REPUBLIC OF THE PHILIPPINES

Senate
Pasay City

Journal
SESSION NO. 43
Monday, November 20,2006

THIRTEENTH CONGRESS
THIRD REGULAR SESSION

SESSION NO. 43 Monday, November 20,2006

CALL TO ORDER
At 3:31 p.m., the Senate President, Hon. Manny Villar, called the session to order.

ROLL CALL
Upon direction of the Chair, the Secretary of the Senate, Oscar G. Yabes, called the roll, to which the following senators responded Angara, E. J. Flavier, J. M. Arroyo, J. P. Lacson, P. M. Biazon, R. G. Lim, A. S . Cayetano, C. P. S . Magsaysay Jr., R. B. Defensor Santiago, M. 1 1 , S . R. Osmefia 1 Drilon, F. M. Pangilinan, F. N. Pimentel Jr., A. Q. Ejercito Estrada, J. Ejercito Estrada, L. L. P. Roxas, M. Enrile, J. P. Villar, M. With 18 senators present, the Chair declared the presence of a quorum Senators Madrigal and Recto arrived after the roll call. Senators Gordon and Lapid were on official mission abroad. Senator Revilla was on sick leave

PRAYER
Sen. Sergio R. Osmefia I11 led the prayer, to wit: Heavenly Father, once again we gather to exercise our responsibilities and fulfill our duties and obligations as representatives in service of the Filipino people; We thank You for this opportunity to better their lives and those of generations to come; Grant us the light, the strength and the courage so that our words and deeds would be reflective of Your will in this time of divisiveness and uncertainty; Give us the wisdom to guide our beloved nation in the proper direction in adherence to Your etemal laws; Teach us to use the authority and the power entrusted to us by our countrymen, to pursue the right path towards democratic development so that justice, peace and prosperity may result amongst ourselves and among all peoples.

ACKNOWLEDGMENT OF THE PRESENCE OF GUESTS

At this juncture, Senator Pangilinan acknowledged the presence of officials from the Clark Development Corporation (CDC) - Mr. Liberato P. Laus, President; Mr. Victor Jose I. Luciano, President, Clark International Airport Corporation (CIAC); Mr. Philip Jose B. Panlilio, Exec. Vice President, CDC; Mr. Emesto S . Gorospe, Vice President for Business Development; Mr. Pepito M. Galang, Vice President for Operations and Technical Services; Mr. Noel F. Manankil, Vice President for Finance; and Mr. Jose Comelio Lukban, Vice President for Corporate Services.*

AI1 these for Your greater glory.

Amen

NATIONAL ANTHEM
The Philippine Science High School led the singing of the national anthem, and thereafter rendered the song entitled, Matutupnd.

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MONDAY, NOVEMBER 20,2006

APPROVAL OF THE JOURNAL

Upon motion of Senator Pangilinan, there being no objection, the Body dispensed with the reading of the Journals of Session Nos. 41 (November 14, 2006) and 42 (November 15, 2006) and considered them approved.

THE MUNICIPALITIES OF BAUANG AND SAN JUAN, PROVINCE OF LA UNION, AND RENEWING1 EXTENDING THE TERM OF THE FRANCHISE TO ANOTHER TWENTYFIVE (25) YEARS FROM THE DATE OF APPROVAL OF THIS ACT, recommending its approval with amendments. Sponsor: Senator Arroyo

REFERENCE OF BUSINESS
The Secretary of the Senate read the following matters and the Chair made the corresponding referrals:

To the Calendar for Ordinary Business

Committee Report No. 159, submitted by the Committee on Public Services, on House Bill No. 5401, introduced by Representative Nepomuceno, et nl., entitled AN ACT FURTHER AMENDING THE FRANCHISE OF ANGELES ELECTRIC CORPORATION GRANTED UNDER REPUBLIC ACT NO. 2341, AS AMENDED, T O CONSTRUCT, OPERATE AND MAINTAIN A DISTRIBUTION SYSTEM FOR THE CONVEYANCE O F ELECTRIC POWER TO THE END-USERS IN THE CITY OF ANGELES, PROVINCE OF PAMPANGA, AND RENEWING/ EXTENDING THE TERM OF THE FRANCHISE TO ANOTHER TWENTYFIVE (25) YEARS FROM THE DATE OF APPROVAL OF THIS ACT, recommending its approval with amendments. Sponsor: Senator Arroyo

RESOLUTION
Senate Joint Resolution No. 10, entitled JOINT RESOLUTION PROVIDING FOR BENEFITS AND INCENTIVES TO ALL QUALIFIED OFFICIALS AND EMPLOYEES OF THE SENATE OF THE PHILIPPINES, THE HOUSE OF REPRESENTATIVES, THE COMMISSION ON APPOINTMENTS, AND THE ELECTORAL TRIBUNALS OF THE SENATE AND THE HOUSE OF REPRESENTATIVES IN THE EVENT OF REORGANIZATION, ABOLITION OR DISSOLUTION OF CONGRESS CAUSED BY AN AMENDMENT OR REVISION OF THE CONSTITUTION Introduced by Senator Enrile

