Toll VAT deferred by Cabinet

Motorists will be spared from higher toll fees, at least for now, as Malacañang has deferred a revenue-generating scheme seeking to impose the value-added tax (VAT) on tollway operators. The plan, deferred for the second time following a similar decision in 2005, will pose a burden to motorists who will have to absorb the tax, a Palace official yesterday said. "Toll operators will only pass it on to motorists," Cabinet Secretary Silvestre H. Bello III said in a telephone interview. He said the proposal to defer the VAT was approved in a Cabinet meeting in Baguio last week. Marina C. de Guzman, the chief of staff of Tax Commissioner Joel L. Tan-Torres, said they would be meeting with Finance and Transportation department officials to discuss the matter. "We were told that it (the imposition of VAT) has been deferred. We have to meet with the officials of the Department of Finance and the Department of Transportation [and Communications] to study this," she said in Filipino. Other officials of the Bureau of Internal Revenue (BIR), the agency that is the primary proponent of the scheme, were not immediately available for comment. Toll Regulatory Board (TRB) spokesperson Julius G. Corpuz, in a separate interview, said the VAT "could be subject to further discussions between the TRB, the (BIR) and possibly the toll operators." Ma. Theresa T. Defensor, president of the Philippine National Construction Corp. (PNCC) which currently operates the South Luzon Expressway (SLEx), admitted that implementation of the proposal would result in higher tolls. "It’s really the motorists who would be affected. The effect on us is indirect only because the tendency of motorists when the prices are higher is to use your roads less," she said. Representatives of Manila North Tollways Corp. (MNTC), operator of the North Luzon Expressway (NLEx) and interim operator of the Subic-Clark-Tarlac Expressway (SCTEx), said the firm would await the results of discussions. "We will await clarification from the TRB and BIR and wait for the discussions regarding the issue," MNTC vice-president for corporate communication Marlene Ochoa said. Section 108 of the Tax Code provides that a 10% VAT be levied on the sale or exchange of services, including the use or lease of property. "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... services of franchise grantees of electric utilities, telephone and telegraph, radio and television broadcasting and all other franchise grantees except those under Sec. 119 of this Code," the law read. Section 119 imposes a franchise tax on radio and/or television broadcasting companies whose annual gross receipts of the preceding year do not exceed P10 million, as well as gas and water utilities. These provisions became the BIR’s basis in releasing, in 2005, Revenue Memorandum Circular (RMC) 52 which imposed a 10% VAT on tolls, which were supposed to be increased in November 1 of that year. The TRB, however, ordered the deferment of the rate hikes pending the determination of whether toll operators can charge the tax. Nothing has happened ever since until the tax bureau last December 21 released RMC 72-2009, which reiterated the validity of RMC 52. "It is hereby reiterated that the sale of services of franchise grantees except those excluded under the above-quoted Sec. 119 of the Tax Code is subject to VAT," the circular states. "Accordingly, the services being rendered by the Tollway Operators which do not fall under the exceptions specified under Section 119 of the Tax Code (as amended) are subject to VAT," the order adds. -- ADBR, ENJD, GSDP, BusinessWorld