Office of the Secretary TWENTIETH CONGRESS OF THE ) REPUBLIC OF THE PHILIPPINES ) First Regular Session ) 26 MAR -4 P4:51 SENATE RECEIVED BY: 1930 S. No. Introduced by Senator Manuel "Lito" M. Lapid AN ACT AN ACT AMENDING SECTION 109 (1) OF THE NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED, TO EXEMPT FROM THE VALUE- ADDED TAX (VAT) THE TRANSPORT OF PASSENGERS BY AIR AND SEA TO DESTINATIONS CLASSIFIED AS TOURISM DEVELOPMENT ZONES EXPLANATORY NOTE The tourism industry serves as a cornerstone of the Philippine economy, historically contributing over 8.9% to the country's Gross Domestic Product (GDP) in 2024 and providing livelihoods for millions of Filipinos. However, the distribution of tourism's economic benefits remains strikingly disproportionate. While premier destinations like Boracay, Palawan, and Cebu continue to thrive, hundreds of equally compelling locales across the archipelago remain underdeveloped and under-visited, deprived of their share of the national tourism windfall. A primary barrier to the equitable growth of the sector is the prohibitive cost of domestic travel. For the average Filipino family or budget-conscious traveler, air and sea fares often constitute the most significant portion of their expenditure. High transportation costs naturally funnel tourists toward established hubs where high- volume traffic keeps prices competitive, thereby widening the disparity between "mature" and "emerging" destinations. This bill seeks to address this imbalance by amending Section 109 (1) of the National Internal Revenue Code (NIRC). Specifically, it proposes to exempt from the 12% Value-Added Tax (VAT) the transport of passengers to domestic destinations identified by the Department of Tourism (DOT) as having low arrival rates. The rationale for this intervention is threefold:
1. Price Elasticity and Demand Stimulation: Leisure travel is highly sensitive to price fluctuations. By removing the 12% VAT on fares to emerging destinations, we provide a direct fiscal incentive that encourages travelers to explore less- trodden paths. 2. Localized Economic Multiplier Effect. Savings realized on transportation fares are likely to be reallocated toward local spending-specifically on lodging, dining, and handicrafts. This effectively shifts capital from large-scale transport providers toward Micro, Small, and Medium Enterprises (MSMEs) within the host communities. 3. Environmental and Logistical De-concentration: By incentivizing travel to emerging sites, we mitigate the "over-tourism" currently straining the ecological carrying capacity of our most popular islands. This strategy promotes a more sustainable, decentralized model of national tourism development. To ensure fiscal responsibility and strategic targeting, this measure empowers the DOT to designate specific "Tourism Development Zones" for a predetermined period. This ensures the tax incentive remains a flexible tool-providing support where it is vital and phasing it out once a destination achieves self-sustaining market momentum. This measure aligns with the State's constitutional mandate to foster a self- reliant and independent national economy and to promote the equitable distribution of opportunities, income, and wealth. In view of the foregoing, the immediate passage of this bill is earnestly sought.
Seltate Office of the Secretary TWENTIETH CONGRESS OF THE ) REPUBLIC OF THE PHILIPPINES First Regular Session 26 MAR -4 P4:51 SENATE 1930 RECEIVED BY: S. No. Introduced by Senator Manuel "Lito" M. Lapid AN ACT AN ACT AMENDING SECTION 109 (1) OF THE NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED, TO EXEMPT FROM THE VALUE- ADDED TAX (VAT) THE TRANSPORT OF PASSENGERS BY AIR AND SEA TO DESTINATIONS CLASSIFIED AS TOURISM DEVELOPMENT ZONES Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:
SECTION 1. Short Title. - This Act shall be known as the "Discover Philippines
2 Act".
SECTION 2. Declaration of Policy. - As required by Section 9, Article II of the
4 1987 Constitution, the State's policy is to promote a fair and dynamic social order that 5 brings prosperity to the nation and frees people from poverty through policies that 6 encourage full employment, a higher standard of living, and a better quality of life for everyone. The State also acknowledges the obligation to advance social justice throughout all stages of national development and to emphasize holistic rural development. The State says that affordable and easy-to-use public transportation is important for national unity and fair access to economic opportunities. The government will use tax breaks to encourage people to travel to new places. This will spread out tourist traffic, ease congestion in big cities, and give local communities the tools they need to achieve economic growth on their own.
SECTION 3. VAT Exemption for Transport to Emerging Tourist Destinations.
— Section 109 (1) of the National Internal Revenue Code of 1997, 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) ... "(B) ... [...] XXXXXXXX "(EE) TRANSPORT OF PASSENGERS BY COMMON CARRIERS BY AIR OR SEA 11 FROM A POINT OF ORIGIN WITHIN THE PHILIPPINES TO DOMESTIC DESTINATIONS 12 CLASSIFIED AS TOURISM DEVELOPMENT ZONE BY THE DEPARTMENT OF TOURISM 13 (DOT). THE DOT SHALL DETERMINE THE CRITERIA AND DURATION FOR SUCH CLASSIFICATION AND SHALL NOTIFY SUBJECT COMMON CARRIERS ACCORDINGLY."
SECTION 4. Implementing Rules and Regulations. - Within sixty (60) days
17 from the approval of this Act, the Department of Tourism (DOT), Department of 18 Finance (DOF) through the Bureau of Internal Revenue (BIR), shall promulgate the 19 rules and regulations implementing the provisions of this Act.
SECTION 5. Separability Clause. - If any provision of this Act or the application
21 of such provision is declared unconstitutional, the remainder thereof not otherwise 22 affected shall remain in full force and effect.
SECTION 6. Repealing Clause. - All laws, presidential decrees, executive
orders, letters of instruction, proclamations or administrative regulations that are 25 inconsistent with the provisions of this Act are hereby repealed, modified, or amended accordingly.
SECTION 7. Effectivity. - This Act shall take effect fifteen (15) days after its
complete publication either in the Official Gazette or in a newspaper of general circulation. Approved,