My consumer advocacy group Laban Konsyumer Inc. (LKI) and myself continue to fight for lower prices in all products and services, and included here is the cost of power, and the removal of Value Added Taxes or VAT on taxes.
We have done our study on the imposition of VAT on certain tax-related electric rate components, i.e., local franchise tax (LFT) and real property tax (RPT). The main issue here is that the imposition of VAT on a tax is effectively a tax on a tax. However, BIR’s position is that LFT and RPT are levied on the DU, which just pass on said costs to the consumers. Hence, LFT and RPT should be considered part of the DU’s Gross Receipts in computing the VAT.
Let’s look at the BIR Revenue Regulation No. 16-2005, which is the IRR of RA No. 9337. RR 16-2005 defines the gross receipts of distribution utilities as, “Total amount charged by distribution companies and electric cooperatives for distribution and supply of electricity, and related electric service. The universal charge passed on and collected by distribution companies and electric cooperatives shall be excluded from the computation of the Gross Receipts.” Thus, given the way the definition is written, all rate components of the electric bill become VAT-able, except for the Universal Charges.
This definition was also further clarified by BIR Revenue Memorandum Circular No. 61-2005. According to RMC 61-2005, for Distribution Utilities, “Gross Receipts shall not include the Energy Tax under Batas Pambansa 36, the Universal Charges implemented under EPIRA (RA9136), Benefits to Host Communities under ER 1-94; and security deposit for metering machine including interests provided that when applied to the consumer’s liability it shall be subject to VAT.” Again, the BIR’s rules are very explicit in defining which rate components are not VAT-able, implying that all other rate components are part of the VAT base, including the local franchise tax.
The rules of the BIR are reflected in ERC’s Resolution No. 20, series of 2005 which enumerates the electric rate components that are part of the VAT base. The LFT is still considered part of the DU’s gross receipts. ERC recently issued rules that mandates showing the RPT as a separate component in DUs/ECs’ bills. From BIR’s and ERC’s VAT rules, the said RPT component will also become part of the VAT base, similar to the LFT.
VAT is a tax paid by consumers while Businesses are able to deduct input VAT, e.g., VAT in their electric bill, in their VAT remittance to BIR. And being expressed as a percentage tax, VAT increases as the electric rate goes up or new components are added to the electric bill. Thus, a VAT on LFT and RPT has the effect of magnifying increases in the electric rate and gives the government windfall income on top of the LFT and RPT already being collected. Consumers should be relieved from paying VAT on taxes.
This is very similar to my objection in the imposition of VAT on the excise taxes on petroleum products levied by the 2018 TRAIN law. The VAT on gasoline is P1.20 per liter while the VAT on diesel and kerosene is P0.72 per liter. The fuel excise taxes and it’s Vat are considered part of the gross selling price per liter of the fuel which are again ‘Vatable’. I sued an Assistant Secretary of the BIR before the Anti Red Tape Authority for sitting on my request for a definitive BIR ruling on the legality of a tax on tax. The complaint is undergoing hearing. Likewise, our petition in January 2018 that challenged the validity and constitutionality of the TRAIN law is pending in the Supreme Court.
Thus, at the end of the day, we at Laban Konsyumer will pursue removing the VAT as it is a tax on tax, and this is an unnecessary burden on consumers especially given the situation that many Filipinos still do not have jobs and livelihoods are still currently being affected by the difficult scenario of pandemic and continuous lockdowns and strict quarantine measures. This is low hanging fruit that we call on government and regulator to act on as immediately as possible in order to remove the Vat on tax soonest to relieve the burden of paying consumers. This would be a good first step in lowering these costs.
Atty. Vic Dimagiba, AB, LLB, LLM
President, Laban Konsyumer Inc.
Email us at [email protected]