Republic of the Philippines
HOUSE OF REPRESENTATIVES.
Quezon City, Metro Manila

Seventeenth Congress
First Regular Session

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HOUSE BILL N

“' 3675

Introduced by Rep. Alberto T. Ungab

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 31 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 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 capacity;
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 incapacity; and

4d. 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 LWs 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, 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,

ERTO T. UNGAB


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila

Seventeenth Congress
First Regular Session

1 No. 8879

HOUSE BILL NO.

Introduced by Rep. Alberto T. Ungab

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 Intemal 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] FROM income taxes shall be used by the local water district
concemed 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 THEREBY RELIEVING ALL LOCAL

WATER DISTRICTS FROM THE PAYMEN’

THEREOF. [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 reserved 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
J]

All water districts, through the Local Water Utilities Administration, shall

viabil

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: 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.

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. Separability Clause. - If for any reason any provision of this Act or any
portion thereof or the application of such provision thereof is declared invalid or

unconstitutional, the remainder of this Act shall not be affected by such decision.

SECTION 5. Effectivity. - This Act shall take effect fifteen (15) days after its

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

Approved,