Bill to remove VAT from distribution utilities

Two lawmakers are seeking a uniform franchise tax on distribution utilities enjoying legislative franchise in lieu of taxes collected by the government to allow industry players to enjoy a more equitable tax regime and more importantly, reduce the cost of electricity borne by consumers. In a statement, Reps. Rufus Rodriguez and Maximo Rodriguez, authors of House Bill 4436, said the proposal is in line with one of the policies of Republic Act 9136 or the Electric Power Industry Reform Act (EPIRA) Law which is to ensure the quality, reliability, security and affordability of the supply of electric power. "Until today, the Filipino people are still looking for this affordable electricity that the law promises. The reasons for the high cost of electricity are the taxes being imposed by the government," Rodriguez said. Rodriguez said that prior to the enactment of Republic Act 9337, which further amended the National Internal Revenue Code (NIRC), electric, gas and water utilities were subject to a franchise tax at the rate of two percent on gross receipts under Section 119 of the NIRC, as amended. Republic Act 9337 removed electric utilities from the franchise tax regime and subjected these to the 12 percent value added tax (VAT). He added that the imposition of the 12 percent VAT increased the cost of electricity as it led electric companies to pass on this additional cost to the consumers which translated to higher electric bills. "This bill seeks to revert to the previous system where franchise tax is being required of distribution utilities. This will not only allow industry players to enjoy a more equitable tax regime but importantly, the imposition of a franchise tax which is directly absorbed by the franchisee will free the consumers from shouldering additional pass on charges," Rodriguez said. The bill seeks distribution utilities to pay a franchise tax equivalent to three percent of a distribution utility’s Gross Distribution Income (GDI) derived from the distribution business granted under the Distribution Utility’s legislative franchise. The said tax shall be in lieu of all taxes, such as income tax, VAT, business taxes, licenses, and any and all taxes, duties, fees and charges of any kind, and nature or description levied. The Distribution Utility Grantee, its successor or assignee, however, shall be liable to pay the same taxes on its real estate, buildings and other real property not actually used nor intended to provide distribution services under its franchise to distribute electric power, as other persons or corporations are now or hereafter may be required by law to pay. Section 3 of the bill defines Gross Distribution Income as gross income derived by a Distribution Utility from all its income less transmission and generation charges on the distributed electricity which are passed on to the consumers and excluding all universal charges imposed under the EPIRA Law as well as charges determined by the Energy Regulatory Commission to be passed on to consumers. — Cheryl Arcibal/RSJ/KBK, GMA News