To the Committee on Rules COMMITTEE REPORTS

Committee Report No. 158, submitted by the Committee on Public Services, on House Bill No. 5512, introduced by Representatives Ortega and Zubiri, entitled
AN ACT FURTHER AMENDING THE

To the Calendar for Ordinary Business ADDITIONAL REFERENCE OF BUSINESS RESOLUTIONS

FRANCHISE OF LA UNION ELECTRIC COMPANY, INC. UNDER REPUBLIC ACT NO. 1225, AS AMENDED, TO CONSTRUCT, OPERATE AND MAINTAIN A DISTRBUTTON SYSTEM FOR THE CONVEYANCE OF ELECTRIC POWER TO THE END-USERS IN THE CITY OF SAN FERNANDO AND

Proposed Senate Resolution No. 589, entitled RESOLUTION COMMENDING WITH THE HIGHEST ESTEEM MANNY PACMAN PACQUIAO FOR DEFEATING BY WAY OF KNOCKOUT MEXICAN THREE-TIME WORLD CHAMPION ERIK EL TERRIBLE.$-.

MONDAY. NOVEMBER 20.2006

7 1<

MORALES IN A BOXING MATCH HELD LAST NOVEMBER 18, 2006 IN LAS VEGAS, NEVADA Introduced by Senator Manuel Lito M Lapid

Secretary Yabes called the roll for nominal voting.

RESULT OF THE VOTING

The result of the voting was as follows: In favor

To the Committee on Rules

Proposed Senate Resolution No. 590, entitled RESOLUTION CONGRATULATING AND COMMENDING MANNY PACMAN PACQUIAO FOR HIS REMARKABLE VICTORY IN THE CONCLUSION OF A BOXING TRILOGY AGAINST ERIK EL TERRIBLE MORALES ON NOVEMBER 19,2006 IN LAS VEGAS, NEVADA Introduced by Senator Jinggoy Ejercito Estrada Angara Arroyo Biazon Cayetano Defensor Santiago Ddon Ejercito Estrada (J) Ejercito Estrada (L) Enrile Flavier
Against

Lacson Lim Madrigal Magsaysay Osmefia Pangilinan Pimentel Recto Roxas Villar

None
Abstention

To the Committee on Rules

Proposed Senate Resolution No. 591, entitled RESOLUTION COMMENDING MANNY PACMAN PACQUIAO FOR BRINGING PRIDE AND HONOR TO THE FILIPINO NATION FOR HIS TRIUMPHANT BOXING MATCH IN LAS VEGAS, NEVADA, USA Introduced by Senator Manny Villar

None With 20 senators voting in favor, none against, and no abstention, the Chair declared House Bill No. 1829 approved on Third Reading.

APPROVAL OF HOUSE BILL NO. 4845 ON THIRD READING

Upon motion of Senator Pangilinan, there being no objection, the Body considered, on Third Reading, House Bill No. 4845, printed copies of which were distributed to the senators on November 15, 2006. Pursuant to Section 67, Rule XXIII of the Rules of the Senate, upon motion of Senator Pangilinan, there being no objection, Secretary Yabes read only the title of the bill, to wit: AN ACT GRANTING PHILIPPINE CITIZENSHIP TO MICHAEL G. J. GLEISSNER. Secretary Yabes called the roll for nominal voting

To the Committee on Rules APPROVAL OF HOUSE BILL NO. 1829 ON THIRD READING
Upon motion of Senator Pangilinan, there being no objection, the Body considered, on Third Reading House Bill No. 1829, printed copies of which were distributed to the senators on November 15, 2006. Pursuant to Section 67, Rule XXIII of the Rules of the Senate, upon motion of Senator Pangilinan, there being no objection, Secretary Yabes read only the title of the bill, to wit: AN ACT GRANTING PHILIPPINE CITIZENSHIP TO REV. FR. ULRICH H. SCHLECHT, SVD.

RESULT OF THE VOTING

The result of the voting was as follows: +a

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MONDAY. NOVEMBER 20,2006

In favor Angara Arroyo Biazon Cayetano Defensor Santiago Drilon Ejercito Estrada (J) Ejercito Estrada (L) Enrile Flavier
Against

Lacson

The Chair recognized Senator Arroyo for the sponsorship.

Lm
Madrigal Magsaysay Osmefia Pangilinan Pimentel Recto Roxas Villar

SPONSORSHIP REMARKS OF SENATOR ARROYO

None
Abstention

In sponsoring House Bill No. 3293, Senator Arroyo informed the Body that the Zamboanga Artui-o Eustaquio College was established in 1948 with 479 high school and college students in its first year and since then, it has evolved into a three-college higher education institution which offers 44 curriculum programs; today, it is considered as one of Western Visayas and Mindanao's largest educational institution catering to students across the Zamboanga peninsula. He stated that the institution hopes to be given a franchise to establish nonprofit radio stations in Ipil, Zamboanga.
He added that Senator Ejercito Estrada (J) is a cosponsor of the bill.

None With 20 senators voting in favor, none against, and no abstention, the Chair declared House Bill No. 4845 approved on Third Reading.

