EIGHTEENTH CONGRESS OF THE )

REPUBLIC OF THE PHILIPPINES ) i
First Regular Session )
HOUSE OF REPRESENTATIVES 0%, $
Se WJ
H.B.No, 4354 /NDEX ©

Introduced by Rep. Vilma Santos-Recto
6" District of Batangas

AN ACT
REMOVING THE CONDITIONS FOR THE CONDONATION OF ALL UNPAID
INCOME TAXES DUE FROM LOCAL WATER DISTRICTS, AMENDING FOR
THE PURPOSE SECTION 289-A OF THE NATIONAL INTERNAL REVENUE
CODE, AS AMENDED

EXPLANATORY NOTE

Presidential Decree (P.D.) No. 198 institutionalized the concept of Local Water
Districts (LWDs). As early as 1973, the government recognized the need for reliable,
economically viable and sound water supply and wastewater disposal system for population
centers of the Philippines.

In order to support the growth of LWDs, P.D. No. 198 exempted them from paying
income taxes, as well as from the payment of all national government, local government and
municipal taxes and fees, and all duties or imposts on imported machinery, equipment and
materials required for its operation.

Over a period of more than three decades, several laws were enacted either granting
or withdrawing the tax exemption privileges of LWDs. Also, the juridical personality and tax
status of LWDs, as gleaned from the provisions of Sections 27 and 32 of the Tax Code, have
been subjected to various interpretations by government agencies and judicial bodies. Even
more disconcerting is the fact that other public utilities of similar nature such as the
Metropolitan Waterworks and Sewerage System (MWSS) and National Power Corporation
(NPC) were granted tax exemptions by the Bureau of Internal Revenue (BIR) based upon the
same Tax Code provisions.


During the Fourteenth Congress, Republic Act (R.A.) No. 10026 was enacted with the
end in view of resolving the inconsistencies in tax treatment that have probably hampered the
growth and efficient provision of safe, adequate and potable water to more than fifteen (15)
million people outside Metro Manila. Thus, R.A. No. 10026 included LWDs in the list of
government agencies exempt from the payment of income taxes and also allowed the

condonation of their tax liabilities.

However, R.A. No. 10026 provided that unpaid taxes will only be condoned subject
to certain conditions, to wit: (1) that the BIR, after careful review of the financial statements
of a water district applying for condonation of taxes due, establishes its financial incapacity;
and (2) that the water district availing of such condonation shall submit to Congress a
program of internal reforms, duly certified by the Local Water Utilities Administration. The
condonation therefore, is not automatic but, rather is dependent on certain requirements
which LWDs must comply with.

It will be noted that the BIR has not issued a Revenue Regulation (RR) to implement
the grant of condonation as per RA No. 10026. What was issued two years after the
enactment of the law was Revenue Memorandum Circular 68-2012 which merely established
the procedures in submitting the documentary requirements in applying for condonation and
prescribed a narrow compliance period of only less than six (6) months.

According to the Philippine Association of Water Districts (PAWD), there are about
251 cases involving the unpaid tax liabilities of 164 water districts from fiscal year 1997 to
2007 which should be covered by the implementation of the condonation clause of R.A. No.
10026. However, two (2) months after the deadline set in the RMC, only a fraction of the 164
LWDs have complied with the requirements provided under R.A. No. 10026 and RMC 68-
2012.

This bill seeks to remove the prescribed documentary requirements for availing the
tax condonation granted in RA No. 10026. It was not the intent of RA No. 10026 (Granting
Income Tax Exemption to LWDs) to make it difficult for LWDs to avail of the tax
condonation benefit. In fact, under the same law, the LWDs are now exempt from the

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payment of income taxes and, therefore, there is no need to impose conditions to write off
dues when LWDs deserved to have been exempted from the beginning.

Debt cancellation is not a principle alien to the government. We have undertaken
bailouts of distressed firms and buyouts of their li

lities in amounts far greater than what is
requested by the water districts.

