,:St>tUlt? 
SIXTEENTH CONGRESS OF THE 
) 
1$111 .. "f t~. ~mrl",q 
REPUBLIC OF THE PHILIPPINES ) 
First Regular Session 
) 
'13 
JUl -8 P 2 :42 
SENATE 
S. No. 
612 
Introduced by Senator Ralph G. Recto 
Explanatory Note 
Presidential Decree (P.D.) No. 198 institutionalized the concept of Local Jt;ater 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 L WDs. 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 ofInternal 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, RA. No. 10026 included L WDs in the Jist of 
government agencies exempt from the payment of income taxes and also allowed the 
condonation of their tax liabilities. 
However, RA. No. 10026 provided that unpaid taxes will only be condoned subject to 
certain conditions, to wit: (l) 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 L WDs 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 
oftax 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 
d) 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 RA. 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.1 0026. It is 
believed that it was never the intent ofRA. 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 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. 


1 
.s.tntth 
SIXTEENTH CONGRESS OF THE 
) 
"fI,:, "f til' ,:!>m,t,,¥ 
REPUBLIC OF THE PHILIPPINES ) 
First Regular Session 
) 
'13 
JUL -8 P 2 :42 
SENATE 
S.No. 
612 
Introduced by Senator Ralph G. Recto 
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 the House of Representatives of the Philippines in 
Congress assembled: 
SECTION 1. 
Section 289-A of the National Internal Revenue Code of 1997, as 
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amended, is hereby further amended to read as follows: 
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"Sec. 289-A. Support for Local Water Districts. - The amount that would 
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have been paid as income tax and saved by the local water district by virtue of its 
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exemption to the income taxes shall be used by the local water district concerned 
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for capital equipment expenditure in order to expand water services coverage and 
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improve water quality in order to provide safe and clean water in the provinces, 
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cities, and municipalities: Provided, That, the water district shall adopt internal 
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control reforms that would bring about their economic and financial viability: 
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Provided, further, That the water district shall not increase by more than twenty 
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percent (20%) a year its appropriation for personal services, as well as for travel, 
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transportation or representation expenses and purchase of motor vehicles. 
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"All unpaid taxes or any portion thereof due from a local water district for 
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the period starting August 13, 1996 until the effectivity date of this Act are hereby 
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condoned by the Government THEREBY RELIEVING ALL LOCAL 
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WATER DISTRICTS FROM THE PAYMENT THEREOF. [subject to the 
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following conditions: (I) that the Bureau ofInternal Revenue, after careful review 
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of the financial statements of a water district applying for condonation of taxes 
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due, establishes its financial incapacity, after providing for its maintenan~e and 
i 
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operating expenses, debt servicing and reserved fund, to meet such obligations for 
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the period stated herein; and (2) that the water district availing of such 
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condonation shall submit to Congress of the Philippines a program of internal 
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reforms, duly certified by the local water utilities administration, that would bring 
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about its economic and financial viability.] 
Page lof2 


1 
"All water districts, through the Local Water Utilities Administration, 
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shall furnish the Committee on Ways and Means of the Senate and House of 
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Representatives, respectively, on an annual basis, with statistical data and 
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financial statements regarding their operations and other information as may be 
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required, for purposes of monitoring compliance with the provisions of this Act 
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and reviewing the rationalization for tax exemption privileges." 
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SEC. 2. Implementing Rules and Regulations. - The Secretary of Finance, in issuing the 
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necessary rules and regulations for the effective implementation of this Act, shaH take into 
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account the legislative intent of exonerating local water districts of their tax liabilities including 
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the fines, penalties and/or surcharges, if any, appurtenant thereto. The said rules and regulations 
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shall not provide for additional requirements that would negate the purpose of this Act. 
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SEC. 3. Repealing Clause. -
All laws, acts, decrees, executive orders, issuances, and 
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rules and regulations or parts thereof which are contrary to and inconsiste]lt with this Act are 
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hereby repealed, amended or modified accordingly. 
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SEC. 4. EffectiVity. - This Act shall take effect fifteen (15) days after its publication in 
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at least two (2) newspapers of general circulation. 
Approved, 
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