Solon seeks re-imposition of franchise tax on distribution utilities to lessen power cost

Thursday, 22 September 2011 01:24

A ranking House leader has urged Congress to fast track the passage of a bill reverting to the original regime of imposing franchise tax on electric distribution utilities to lessen the power cost to consumers.

Rep. Giorgidi Aggabao (4th District, Isabela), author of House Bill 5155, said power cost would be lessened through this system because a franchise tax is a direct tax which cannot be transferred to consumers. "The tax incident lies exclusively on the distribution utilities that cannot be devolved," said Aggabao, Vice-Chairman of the House Committee on Ways and Means.

Aggabao said the Electric Power Industry Act of 2001 (EPIRA) has not served to lower the cost of electricity nationwide contrary to the expectations of the consumers.

"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," Aggabao said.

Aggabao explained the value-added tax, collected pursuant to Republic Act 9337 or the Reformed VAT Law, has demonstrably increased power rate by 12 percent with the tax being borne wholly by the consumer.

"This is lawfully permissible because the VAT, by its nature, is a pass-on indirect tax. Thus, the VAT on generation, transmission and distribution charges are shifted to consumers as a matter of course," said Aggabao.

Aggabao proposed the imposition of a uniform franchise tax on distribution utilities in lieu of any and all taxes collected by the national and local government.

The bill provides that distribution utilities shall pay a franchise tax equivalent to three percent of a distribution utility’s gross receipt derived from the distribution business granted under the utility's legislative franchise.

Under the bill, the franchise tax shall be in lieu of all and any taxes, duties, fees and charges of any kind levied or collected by any government authority whatsoever, whether local or national, on the distribution utility.

Aggabao said the tax rate of three percent of gross receipt is reasonable and should be adequate to compensate for the revenue loss of the government, as a result of foregoing the VAT on distribution charges.

The bill provides further that the following shall not form part of the gross receipts in the computation of the franchise tax : systems loss being charged on the sale of electricity by generation, transmission, and distribution companies; sale of electricity by distribution utilities to marginalized consumers whose monthly electric consumption does not exceed 100 kilowatt hours; lifeline subsidy charge paid by non-life consumers on the sale of electricity by distribution utilities; generation charge; transmission charge; universal charge; and distribution charge of the sale of electricity by electric cooperatives duly registered with the Cooperative Development Authority or the National Electrification Administration.