Section 1.    Short Title. — This Act shall be referred to as "The AFP Tax Exemption for Pay and Allowances Act of 2001."  

Sec. 2.    Statement of Policy. — (a) Sec. 5, Article XVI of the 1987 Constitution provides that "Professionalism in the Armed Forces of the Philippines and adequate remuneration and benefits of its members shall be a prime concern of the State". The government shall provide adequate support and incentives to the members of the Armed Forces.

(b)    Tax exemption shall be granted on AFP personnel's longevity pay, mandatory allowances, collateral pay and collateral allowances, as well as other benefits as provided for by law.

Sec. 3.    Exclusions from Gross Income. — The following pay and allowances of AFP personnel shall not be included in gross income and shall be exempt from taxation under Title II of Republic Act No. 8424, otherwise known as the "Tax Reform Act of 1997."

(a)    Longevity pay,

(b)    Mandatory allowances. namely (1) Cost of Living Allowance; (2) Personnel Economic Relief Allowance; and (3) Hazardous Allowance;

(c)    Collateral Pay, namely (1) Specialist Pay; (2) Combat Pay; (3) Flying Pay; (4) Air Mechanic's Pay; (5) Sea Duty Pay; (6) Hazardous Duty Pay; (7) Instructor's Duty Pay. (8) Parachutist's Pay; and (9) Hardship Pay; and

(d)    Collateral Allowances, namely (1) Special Clothing Allowance; (2) Cold Winter's Clothing Allowance and Cold Weather Clothing Maintenance Allowance; (3) Winter Clothing Allowance; (4) Initial Enlistment and Reenlistment Allowance; and (5) Laundry Allowance.