SPECIAL ORDER
Upon motion of Senator Pangilinan, there being no objection, the Body approved the transfer of Committee Report No. 155 on House Bill No. 3293 from the Calendar for Ordinary Business to the Calendar for Special Orders.

SUSPENSION OF CONSIDERATION OF HOUSE BILL NO. 3293

Upon motion of Senator Pangilinan, there being

no objection, the Body suspended consideration of

the bill.

SPECIAL ORDER
Upon motion of Senator Pangilinan, there being no objection, the Body approved the transfer of Committee Report No. 128 on House Bill No. 5513 to the Calendar for Special Orders.

COMMITTEE REPORT NO. 155 ON HOUSE BILL NO. 3293 (Continuation)

Upon motion of Senator Pangilinan, there being no objection, the Body considered, on Second Reading, House Bill No. 3293 (Committee Report No. 155), entitled

COMMITTEE REPORT NO. 128 ON HOUSE BILL NO. 5513

Upon motion of Senator Pangilinan, there being no objection, the Body considered, on Second Reading, House Bill No. 5513 (Committee Report No. 128), entitled AN ACT GRANTING THE ITRANSMISSION, INC. A FRANCHISE TO CONSTRUCT, INSTALL, ESTABLISH, OPERATE AND . MAINTAIN RADIO AND TELEVISION BROADCASTING STATIONS IN THE PHILIPPINES. Pursuant to Section 67, Rule XXIII of the Rules of the Senate, with the permission of the Body, upon $ j'

AN ACT GRANTING THE ZAMBOANGA ARTURO EUSTAQUIO COLLEGES FOUNDATION, INC. A FRANCHISE TO CONSTRUCT,INTALL, ESTABLISH, OPERATE AND MAINTAIN RADIO AND TELEVISION BROADCASTING STATIONS IN IPIL, ZAMBOANGA SIBUGAY.
Pursuant to Section 67, Rule XXIII of the Rules of the Senate, with the permission of the Body, upon motion of Senator Pangilinan, only the title of the bill was read without prejudice to the insertion of its full text into the Record of the Senate.

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717

motion of Senator Pangilinan, only the title of the bill was read without prejudice to the insertion of its full text into the Record of the Senate. The Chair recognized Senator Arroyo for the sponsorship.

SECOND ADDITIONAL REFERENCE OF BUSINESS

The Executive Director for Legislation read the following resolutions which the Chair referred to the Committee on Rules: Proposed Senate Resolution No. 592, entitled RESOLUTION COMMENDING THE FILIPINO HIGH SCHOOL STUDENTS WHO WON THE 2006 WORLD ROBOT OLYMPIAD Introduced by Senator Manny Villar Proposed Senate Resolution No. 593, entitled

SPONSORSHIP REMARKS OF SENATOR ARROYO

Senator Arroyo stated that House Bill No. 5513 seeks to grant ITransmission, Inc. a franchise to construct, install, establish, operate and maintain radio and/or television broadcasting stations in Western Visayas, particularly in Palawan where the incorporators are residents. Senator Arroyo disclosed that the Committee on Public Services has endeavored to look into the application since radio and television stations are very few outside Metro Manila. He appealed to his colleagues to approve the bill because it would benefit the western part of the country.

SUSPENSION OF CONSIDERATION OF HOUSE BILL NO. 5513

Upon motion of Senator Pangilinan, there being no objection, the suspended consideration of the bill.

RESOLUTION COMMENDING MANNY PACQUIAO FOR WINNING THE 19 NOVEMBER 2006 BOXING CONTEST AGAINST ERIK MORALES, HELD AT THE THOMAS AND MACK CENTER IN LAS VEGAS, UNITED STATES OF AMERICA, BRINGING HONOR AND PRIDE TO THE PHILIPPINES AND AFFIRMING FILIPINO EXCELLENCE IN THE SPORT OF BOXING Introduced by Senator Mar Roxas

MANIFESTATION OF SENATOR PANGILINAN

Senator Pangilinan informed the Body that in the last session, it was agreed that there would be a caucus to discuss the schedule of the budget debates on the General Appropriations Act for 2007. He appealed to all the senators to be present in order to firm up the schedules for the deliberations on the budget and other measures as well.

REMARKS OF SENATOR PANGILINAN

Senator Pangilinan reported that at the caucus, it was agreed that Senator Drilon would sponsor the budget measure the following day, November 21; floor debates would begin Wednesday, November 22, at 1O:OO in the morning; budget deliberations would be held morning and afternoon, including Friday, until November 30, 2006. He requested the Members to submit their written amendments to the budget on November 30 in order to give the Committee the weekend to put together the final version of the bill. He expressed hope that the budget would be approved on December 4, 2006, and while the Bicameral Conference is ongoing, the Body would tackle pending legislative measures, even on a Friday, if necessary. Moreover, Senator Pangilinan stated that the Rules would be suspended during the budget deliberations so that committees could hold

SUSPENSION OF SESSION
Upon motion of Senator Pangilinan, the session was suspended to allow the senators to go into caucus.

