House approves condonation of unpaid taxes of local water districts

House approves condonation of unpaid taxes of local water districts

MANILA, Dec. 31 (PNA) — The House Committee on Ways and Means has approved proposals to remove the conditions for the condonation of all back taxes due from local water districts (LWDs) which amounts to P1.2 billion per the estimate of the Department of Finance (DOF).

Approved by the committee during a recent hearing is House Bill 42 authored by Deputy Speaker and Marikina City Second District Rep. Romero Quimbo, in consolidation with HB 3675 filed by Rep. Alberto T. Ungab (3rd District, Davao City). The hearing was initially presided by Rep. Jocelyn S. Limkaichong (1st District, Negros Oriental) and subsequently by Rep. Joey B. Salceda (2ndDistrict, Albay), both committee vice chairpersons.

Quimbo said the condonation is deemed necessary for the LWDs with no financial capability to pay their tax liabilities.

Quimbo said the condonation was granted previously by Republic Act 10026 but the Bureau of Internal Revenue (BIR) eventually came up with a number of impositions or conditions for the condonation.

Republic Act No. 10026, which lapsed into law on March 11, 2010, granted income tax exemption to LWDs by amending section 27(C) of the National Internal Revenue Code (NIRC) of 1997, as amended, and adding Section 289-A to the NIRC, for the purpose.

“What we are simply saying is we want those conditions set by the BIR removed. As far as condonation is concerned, that has already been given. We want the will of Congress for that matter to be brought to life, not to be destroyed by the BIR, which often has had a penchant for legislating its own tax laws over and above what Congress passes. The intent of Congress today, as passed by the 16th Congress, is to remove any condition absolutely” said Quimbo.

According to Quimbo when he was the chairman of the committee on ways and means during the 16th Congress, the bill was passed by both the Senate and the House but was vetoed by former President Aquino.


“The bill simply seeks to regularize the seemingly anomalous situation over LWDs. Today our local water districts are already tax-exempt by virtue of R.A.10026. The law was brought about by many interpretations on how water districts are to be treated for tax purposes. But it sought to effectively clarify and put to rest all issues pertaining to the nature of local water districts as far as tax purposes was concerned and it categorically declared local water districts, by the definition under the law, as being exempt from payment of taxes,” said Quimbo.

Be that as it may, Quimbo said a controversy arose necessitating the bill, when the unpaid taxes continued to be collected by the DOF, as well as the BIR, on the ground that the law imposed specific conditions.

“Ang problema lang natin is yung all unpaid and due tax obligations upon the effectivity of the law. When the BIR issued a revenue memorandum circular it effectively came up with the requirements, which did not find any basis as far as the legislative intent is concerned. Even by a careful reading of the deliberations as well as the records of Congress, nowhere do you find these additional BIR requirements beyond being imposed,” said Quimbo.

Quimbo said the conditions set by the BIR made it practically impossible for almost 80 percent of LWDs from fully availing of the intentions of R.A. 10026.

“So this bill which has been previously approved during the 16th Congress seeks to clarify and put to rest finally by condoning these penalties, without any condition, as well as all unpaid taxes,” said Quimbo.

According to Edgardo Demayo, Acting Senior Deputy Administrator of the Local Water Utilities Administration (LWUA), per the Department of Finance (DOF) estimate, the amount for condonation is Php1.2 billion.

The bill seeks to amend Section 289-A of the NIRC, as amended, titled “Support for Local Water Districts.” The amendment provides: “The amount that would have been paid as income tax and saved by the local water district by virtue of its exemption to the income taxes shall be used by the local water district concerned for capital equipment expenditure in order to expand water services coverage and improve water quality in order to provide safe and clean water in provinces, cities and municipalities. The water district shall not increase by more than 20 percent a year its appropriation or representation expenses and purchase of motor vehicles.”

Moreover, the amendment provides that “All unpaid taxes or any portion thereof due from a local water district for the period starting August 13, 1995 until the effectivity date of this Act are hereby condoned by the Government, thereby relieving all local water districts from the payment thereof.”

Rep. Prospero A. Pichay, Jr. (1st District, Surigao del Sur), former LWUA chairman, said if there is need to subsidize LWDs by 90 percent so that their participation will just be 10 percent, then it has to be done.

“Let’s not give the LWDs a hard time. Water is a human right,said the United Nations. If the government builds roads, then it is proper that we increase funding of LWDs because water is needed by the people,” Pichay said.

Pichay said complying with the requirements for condonation like those set by the BIR is tedious. “You need proof of financial incapacity and the approval of Congress which may take long. Let’s approve this bill,” said Pichay.

Pichay said it is but fitting that the LWDs, which have been actually delivering clean and potable water to the people, should be exempt from all taxes. “Government corporations are created not to make money but to serve the people,” said Pichay.

Finance Assistant Secretary Ma. Teresa Habitan said the DOF recognizes that water is a human right and that everybody should have access to potable water. She confirmed the tax exemption of water districts. However, she said what they want to continue is that the condonation be subject to the conditions originally set out under R.A.10026.

“The reason is that we want the LWDs to have financial discipline. Having financial discipline is the only way the LWDs will be able to sustain their operations of providing water to their constituents. So the DOF objects to the removal of all the conditions for the condonation,” said Habitan.

Asked by Limkaichong if the bill’s enactment into law would mean that future LWDs will no longer be paying their income taxes, Habitan said the LWDs are already tax exempt. What is under discussion is only the past tax liabilities which R.A.10026 seeks to condone with conditions according to Habitan.

Habitan said the committee needs to clarify if the position of the House is to remove the additional conditions imposed by the BIR, including those that were originally provided for under the law. Quimbo said the bill’s intention is to remove any condition for the condonation.

“As far as the original law is concerned, even when you look at the records of Congress, there is no clear expression on the part of Congress to put a condition. The purpose is to give life to the intent of Congress,” said Quimbo.

Arturo Villasan, spokesperson of the Philippine Association of Water Districts (PAWD) supported Pichay’s statement. He explained that the PAWD is a non-profit organization that does not receive a single centavo of subsidy from the government, enabling them to exist under their generated revenues.

“We save the national and local governments billions of pesos, because we rely solely on loans bearing competitive rates, which we have been paying. And for this, the incentive given us originally was for us to be tax-free because we are not asking for any subsidy from the government,” Villasan said. (PNA)