE INTO ACCOUNT UNIT PRICE, PACKAGING SIZE, IMPORT STATUS, PRODUCT POSITIONING, AND OTHER OBJECTIVE CRITERIA INDICATIVE OF NON-SUBSISTENCE CONSUMPTION."

"(EE) SALE OF WATER SUPPLY AND SEWERAGE SERVICES FOR RESIDENTIAL AND BASIC HOUSEHOLD CONSUMPTION, INCLUDING ALL RELATED SERVICE, ENVIRONMENTAL, REGULATORY, AND OTHER MANDATORY FEES CHARGED BY WATER UTILITIES; PROVIDED, FURTHER, THAT WATER SUPPLIED FOR COMMERCIAL, INDUSTRIAL, BULK, OR NON-ESSENTIAL USE, INCLUDING WATER USED FOR MANUFACTURING, LARGE-SCALE COMMERCIAL OPERATIONS, RESORTS, BOTTLED WATER PRODUCTION, AND OTHER HIGH-VOLUME OR PROFIT-ORIENTED ACTIVITIES, SHALL REMAIN SUBJECT TO VALUE-ADDED TAX UNDER SECTIONS 106 AND 108 OF THIS CODE; PROVIDED, FURTHERMORE, THAT THE VALUE-ADDED TAX EXEMPTION SHALL APPLY ONLY TO WATER CONSUMPTION NOT EXCEEDING A MONTHLY THRESHOLD, EXPRESSED IN CUBIC METERS, AS MAY BE DETERMINED BY THE DEPARTMENT OF FINANCE, IN COORDINATION WITH THE METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM (MWSS), THE LOCAL WATER UTILITIES ADMINISTRATION (LWUA), AND OTHER RELEVANT REGULATORY AGENCIES, TAKING INTO ACCOUNT BASIC HOUSEHOLD WATER NEEDS, PUBLIC HEALTH STANDARDS, EQUITY CONSIDERATIONS, AND WATER CONSERVATION OBJECTIVES; PROVIDED, FINALLY, THAT WHERE TWO (2) OR MORE WATER METERS SERVE THE SAME HOUSEHOLD, DWELLING, OR RESIDENTIAL UNIT, THE TOTAL WATER CONSUMPTION RECORDED BY SUCH METERS SHALL BE AGGREGATED FOR PURPOSES OF DETERMINING ELIGIBILITY FOR THE EXEMPTION;"

"(FF) SALE OF BASIC INTERNET ACCESS AND CONNECTIVITY SERVICES FOR PERSONAL, HOUSEHOLD, EDUCATIONAL, AND ESSENTIAL COMMUNICATION USE: PROVIDED, THAT THIS EXEMPTION SHALL NOT APPLY TO DIGITAL CONTENT, APPLICATION SUBSCRIPTIONS, STREAMING SERVICES, ONLINE PLATFORMS, ADVERTISING SERVICES, OR OTHER VALUE-ADDED DIGITAL SERVICES SUBJECT TO THIS CODE, INCLUDING DIGITAL SERVICES SUBJECT TO VALUE-ADDED 9. TAX UNDER SECTIONS 108-A AND 108-B HEREOF, NOR SHALL IT BE CONSTRUED TO AFFECT THE IMPOSITION, COLLECTION, WITHHOLDING, OR REMITTANCE OF VALUE-ADDED TAX ON SUCH DIGITAL SERVICES." "(GG) SALE OF ELECTRICITY FOR RESIDENTIAL AND BASIC HOUSEHOLD CONSUMPTION, INCLUDING ALL RELATED SYSTEM LOSS, UNIVERSAL, ENVIRONMENTAL, REGULATORY, AND OTHER MANDATORY CHARGES PASSED ON TO END-USERS BY GENERATION COMPANIES, TRANSMISSION ENTITIES, DISTRIBUTION UTILITIES, AND ELECTRIC COOPERATIVES; PROVIDED, FURTHER, THAT ELECTRICITY SUPPLIED FOR COMMERCIAL, INDUSTRIAL, OR NON-ESSENTIAL USE, INCLUDING ELECTRICITY USED FOR DATA CENTERS, CRYPTOCURRENCY MINING, LARGE-SCALE COMMERCIAL OPERATIONS, AND OTHER ENERGY-INTENSIVE ACTIVITIES, SHALL REMAIN SUBJECT TO VALUE-ADDED TAX UNDER SECTIONS 106 AND 108 OF THIS CODE; PROVIDED, FURTHERMORE, THAT THE VALUE-ADDED TAX EXEMPTION SHALL APPLY ONLY TO ELECTRICITY CONSUMPTION NOT EXCEEDING A MONTHLY THRESHOLD, EXPRESSED IN KILOWATT-HOURS, AS MAY BE DETERMINED