It was 3:52 p.m. RESUMPTION OF SESSION

At 5:18 p.m., the session was resumed.

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MONDAY, NOVEMBER 20, 2006

REMARKS OF SENATOR DRILON

Senator Drilon clarified that while committees could conduct hearings during budget deliberations, the schedule of interpellations for the different departments would not be changed. He said that the Members would have until tomorrow to revise the schedule of interpellations for the different departments, after which, the Body would strictly follow the schedule in order to avoid delay in the passage of the budget, and to prevent undue intemptions in the work of the people who would be coming to defend their respective budgets.

FRANCHISE TO ANOTHER TWENTYFIVE (25) YEARS FROM THE DATE OF APPROVAL OF THIS ACT. Pursuant to Section 67, Rule XXIII of the Rules of the Senate, with the permission of the Body, upon motion of Senator Pangilinan, only the title of the bill was read without prejudice to the insertion of its full text into the Record of the Senate. Thereupon, the Chair recognized Senator Arroyo
for the sponsorship.

SUSPENSION OF SESSION
Upon motion of Senator Pangilinan, the session was suspended.

SPONSORSHIP REMARKS OF SENATOR ARROYO

In his sponsorship of House Bill No. 5401, Senator Arroyo informed the Body that Angeles Electric Corporation has served Angeles City since 1923, thus, at 80 years, it is one of the oldest private electric distribution utilities in the country. He explained that the corporation was first granted a 25-year franchise on June 20, 1959 under Republic Act No. 2341, which was extended to 50 years on June 30, 1964 through Republic Act No. 4079. He said that the franchise would end in June 2009. Senator Arroyo urged the Body to give the corporation another 25 years, considering its long history and good service, and the fact that no other electric company would like to serve Angeles City.

It was 5:24 pm. RESUMPTION OF SESSION

At 5:24 p m , the session was resumed.

SPECIAL ORDER
Upon motion of Senator Pangilinan, there being no objection, the Body approved the transfer of Committee Report No. 159 on House Bill No. 5401 from the Calendar for Ordinary Business to the Calendar for Special Orders.

COMMITTEE REPORT NO. 159 ON HOUSE BILL NO. 5401

Upon motion of Senator Pangilinan, there being no objection, the Body considered, on Second Reading, House Bill No. 5401 (Committee Report No. 159), entitled AN ACT FURTHER AMENDING THE FRANCHISE OF ANGELES ELECTRIC CORPORATION GRANTED UNDER REPUBLIC ACT NO. 2341, AS AMENDED, T O CONSTRUCT, OPERATE AND MAINTAIN A DISTRIBUTION SYSTEM FOR THE CONVEYANCE OF ELECTRIC POWER TO THE END-USERS IN THE CITY OF ANGELES, PROVINCE OF PAMPANGA, AND RENEWING/ EXTENDING THE TERM OF THE

SUSPENSION OF CONSIDERATION OF HOUSE BILL NO. 5401

Upon motion of Senator Pangilinm, there being no objection, the Body suspended consideration of the bill.

SPECIAL ORDER
Upon motion of Senator Pangilinan, there being no objection, the Body approved the transfer of Committee Report No. 158 on House Bill No. 5512 from the Calendar for Ordinary Business to the Calendar for Special Orders.

COMMITTEE REPORT NO. 158 ON HOUSE BILL NO. 5512

Upon motion of Senator Pangilinan, there being no objection, the Body considered, on Second Reading, House Bill No. 5512 (Committee Report No. 158), entitled++

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719

AN ACT FURTHER AMENDING THE

FRANCHISE OF LA UNION ELECTRIC COMPANY, INC. UNDER REPUBLIC ACT NO. 1225, AS AMENDED, TO CONSTRUCT, OPERATE AND MAINTAIN A DISTRIBUTION SYSTEM FOR THE CONVEYANCE OF ELECTRIC POWER TO THE END-USERS IN THE CITY OF S A N FERNANDO AND THE MUNICIPALITIES OF BAUANG AND S A N JUAN,PROVINCE OF LA UNION, A N D RENEWINGIEXTENDING THE TERM OF THE FRANCHISE TO ANOTHER TWENTYFIVE (25) YEARS FROM THE DATE OF THE APPROVAL OF THIS ACT.

Second Reading, of Senate Bill No. 2260 (Committee Report No. 77), entitled
AN ACT AMENDING REPUBLIC ACT NO. 7227, AS AMENDID, OTHERWSE

KNOWN AS THE BASES CONVERSION AND DEVELOPMENT ACT OF 1992, AND FOR OTHER PURPOSES. Senator Pangilinan stated that the parliamentaty status was still the period of interpellations. Thereupon, the Chair recognized Senator Recto, Sponsor of the measure.

SUSPENSION OF SESSION
Upon motion of Senator Pangilinan, the session was suspended.

b u m t to Section 67, Rule XXIII of the Rules of the Senate, with the permission of the Body, upon motion of Senator Pangilinan, only the title of the bill was read without prejudice to the insertion of its full text into the Record of the Senate.
Thereupon, the Chair recognized Senator Arroyo for the sponsorship.

