Party list rep seeks EVAT exemption for power sector

The Association of Philippine Electric Cooperatives (APEC), a party list group in Congress, has filed a bill aiming to exempt the power sector, including electric cooperatives (EC) from the expanded value-added tax (EVAT).

House Bill 4633 seeks to amend Republic Act 9337, by exempting the generation, transmission, distribution and supply of power from the coverage of the new VAT law and deleting the limit on creditable input VAT.

According to the APEC-sponsored bill, VAT is, by its very nature, a pass-through charge.

APEC Rep. Ernesto C. Pablo noted that "if most legislators understood VAT was essentially a transaction tax covering everything from the first purchase to the last sale, and that it was a pass-through tax that consumers would pay, then Congress would not have imposed VAT on power and petroleum."

RA 9337 was passed for the purpose of raising the necessary revenues to remedy the country’s ailing fiscal position.

One of the significant measures of the law is the imposition of VAT on power by removing its zero-rating under the EPIRA (Electric Power Industry Reform Act) and lifting the VAT exemption of the National Power Corp. as well as that of the electric cooperatives under the National Internal Revenue Code of 1997.

VAT on power is expected to raise the government’s annual revenue collection by P8.85 billion starting 2006, comprising of P7.62 billion from VAT on power and P1.23 billion from the lifting of exemption of electric cooperatives. This is seven percent of the total additional expected revenue of P123.62 billion a year from the new VAT law.

Pablo said with the additional 10 percent VAT, however, reports indicate that Metro Manila end-consumers will have to pay an additional 80.56 centavos per kilowatt-hour (kwh), even after the two percent national franchise tax is already removed. Thus, for households consuming 200 kwh of electricity a month, the VAT is estimated at P167.49, a quite substantial amount for working class Filipinos.

"For electric cooperatives, rates will similarly go up anywhere from 60 centavos per kwh to 77 centavos per kwh," said Pablo. "This will be an extreme price shock for the six million largely poor household members of electric cooperatives, found mostly in the rural areas," he added.

APEC further said that subjecting electric cooperatives to VAT may further aggravate their financial viability and effect the electrification efforts for the remaining 3,068 un-energized barangays.

In terms of the business sector, Pablo said "industries will likewise bear the heavy burden of VAT."

He explained that for the businessman, increased cost of power means higher cost of doing business which, in turn, would be detrimental to efforts to attract investments and create additional jobs. This might lead to existing businesses having to close shop, thus further aggravating the country’s unemployment problem.

APEC said another provision of RA 9337 that unduly prejudices business and hence must be removed is the 70-percent cap on creditable input VAT. The provision imposes an effective three-percent VAT liability on businesses, regardless of their margin of profit. It does not only curtail a benefit which is supposed to be inherent under the VAT system, it restricts further the viability of doing business in the Philippines and, in the process, penalizes legitimate enterprises.

APEC warned that power rates will further go higher with the following developments, which are separate from the EVAT: inclusion of the stranded costs of distribution utilities which will be passed on to the consumers; implementation of open access, which simply means that the large consumers using one megawatt and above of power will be allowed direct access to the National Power Corp. (Napocor) and get cheaper rates, although the opening of the Wholesale Electricity Spot Market (WESM) will promote market competition, electric cooperatives will lose their industrial and commercial consumers, leaving the coops with the residential consumers and a smaller demand volume.

The group said the WESM will result to lower electricity rates for those with higher consumption levels and higher prices for small consumers who constitute the bulk of the six million residential users of electric cooperatives.