Withdrawal of tax exemption for water districts pushed

MANILA, Philippines - The Department of Finance (DOF) reiterated its call for legislators to repeal the income tax exemption and condonation of the tax deficiencies of local water districts to strengthen the administration’s efforts to insill discipline among government-owned and controlled corporations (GOCCs).

In a position paper, the DOF said Congress should repeal Republic Act 10026 or an “Act Granting Income Tax Exemption to Local Water Districts” that lapsed into law last March 11.

The department said the implementation of the law combining Senate Bill 3392 and House Bill 5210 providing exemption of the local water districts (LWDS) from income tax and condoning their past year’s deficiency income tax assessments would translate to huge revenue losses for the government.

Based on data from the Bureau of Internal Revenue (BIR), the total assessed taxes from various local water districts for the years 2006, 2007, and January to August 2008 amounted to P321.6 million of which P224.28 million account for income tax.

“The condonation of all unpaid taxes of local water districts to the National Government weakens the government’s policy in instilling financial discipline in GOCCs and deprives government of a legitimate source of revenue,” the DOF stated in the position paper.

It added that local water districts are considered as GOCCs and should therefore operate just like private enterprises whose viability is not dependent on government subsidy like the grant of tax exemptions. 

The agency argued that local water districts already enjoy tax and duty exemption privileges in the past under Presidential Decree 198  and RA 7109.

“If, as they claim, they are experiencing financial difficulties now, the provisions of the Tax Code on net operating loss carry-over and compromise of tax warranted by one’s financial position are deemed sufficient to address their problem,” it said. 

The DOF said the National Government could save as much as P830 million once the law exempting local water districts from paying income tax and condoning their tax deficiencies is repealed.

The Philippines is staring at a record budget deficit of P325 billion or 3.9 percent of gross domestic product (GDP) this year from P298.5 billion or 3.9 percent of GDP last year.

The administration of President Aquino has committed to trim the budget deficit to two percent of GDP starting 2013 until the end of Aquino’s term in 2016.