It was 5:31 p.m

RESUMPTION OF SESSION
At 5:35 p.m., the session was resumed.

SUSPENSION OF SESSION
With the permission of the Body, the Chair suspended the session. It was 5 : 3 6 p.m.

SPONSORSHIP REMARKS OF SENATOR ARROYO

In sponsoring House Bill No. 5512, Senator Arroyo stated that La Union Electric Company is another old f i r mthat was given a franchise under Republic Act No. 1225, which was amended by Republic Act No. 4070. He said that the company is serving the city of San Fernando and the municipalities of Bauang and San Juan and that no other company is interested in providing the services for these three localities. He urged the Body to grant the franchise which is necessary for the company to plan its future.
SUSPENSlON OF CONSIDERATION OF HOUSE BILL NO. 5512
Upon motion of Senator Pangilinm, there being no objection, the Body suspended consideration of the bill.

RESUMPTION OF SESSION
At 5:37 p.m., the session was resumed.

INTERPELLATION OF SENATOR BIAZON

Senator Biazon noted that advanced technology is pushing the development of bigger airports in order to accommodate bigger aircraft like the A380 supedumbo plane and as a consequence, existing international airports might not be able to meet the needs of the future. He cited the construction of the Dulles Airport to supplement the national airport in Washington, D.C. and the JFK Airport to augment the capacity of La Guardia Airport. Noting the Malaysian governments foresight in constructing a huge airport 75 kilometers away from Kuala Lumpur to provide for future capacity, Senator Biazon said that the government could also build an alternative airport in Clark Air Base that could

COMMITTEE REPORT NO. 77 ON SENATE BILL NO. 2260 (Continuation)

Upon motion of Senator Pangilinan, there being no objection, the Body resumed consideration, on

$ ,

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accommodate larger aircraft like the A380. Senator Recto agreed, saying that Clark, which is only 80 kilometers or 45 minutes away from Metro Manila, is a very viable site with its large land area of 27,000 hectares, 4,400 hectares of which is in the main zone, and 2,200 hectares in the sub-main zone where the airport and the allied industries are located. He added that international airlines are already operating in Clark. However, he.advised that before gowemment moves to Clark, it -hasto recoup~~,,investments:in NAIA Terminal 1 1 1 and utilize its entire capacity. Senator Biazon noted that the lone runway at the NAIA could not accommodate simultaneous landings and takeoffs and that building a runway parallel to the existing two runways in Clark would not be possible owing to lack of space. Underscoring the need to plan the development of Clark Air Base, he said that legislation should also provide a limitation on the building of vertical infrastructure, as he cited the building located at the Bacolod airport which has prevented its full utilization.

Further, Senator Osmeiia expressed the view that 2,000 hectares makes sense because of the plan to develop the Macapagal Airport in Clark into a logistics hub, a free port where people can come in and out with overnight packages -whether manufacturing integrated circuits or other types of and fly them out without being hassled electronics. byCnstoms;akinto the concept developed by Ross Perot at..&. D a l l a s Fort W w h area some ,207.years ...ago.,He Said .that *at that ,,time;.-,he,thought that the idea was way ahead of its time, but, indeed, it brought a great deal of economic activity when it was finally developed. Expressing support for the proposal of Senator Biazon, Senator Osmefia said that the details thereof could be covered by another law creating a special charter for the purpose. But he said that the land should already be reserved and set aside so that there would be no other development for a purpose other than that approved by the concerned authorities. He also cited the development of airports like the Amsterdam Schiphol International Airport that leases lands within its environs for not more than ten years, and knocking down infrastructure afterwards in case it needed the land for expansion. On the other hand, he said that Mactan-Cebu International Airport Authority signed a 75-year lease of the land behind it, which was originally for the construction of the airports parking lot, to the Waterfront Hotel at P7.00 per square meter per month without any escalation clause. Senator Recto expressed support for the recommendations of Senator Osmefia, saying that it is very rare to find elective officials who could look 20 years to 200 years ahead. He said that officials of the Clark Development Corporation believe that there would be no problem in setting aside 2,000 hectares for that purpose. On another matter, Senator Osmefia asserted that to avoid confusion, there is a need to tighten the definitions of such terms as special economic zone, he port, industrial zone, industrialestate, tourism zones, and call centers as they have been used in several laws other than Republic Act No. 7227. Senator Recto stated that a special economic zone is a complex wherein one may have an export processing zone and an industrial estate, and even a free trade zone; an industrial estate is a contiguous area for domestic manufacturing while an export processing zone is a manufacturing site for exports,+

In reply to a query, Senator Recto said the bill only deals with the tax problem of the BCDA locators who were promised a tax amnesty regime by the government which the Supreme Court reversed in a final judgment, finding that President Ramos erred in issuing the executive orders and proclamations granting the tax incentives. He said that the locators are now up in arms, as they are required to pay the difference between the 5% and the 32% tax on net income. However, he gave assurance that the concern of Senator Biazon would be dealt with in another bill.
INTERPELLATION OF SENATOR OSMERA
Senator Osmefia asked on the possibility of setting aside 2,000 hectares around the Clark airport just for airport or airport-related activities, as he revealed that in 1955, it was his father, with the help of the late President Magsaysay, who authorized the purchase of 300 hectares of land in Mactan and the construction of the runway which was fully paid for by the American government. He achowledged that 50 years is not enough to plan for an international airport and that Mactan itself has a short, narrow, single runway that could not accommodate an A380 because the surrounding lands have been taken up by the export processing zone, a shortsighted decision on the part of the governor of Cebu and the President at that time.

