Republic of the Philippines
HOUSE OF REPRESENTATIVES
‘Quezon City

SIXTEENTH CONGRESS
First Regular Session

HOUSE BILL NO. 121

Introduced by Honorable Giorgidi B. Aggabao

EXPLANATORY NOTE

Contrary to expectations, the Electric Power Industry Act of 2001 has not served to
lower the cost of electricity countrywide. Today, the Philippines has acquired the
dubious distinction of having the highest power rate in the region, even surpassing
Japan.

One chief reason for this is the tax component of the power rate. The VAT,
collected pursuant to R.A. 9337, has demonstrably increased power rate by 12%, with
the tax being borne wholly by the consumer. This is lawfully permissible because VAT,
by its nature, is a pass-on indirect tax. Thus the Vat on generation, transmission and
distribution charges areshifted to consumers as a matter of course.

Reverting to the original regime of imposing a franchise tax on electric distribution
utilities may lessen the power cost to consumers. This is because a franchise tax is a
direct tax the burden of which cannot be transferred to consumers. The tax incident lies
exclusively on the distribution utilities that cannot be devolved.

A tax rate of 3% of gross receipts is reasonable. It should be adequate to compensate for
the revenue loss of the government, as a result of foregoing the VAT on distribution
charges.

In view of the foregoing, immediate approval of this bill is earnestly sought.

GIORGID! ABAO


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

SIXTEENTH CONGRESS
First Regular Session

HOUSE BILL NO. i121

Introduced by Hon. Giorgidi B. Aggabao

AN ACT IMPOSING A UNIFORM FRANCHISE TAX ON DISTRIBUTION
UTILITIES IN LIEU OF ANY AND ALL TAXES COLLECTED BY THE NATIONAL
AND LOCAL GOVERNMENT

Be it enacted by the Senate and the House of Representatives of the Philippines in Congress
assembled:

Section 1. Declaration of Policy. - It is hereby declared the policy of the State to
promote the public interest by ensuring the affordability and steady supply of
electricity to the end-users.

Section 2, Franchise Tax On Distribution Utility Game. - Distribution utilities shall
pay a franchise tax equivalent to three (3%) of a distribution utility’s Gross Receipt
derived from the distribution business granted under the Utility's legislative franchise.
Said tax shalll be in lieu of all taxes, such as income tax, value added tax, business taxes,
licenses, and any and all taxes, duties, fees and charges of any kind, nature or
description levied, established or collected by any government authority whatsoever,
whether local or national, on its franchise, rights, privileges, receipts wheeling charges,
revenues and profits and upon its machineries, equipment, supplies, meters, poles,
wires, transformers, insulators, capacitors, transportation equipment, substations,
facilities, and all other real and personal property actually used or intended for use by
the Distribution Utility to provide electric power distribution services to the consumers:

Provided, that the Distribution Utility Grantee, its successor or assigns, shall be
liable to pay the same taxes on its real estate, buildings and other real property not


actually used nor intended to provide distribution services under its franchise to
distribute electric power, as other persons or corporations are now or hereafter may be
required by law to pay.

Section 3. Gross Receipt. - Gross Receipt means the total amount of money or its
equivalent representing the amount of distribution charge billed to the consumer,
including any service fees in connection therewith, and deposits and advanced
payments actually or constructively received during the taxable quarter for the services
performed or to be performed for another person: provided, that the following shall not
form part of the gross receipts in the computation of the franchise tax:

1. Systems loss being charged on the sale of electricity by generation,
transmission, and distribution companies;

2. Sale of electricity by distribution utilities to marginalized consumers whose
monthly electric consumption does not exceed one hundred kilowatt hours
(100 kwh);

3. Lifeline subsidy charge paid by non-lifeline consumers on the sale of

electricity by distribution utilities;

. The generation charge;

The transmission charge;

. The universal charge; and

. The distribution charge on the sale of electricity by electric cooperatives duly

registered with the Cooperative Development Authority or the National
Electrification Administration

Noe

Section 4. Repealing Clause. - All laws, acts, decrees, executive orders, including the
relevant provisions of the National Internal Revenue Code, as amended, the Local
Government Code, as amended or parts thereof which are contrary to and inconsistent
with this Act are hereby repealed, amended or modifies accordingly.

Section 5. Implementing Rules and Regulations. - The secretary of Finance, in
consultation with the secretary of Energy, shall promulgate and publish the necessary
rules and regulations within thirty (30) days for the effective enforcement of the
provisions of this Act.

Section 6. Effectivity. - This Act shall take effect within fifteen (15) days after its
publication in at least two (2) newspapers of general circulation.

Approved.