Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

SIXTEENTH CONGRESS
First Regular Session

House BILL NOSB75

Introduced by HONORABLE: ROMERO “MIRO” S. QUIMBO

EXPLANATORY NOTE

Presidential Decree (P.D.) No. 198 institutionalize 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 subjected 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;

©) 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 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 truc
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
aS. QI
ROMERO “MIRO” S, QUIMBO

Representative
Second District Marikina City


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

SIXTEENTH CONGRESS
First Regular Session

HOUSE BILL No. 83875

Introduced by HONORABLE ROMERO “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 THEREBY RELIEVING ALL LOCAL WATER
DISTRICTS FROM THE PAYMENT THEREOF. [subject to the following
conditions: (1) that the Bureau of Internal Revenue, after carefull review of the
financial statements of a water district applying for condonation of taxes duc,
establishes its financial incapacity, after providing for its maintenance and operating
expenses, debt servicing and reserved fuund, 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. ]



“All water districts, through the Local Water Utilities Administration, shall
furnish the Committee on Ways and Means of the Senate and the 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 and inconsistent with this Act are
hereby repealed, amended or modified accordingly

Section 4, Hffectivity. ~ This Act shall take effect fifteen (15) days after its publication in at
least two (2) newspapers of general circulation

Approved,