‘The LWD funds needed to settle the unpaid income taxes should be used instead for
the delivery of better services. We want to see improvements like new wells and fresh water
sources, new pipes and modern meters to end leaks, among others.

‘The condonation of tax obligations is deemed necessary for the LWDs which have no
financial capability to pay their tax liabilities. This would help them consolidate their
resources in order to expand water services, improve water quality and ensure the provision
of a reliable, secure and affordable supply of water to consumers.

It is getting tougher to meet the challenge of providing clean water for all in the years
to come. Population increase demands that we have to correspondingly increase our potable
water supply by 118 billion liters annually. Aside from this future demand, we also have to
contend with a backlog that needs to be wiped out.

Condonation of the unpaid income taxes of LWDs would help them remain viable and
better respond to the challenge of providing adequate potable water to the people.

‘Therefore, it is proposed that a one-time general amnesty or condonation of taxes
involving LWDs be passed by this Congress.

In view of the foregoing, early approval of this propo:


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EIGHTEENTH CONGRESS OF THE )

REPUBLIC OF THE PHILIPPINES )
First Regular Session )
HOUSE OF REPRESENTATIVES
4354
HB. No.

Introduced by Rep. Vilma Santos-Recto
6" District of Batangas

AN ACT
REMOVING THE CONDITIONS FOR THE CONDONATION OF ALL UNPAID
INCOME TAXES DUE FROM LOCAL WATER DISTRICTS, AMENDING FOR
THE PURPOSE SECTION 289-A OF THE NATIONAL INTERNAL REVENUE
CODE, AS AMENDED

Be it enacted by the Senate and House of Representatives of the Philippines in Congress
assembled:

Section 1. Section 289-A of the National Internal Revenue Code of 1997, as
amended, is hereby further amended to read as follows:

“See. 289-A. Support for Local Water Districts. —'The amount that
would have been paid as income tax and saved by the local water district by
virtue of its exemption [te-the] FROM 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 the provinces, cities, and municipalities: Provided, That, the
water district shall adopt internal control reforms that would bring about their
economic and financial viability: Provided, further, That the water district
shall not increase by more than twenty percent (20%) a year its appropriation
for personal services, as well as for travel, transportation or representation
expenses and purchase of motor vehicles.

“All unpaid INCOME taxes or any portion thereof due from a local
water district for the period starting August 13, 1996 until the effectivity date
of this Act are hereby condoned by the Government THEREBY
RELIEVING ALL LOCAL WATER DISTRICTS FROM THE
PAYMENT THEREOF. [subject-to-the-folowing-eonditions:—(1)-that-the

1


eeavranewone

nancial viability]
“All water districts, through the Local Water Utilities Administration,

shall furnish the Committee on Ways and Means of the Senate and House of

Representatives, respectively, on an annual basis, with statistical data and

financial statements regarding their operations and other information as may

be required, for purposes of monitoring compliance with the provisions of this

‘Act and reviewing the rationalization for tax exemption privileges.”

Sec. 2. Implementing Rules and Regulations. — The Secretary of Finance, in issuing
the necessary rules and regulations for the effective implementation of this Act, shall take
into account the legislati
including the fines, penalties and/or surcharges, if any, appurtenant thereto. ‘The said rules

intent of exonerating local water districts of their tax liabilities

and regulations shall not provide for additional requirements that would negate the purpose of
this Act:: Provided, That, the failure of the Secretary of Finance to promulgate the said rules
and regulations shall not prevent the implementation of this Act upon its effectivity.

Sec. 3. Repealing Clause. - All laws, acts, presidential decrees or issuances,
executive orders, letters of instruction, and rules and regulations or parts thereof which are
contrary to and inconsistent with this Act are hereby repealed, amended or modified
accordingly.

Sec. 4. Effectivity. - This Act shall take effect fifteen (15) days after its publication
in at least two (2) newspapers of general circulation or in the Official Gazette.

Approved,