)b

MONDAY, NOVEMBER 20,2006

72 1

which may include those that earn foreign exchange like call centers; and a free trade zone is a separate customs territory where goods can come in duty-free and VAT-free, and be re-exported as well. On the observation that the definitions of special economic zone in the PEZA law and Senate Bill No. 2411 are almost similar except that the latter does not include commercial banks and investment and financial centers, Senator Recto explained that he thought it best to correct in the bill the ambiguous definitions made in the PEZA law, pointing out that as applied presently by PEZA, banks and financial centers are entitled to the incentives, income tax holidays, or 5% gross income tax application, that a locator in a special economic zone enjoys. He said that he does not think that banks and financial intermediaries and institutions should be given additional privileges. Asked whether a locator in Subic that exports service to Hong Kong or the British Virgin Island could be entitled to tax incentives, Senator Recto said that he would be hesitant in providing such incentives to such a locator. Senator Osmefia asked whether gaming establishments are allowed to operate within a free trade zone, as he disclosed that there are several internet gaming establishments that have set up in the Cagayan Freeport but are operating at the RCBC Tower in Makati City and accepting bets from Australia, China, and the U.S. Senator Recto replied that no gaming establishment is given the authority to operate without a license from Pagcor. He asserted that the people behind these establishments should be arrested, as he recalled that last month, the authorities arrested a certain individual who was trying to operate an internet casino in Clark. Senator Osmefia said that the U.S. Congress has recently passed a law prohibiting any internet gambling activity and this has greatly affected a British company, partly owned by a 37-year old Stanford lady-lawyer who is worth $3 billion. He stressed that there must be careful study of the matter in terms of whether the intention is to prohibit or merely regulate gambling activities in the country. On whether those in a free port would also have the same tax privileges as the locators in the export processing zones, Senator Recto replied that it should not be the case, explaining that a free port is like one

big custom-bonded warehouse where goods can be imported duty-free and VAT-free into a customs territory as against an industrial estate within a special economic zone which cannot import goods VAT-free but enjoys cheaper utilities and adequate infrastructure. Asked why government should be involved in industrial estates that do not have tax benefits, Senator Recto clarified that in the PEZA law, the developer of an industrial estate pays 5% gross income tax. Asked on the income tax treatment of a locator, Senator Recto said that an exporter may have four tax regimes: in Subic, he will not enjoy an income tax holiday but he can bring in raw materials duty-free and VAT-free and shall pay only a 5% tax on gross income; in PEZA, he can import goods duty-free and VAT-free, get an income tax holiday; if he is outside the PEZA, he can import goods duty-free but not VAT-free and avail of an income tax holiday; and if he is a small exporter not covered by a free port, BO1 or PEZA tax regime, he shall pay the regular 32% income tax rate but shall get a tax credit on the VAT and duties that he pays. Senator Osmefia commented that the different tax laws have confused a lot of people. Senator Recto said that it was the reason the Committee has to rationalize and harmonize fiscal incentives. Asked if he has a matrix on the different tax regimes enjoyed and not enjoyed by locators in free ports which would be helpful in fine-tuning the proposed amendments and in discussing the various provisions of the bill on fiscal incentives, Senator Recto replied that he would provide Senator Osmefia with the matrix.

SUSPENSION OF SESSION
Upon motion of Senator Recto, the session was suspended.

It was 6:21 p.m.

RESUMPTION OF SESSION
At 6:21 p.m., the session was resumed with the Senate President Pro Tempore Flavier presiding. Asked if locators are being charged a 5% tax on their gross income under PD 66 which created the EPZA, Senator Recto replied that the decree&

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had been repealed by the PEZA law and so the locators are required to pay a 5% tax on their gross income but shall also enjoy income tax holidays as mandated by Executive Order No. 226. On whether Subic locators could avail of the same income tax holidays, Senator Recto pointed out that the law is very clear that the only tax to be imposed is the 5% on gross income but locators are allowed to import duty-free and VAT-free. Upon query, Senator Recto replied that EO 226 created the BO1 and also provided a set of incentives or income tax holidays. Asked if the locators in the Cagayan Economic Zone and Zamboanga Economic Zone enjoy the same tax holidays while those in Subic do not, Senator Recto replied in the affirmative. On whether he would be willing to give the same incentives to locators in Subic, Senator Recto explained that the bill rationalizing the fiscal incentives only covers the incentives under the PEZA and BOI, excluding the free ports. However, he said that if Senator Osmeria wanted to extend the privileges of the locators in Cagayan Economic Zone to those in Subic, it could be done by amending Republic Act No. 7227. Nonetheless, he stated that the incentives were provided in the law creating Cagayan Economic Zone because Cagayan is very far from Metro Manila and has no adequate infrastructure. Senator Osmefia pointed out that studies done by the U p School of Economics, Asian Development Bank and the World Bank have shown that the basics of free ports, export processing zones and special economic zones are dependent on infrastructure and resources. On a related matter, Senator Osmefia said that in one of the hearings of the Committee on Trade and Commerce, the resource persons were one in saying that there is no need to pass the seven free port bills and that government should only take advantage of the PEZA law. He pointed out that in developing free ports, government would keep spending money with no end in sight. He disclosed that the government had spent about P900 million for the Zamboanga Economic Zone which has only two or three locators with a combined rental of P1 million every year.

