uu Be PRESENTATES

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Republic of the Philippines RE 16
HOUSE OF REPRESENTATIVES pase: JUN 20
Quezon City env pat
SEVENTEENTH CONGRESS| ev: UA

First Regular Session
REGISTRATION UNIT
BILLS ANO INDEX SERVICE

HOUSE BILLNO._ 42

Introduced by REP, ROMERO FEDERICO “MIRO” S. QUIMBO

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 (3) 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
ibjected to various interpretations by government agencies and judicial bodies. Even more
disconcerting is the fact that other public utilities of similar nature 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 that 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.

Moreover, the BIR issued Revenue Memorandum Circular (RMC) No. 68-2012 on November 5,
2012 to lay down the procedures in the application and approval of the condonation of tax
liabilities subject to the submission of the following requirements:


a) Letter of application;

b) Conditional Certificate of Conformance;

c) Proof of its financial capacity; and

4) Proof that it has submitted to Congress a program of internal reforms.

The RMC also set the deadline to apply for condonation of taxes on or before April 30, 2013.

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.

‘The condonation is deemed necessary for the LWDs with 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.

In order to relieve the LWDs from the additional requirements for availment of the tax
condonation, and to allow a greater number of them to benefit from the true intent of the law,
this bill seeks to remove the documentary requirements prescribed under R.A. No. 10026. It is
believed that it was never the intent of R.A. No. 10026 to make it difficult for LWDs to avail of
the tax condonation. After all, under the same law, LWDs are now exempt from the payment of
income taxes, Hence, why impose the conditions to writing off past dues when they deserved to
have been exempted from the beginning. 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 proposal is earnestly sought.

RO” S. QUIMBO
resentative


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

SEVENTEENTH CONGRESS:
First Regular Session

42
HOUSE BILL NO.

Introduced by REP. ROMERO FEDERICO “MIRO” S, QUIMBO

AN ACT

REMOVING THE CONDITIONS FOR THE CONDONATION OF ALL UNPAID 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:
“SEC, 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 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 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 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 [subject to the following
conditions: (1) that the Bureau of Internal Revenue, after careful
review of the financial statements of a water district applying for
condonation of taxes due, establishes its financial incapacity, after
providing for its maintenance and operating expenses, debt servicing

and reserve fund, to meet such obligations for the period stated


herein; and

(2) that the water district availing of such condonation shall submit to
Congress of the Philippines a program of internal reforms, duly
certified by the local water utilities administration, that would bring
about its economic and financial viability] THEREBY RELIEVING
ALL LOCAL WATER DISTRICTS FROM THE PAYMENT
THEREOF.

“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.”

SECTION. 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 legislative intent of
exonerating local water districts of their tax liabilities including the fines,
penalties and/or surcharges, if any, appurtenant thereto. The said rules and
regulations shall not provide for additional requirements that would negate the

purpose of this Act.

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

accordingly.

SECTION. 4. Effectivity. - This Act shall take effect fifteen (15) days after its

publication in at least two (2) newspapers of general circulation.

Approved,