Bill mulls VAT exemption in distribution utilities

By DENNIS GADIL

In the hope of ultimately bringing down the cost of electricity, the Senate is seeking a return to franchise tax for power distribution utilities that would result to exempting them from 12 percent expanded value added tax (EVAT) and income tax.

Senate President Juan Ponce Enrile, the prime mover behind the proposed legislation, said that instead, power distribution companies should be slapped with a 3 percent franchise tax on gross income which was in force before the Electric Power Industry Reform Act (EPIRA) and EVAT laws were passed.

Prior to the enactment of Republic Act 9337, which further amended the National Internal Revenue Code (NIRC), electric, gas and water utilities were subject to a franchise tax at the rate of 2 percent on gross receipts.

But Enrile noted that since the franchise tax was replaced with EVAT and income tax, power consumers were placed at a disadvantage as energy firms simply passed on the cost of paying the taxes to them.

"More importantly, the imposition of a franchise tax which is directly absorbed by the franchisee will free the consumers from shouldering additional pass-on charges," he said.

Enrile noted that the five years under EPIRA have been marked with constant power rate hikes "that is more burdensome on the part of the consumers."

"In addition, taxes paid by industry players in the power sector became unreasonable that it encouraged an unabated transfer of the burden of what are properly costs of doing business to the consumers," he said.

Enrile has filed Senate Bill 3147, which would impose a franchise tax of 3 percent on gross distribution income of the power utility firms in lieu of all other taxes, duties and fees.

Gross distribution income refers to gross income derived by a distribution utility from all its income less all transmission and generation charges on the distributed electricity, which are passed on to the consumers, excluding all universal charges.