Senator Recto pointed out that under the fiscal incentives rationalization bill, there is no need for a locator to be under the PEZA as it clearly provides that an exporter would be entitled to the incentives whether he is inside or outside the special economic zone. He maintained that while free ports are being created under the PEZA law, it is his view that only Congress could create them. Senator Osmefia pointed out that the law creating the Cagayan Economic Zone was passed in 1995 to develop the province of Cagayan but to date no development has been made due to lack of manpower, resources and adequate infrastructure. He expressed the need for the Senate to determine the appropriate policy to prevent the haphazard enactment of laws. He believed that it would have been logical if the Body had discussed the fiscal incentives bill first to set the policy and rationalize the structure, followed by the amendments to Republic Act No. 7227, and the tax amnesty measure. Senator Recto said that he would have preferred discussing the tax amnesty measure'first as a matter of principle, and afterwards, the rationalization of the fiscal incentives bill. He believed that there is no need to amend Republic Act No. 7227 if Clark would not be given a free port status. Nonetheless, he said that he was willing to work with Senator Osmeiia to discuss these matters. On whether Clark Field and Camp John Hay were considered as free ports or separate customs zones before the Supreme Court declared the various executive orders as unconstitutional, Senator Recto replied that to a certain degree, both were treated as free ports or one big customs-bonded warehouse. Asked whether Clark, Poro Point, Camp John Hay and Bataan Techno Park would be treated as free ports under Senate Bill No. 2260, Senator Recto replied that they would simply be special economic zones, adding that his proposal limits the incentives to exporters and tourism-related businesses as proposed by Senator Gordon. He said that locators should pay customs duties and VAT for goods sold to the domestic market. Senator Osmeria contended that the moment the goods enter a customs territory, it would be easy to bring them out. Considering that Subic is a free port and Clark has an area of about 4,440 hectares with an airport and a 54-kilometer highway connecting to

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Subic, Senator Recto opined that Clark could also be made into a free port but he would not recommend Camp John Hay to be given the same status because he does not believe that any of the activities within the area should enjoy fiscal incentives. Senator Osmefia said that the Members are taking the trouble to fine-tune the bill as it could be used as a form of incentive for investors to locate in the ecozones. Asked about the nature of the duty-free shops in Clark and Subic, Senator Recto explained that goods that enter Subic duty-free are VAT-exempt so long as these are consumed within the free port; however, once brought out into the domestic territory, these are subjected to corresponding taxes. He said that prior to a Supreme Court ruling, the same conditions had also applied to Clark.
As to the volume of goods that have been brought out of Subic and Clark and the amount of taxes paid on them Senator Recto replied that the only document that he had was on the Puregold Duty-Free store in Clark which had the following data:

reason why he did not propose tax amnesty for dutyfree shops in the bill. Senator Osmeiia bemoaned that during the deliberations on the E-VAT bill, the BIR could not provide information on the total sales of shopping malls as well as their over rate, or the additional 3% to 7% charge on gross sales on top of the basic rent. He said that the BIR should have that kind of information, especially on PEZA locators. Senator Recto replied that, precisely, he had requested the BIR to provide information on these establishments. Senator Osmeiia suggested that to avoid any conflict of interest, the bill should make a distinction between an authority as regulator and developer. He pointed out that the PEZA is supposed to solely function as a regulator because, as a developer, it would compete with privately owned estates or export processing zones that are also developers. In the same manner, he said that Pagcor should not function as both manager and regulator of casinos because it could not remain an impartial regulator when other businesses are competing with it. Therefore, he proposed that the BO1 become either a promotions or a regulation agency. However, Senator Recto argued that there is no conflict in the matter of Pagcor being the sole owner of casinos because in effect, it regulates itself. Moreover, he said that he would like to have a neutral government wherein the public and private sectors would not compete against one another as each has a different tax regime. To the contention that Subic and Clark should be developers, with PEZA or another agency acting as their regulators, Senator Recto believed that this should not be the case, considering that the Subic and Clark ecozones were created because of the economic dislocation caused by the pullout of the U.S. military bases and the Mt. Pinatubo emption. On the suggestion that Camp John Hay should be regulated by the PEZA while the John Hay Management Corporation took care of its development activities, Senator Recto clarified that such is the case under the fiscal incentives bill. On the definition of gross income earned, Senator Recto affirmed that the term means gross sales minus cost of goods sold or the cost of sales minus depreciation which, with the exception of administrative expenses, is a low tax base. However.

