EIGHTEENTH CONGRESS OF THE 
)
REPUBLIC OF THE PHILIPPINES 
)
First Regular Session 
)
SENATE
S. No. 
591
^5) 
Senate
T9 JUL 17 P6 ^1
Introduced by Senator Ralph G. R § ^ VlDB'-—
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 {VJ^Ds). 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 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 liabilities 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 proposal is earnestly sought.
IP H Q
mjma


EIGHTEENTH CONGRESS OF THE 
REPUBLIC OF THE PHILIPPINES 
First Regular Session
S. No.
)
)
SENATE
591
of tt)f ^ r t r r t s r p
*19 
JUL 17 P6 ;02
Introduced by Senator Ralph G. R ^ ^ '7tJi/‘':::;F
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 o f Representatives o f the Philippines in 
Congress assembled.
1 
Section 1. Section 289-A of the National Internal Revenue Code of 1997, as
2 
amended, is hereby further amended to read as follows:
3 
'Sec. 289-A. Support for Local Water Districts. -  The amount
4 
that would have been paid as income tax and saved by the local water
5 
district by virtue of its exemption [to the] FROM income taxes shall be
6 
used by the local water district concerned for capital equipment
7 
expenditure in order to expand water services coverage and improve
8 
water quality in order to provide safe and clean water in the provinces,
9 
cities, and municipalities: Provided, That, the water district shall adopt
10 
internal control reforms that would bring about their economic and
11 
financial viability: Provided, further. That the water district shall not
12 
increase by more than twenty percent (20%) a year its appropriation
13 
for personal services, as well as for travel, transportation or
14 
representation expenses and purchase of motor vehicles.
15 
"All unpaid INCOME taxes or any portion thereof due from a
16 
local water district for the period starting August 13, 1996 until the
17 
effectivity date of this Act are hereby condoned by the Government


1 
THEREBY RELIEVING ALL LOCAL WATER DISTRICTS FROM
2 
THE PAYMENT THEREOF, [subject- to tli e -following conditions: (1)
3 
that- the Bureau oM eternai- Revenue, oftcr corcful review of the
4
5 
taxes due, establishes-its financial incapacity, after
6 
fnaintonancc and operating expenses, debt servicing and reserved
7 
fund,- to -meet such obligations for the period 
stated herein; and (2)
8 
that the water district availing of such condonation shall submit to
9 
Congress of the Philippines a program of internal rcformsT-duly certified
11 
economic and financial viability.]
12 
"All 
water 
districts, 
through 
the 
Local 
Water 
Utilities
13 
Administration, shall furnish the Committee on Ways and Means of the
14 
Senate and House of Representatives, respectively, on an annual basis,
15 
with statistical data and financial statements regarding their operations
16 
and other information as may be required, for purposes of monitoring
17 
compliance with the provisions of this Act and reviewing the
18 
rationalization for tax exemption privileges."
19 
Sec. 2. Implementing Rules and Regulations. -  The Secretary of Finance, in
20 
issuing the necessary rules and regulations for the effective implementation of this
21 
Act, shall take into account the legislative intent of exonerating local water districts
22 
of their tax liabilities including the fines, penalties and/or surcharges, if any,
23 
appurtenant thereto. The said rules and regulations shall not provide for additional
24 
requirements that would negate the purpose of this Act: Provided, That, the failure
25 
of the Secretary of Finance to promulgate the said rules and regulations shall not
26 
prevent the implementation of this Act upon its effectivity.
27 
Sec. 3. 
Repealing Clause. 
- 
All laws, acts, presidential decrees or
28 
issuances, executive orders, letters of instruction, and rules and regulations or parts
29 
thereof which are contrary to and inconsistent with this Act are hereby repealed,
30 
amended or modified accordingly.


1 
Sec. 4. 
Effectivity. 
- This Act shall take effect fifteen (15) days after its
2 
publication in at least two (2) newspapers of general circulation or in the Official
3 
Gazette.
Approved,