ERC: collection of franchise tax mandated by law

The Energy Regulatory Commission (ERC) clarified that the franchise tax in the unbundled electricity bills collected by distribution utilities (DUs) that include Meralco is required to apply to ERC for the collection of franchise taxes. The Commission then issues a provisional authority (PA) to effect the collection.

ERC made this clarification in the light of recent news items in some newspapers implying that the Commission unilaterally approved the collection of the said tax from customers of Meralco, particularly in the cities of Calamba, Caloocan and Quezon.

National or local franchise taxes are billed to the end-users by the DUs as pass-through charges. It is a revenue-neutral charge collected by these entities for and in behalf of the national government and Local Government Units (LGUs) that issued an ordinance to collect the said tax. Moreover, the Commission cannot interfere with these LGUs in the exercise of their authority to tax,” ERC Chairman Rodolfo B. Albano, Jr. stressed.

The franchise tax refers to the national or local franchise tax that must be paid by private utility companies. 2% of gross revenues from distribution charges go to the national government as national franchise tax, while a range of .05% up to .75% of gross revenues goes to local government units in the form of local franchise tax.

March 09, 2004