Puregold Duty-Free (Clark)

year 2005 - Jan-Sept. 2006

Value of importation Sales

: U S 9 . 7 million
: P1.785 billion

(US$35 million) Taxes & duties foregone : P 107 million Upon further queries, Senator Recto said that he would request the DOF, BIR and the BOC to provide information on the annual sales data of dutyfree shops. He clarified that the income tax paid by Puregold Duty-Free is 10% VAT and a duty rate, adding that VAT was paid on the P500 million worth of imports. However, Senator Osmefia pointed out that the 10% levy on sales of P1.785 biliion means a VAT of P178 million.
To plug loopholes in various tax laws, Senator Osmefia suggested that the DOF officially report data such as the P1.5 million income tax collected by the BIR from Puregold Duty-Free in Clark.

To the observation that the BIR and the BOC do not have any basis for making recommendations on tax measures due to their failure to provide basic information, Senator Recto stated that this is the

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Senator Osmefia pointed out that the definition should not include depreciation, an accounting tern. Asked about the term cost of goods sold, Senator Recto explained that as used in manufacturing, it refers to inputs, such as raw materials. To the observation that the low tax base on net operating income which covers the cost for raw materials, overhead, selling, and rental expenses is giving too much away to the economic zones, Senator Recto clarified that, precisely, the rationalization of fiscal incentives proposes a 15% tax on net income for exporters. Senator Osmeiia suggested that the IO-year Net Operating Loss Carry-Over (NOLCO) be reduced to only five years as this incentive would encourage locators to add investments classified as NOLCO, and accelerate depreciation so that they would end up paying nothing. Senator Recto said that he was willing to work with Senator Osmeiia on the matter. At this juncture, Senator Roxas suggested that there be a definition of what constitutes a Net Operating Loss (NOL) as a base for determining the higher levels of gross income. Senator Recto explained that the NOL is equivalent to gross sales minus all expenses including depreciation. He added that locators are allowed to recoup losses over a period of time. Upon further queries, Senator Recto clarified that while depreciation is not an operating loss, interest expense, as far as gross income is concerned, is considered part of the NOL. He also pointed out the difficulty of crafting laws and having the BIR and the DOF come up with their different definitions of the NOL in the implementing rules and regulations ( I R R ) . However, he believed that the Senate could make improvements on Republic Act No. 7227. Asked to clarify whether gross income earned is actually defined as net operating income inclusive of interest in depreciation, Senator Recto replied in the affirmative. He said that he would provide Senator Osmeiia with a copy of the IRR.

SUSPENSION OF SESSlON
Upon motion of Senator Recto, the session was suspended.

It was 7:OO p.m. RESUMPTION OF SESSION

At 7 9 6 pm., the session was resumed.

SUSPENSION OF CONSIDERATION OF SENATE BILL NO. 2260

Upon motion of Senator Recto, there being no objection, the Body suspended consideration of the bill.

PROPOSED SENATE RESOLUTION NO. 589

Upon motion of Senator Pangilinan, there being no objection, the Body considered Proposed Senate Resolution No. 589, entitled RESOLUTION COMMENDING WITH THE HIGHEST ESTEEM MANNY PACMAN PACQUIAO FOR DEFEATING BY WAY OF A KNOCKOUT MEXICAN THREE-TIME WORLD CHAMPION ERIK EL TERRIBLE MORALES IN A BOXING MATCH HELD LAST NOVEMBER 18, 2006 IN LAS VEGAS, NEVADA, taking into consideration Proposed Senate Resolution Nos. 590, 591 and 593. With the permission of the Body, only the title of the resolution was read without prejudice to the insertion of its full text into the Record of the Senate.

ADOPTION OF PROPOSED SENATE RESOLUTION NO. 589

Upon motion of Senator Pangilinan, there being no objection, Proposed Senate Resolution No. 589, taking into consideration Proposed Senate Resolution Nos. 590, 591 and 593, was approved by the Body.

PROPOSED SENATE RESOLUTION NO. 592

Upon motion of Senator Pangilinan, there being no objection, the Body considered Proposed Senate Resolution No. 592, entitled d ~ -

To save time, Senator Recto said that he would just provide Senator Osmefia with a copy of the document. Senator Osmefia agreed.

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RESOLUTION COMMENDING THE FILIPINO HIGH SCHOOL STUDENTS WHO WON THE 2006 WORLD ROBOT OLYMPIAD. With the permission of the Body, only the title of the resolution was read without prejudice to the insertion of its till text into the Record of the Senate.

ADJOURNMENT O W SESSION
Upon motion of Senator Pangilinan, there being no objection, the Chair declared the session adjourned untiI three oclock in the afternoon of the following day.

It was 7t09 p.m.

I hereby certify to the correctness of the foregoing.
Secretay o f the Senate

ADOPTION OF PROPOSED SENATE RESOLUTION NO. 592

Upon motion of Senator Pangilinan, there being no objection, Proposed Senate Resolution No. 592 was adopted by the Body.

Approved on November 21, 2006

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