BY THE ENERGY REGULATORY COMMISSION, IN COORDINATION WITH THE DEPARTMENT OF ENERGY AND THE DEPARTMENT OF FINANCE, TAKING INTO ACCOUNT EXISTING LIFELINE CONSUMPTION LEVELS, REASONABLE BASIC HOUSEHOLD ELECTRICITY NEEDS, AND ENERGY CONSERVATION OBJECTIVES; PROVIDED, FINALLY, THAT WHERE TWO (2) OR MORE ELECTRIC METERS SERVE THE SAME HOUSEHOLD, DWELLING, OR RESIDENTIAL UNIT, THE TOTAL ELECTRICITY CONSUMPTION RECORDED BY SUCH METERS SHALL BE AGGREGATED FOR PURPOSES OF DETERMINING ELIGIBILITY FOR THE EXEMPTION. "(CC) (HH) 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 do not exceed the amount of Three million pesos (P3,000,000.00): Provided, That the amount herein stated shall be adjusted to its present values using the consumer price index, as published by the Philippine Statistics Authority (PSA) every three (3) years. (DD) (II) Importation of goods by an export-oriented enterprise whose export sales is at least seventy percent (70%) of the total annual production of the preceding taxable year: Provided, That such goods are directly attributable to the export activity of the export-oriented enterprise: Provided, further, That the Export Marketing Bureau of the DTI shall determine the compliance with the aforementioned threshold. For this purpose, 'directly attributable' shall follow the same definition under Section 106 of this Code.

Sec. 4. Implementing Rules and Regulations. - Within ninety (90) days from

30 the effectivity of this Act, the Department of Finance (DOF), through the Bureau of 31 Internal Revenue (BIR), in coordination with the Department of Health (DOH), Food

1 and Drug Administration (FDA), Department of Trade and Industry (DTI), 2 Department of Energy (DOE), Energy Regulatory Commission (ERC), Local Water 3 Utilities Administration (LWUA), Metropolitan Waterworks and Sewerage System • (MWSS), National Telecommunications Commission (NTC), and such other relevant s agencies, shall promulgate the necessary rules and regulations for the effective 6 implementation of this Act. Such rules and regulations shall, among others: (a) Define the scope, parameters, and thresholds for basic, non-premium, and non-specialty goods and services eligible for value-added tax exemption under

Section 109 of the National Internal Revenue Code of 1997, as amended;

(b) Prescribe objective criteria for distinguishing basic household consumption from commercial, industrial, or non-essential use, including but not limited to consumption levels, pricing, packaging, and service classification; (c) Identify and update the list of basic over-the-counter medicines, essential medical supplies, and vitamins with approved therapeutic or prophylactic claims eligible for exemption, in accordance with standards set by the DOH and FDA; (d) Ensure that the exemption for basic internet access and connectivity services does not extend to digital content, application subscriptions, online platforms, or other value-added digital services subject to value-added tax under Sections 108-A and 108-B of this Code; (e) Establish appropriate reporting, invoicing, and compliance mechanisms to prevent abuse, leakage, or improper shifting of value-added tax; and (f) Provide for periodic review and adjustment of thresholds and classifications, consistent with consumer protection, public welfare, and fiscal sustainability.

Sec. 5. Separability Clause. - If any provision of this Act is declared

28 unconstitutional, the remainder thereof not otherwise affected shall remain in full 29 force and effect.

Sec. 6. Repealing Clause. - Any law, presidential decree or issuance,

31 executive order, letter of instruction, rule or regulation inconsistent with the 32 provisions of this Act is hereby repealed or modified accordingly.

Sec. 7. Effectivity, - This Act shall take effect fifteen (15) days after its

2 publication in the Official Gazette or in a newspaper of general circulation. Approved,