NINETEENTH CONGRESS OF THE )
REPUBLIC OF THE PHILIPPINES )
First Regular Session )

HOUSE OF REPRESENTATIVES

House Bill No. 3 191

Introduced by Representative Ralph G. Recto

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 Loca/ 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

2


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.

mjma


NINETEENTH CONGRESS OF THE )
REPUBLIC OF THE PHILIPPINES )
First Regular Session )
HOUSE OF REPRESENTATIVES

House Bill No. 3191

Introduced by Representative Ralph G. Recto

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:
"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 [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
1


THEREBY RELIEVING ALL LOCAL WATER DISTRICTS FROM
THE PAYMENT THEREOF. [subject-to-the following-conditions:44)
that—the~Bureau—of_internal-Revenue, —after—careful-review-of the
financial statements-of -a-water-district-applying_fer—condonation-of
taxes-due;—establishes-its-financial-incapacity,—after_providing-for_its
maintenance-and—operating—expenses;—debt_servicing—and—reserved
fund;-to-meet-such-obligations-fer-the-period-stated-herein;-and-{2)
that-the-waterdistriet—availing—of -such_condonation-shall-submit-to
Congress-of the-Philippines-a-program-of internal-referms; duly-certified
by-thetocal-water-utilities-administration, that-would-bring-about-its
econemic-and-financial 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 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: 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,