ERC nears guidelines on EC's tax recovery paid to LGUs
The Energy Regulatory Commission (ERC) conducted a public consultation on 24 October 2005 on its draft Guidelines prescribing the tax recovery adjustment mechanisms in the rates of Electric Cooperatives (ECs) for the taxes they paid to the Local Government Units (LGUs). It was attended by representatives of various ECs throughout the country and of the LGUs. This Guidelines will apply to all ECs registered under Presidential Decree No. 269 where local franchise and business taxes are imposed by cities, municipalities, or provinces within the ECs’ respective franchise areas.
The draft Guidelines prescribes both a prospective and a retroactive formulae on the recovery or collection by the ECs of the said local levy from their customers. The prospective formula prescribes the recovery of the prospective local franchise and business taxes levied on ECs for the services they rendered in the distribution of electricity. On the other hand, the franchise and business tax arrearages paid prior to the implementation of this Guidelines and after the unbundling of the ECs rates will be recovered using a retroactive formula. Said formula shall be utilized until such time the franchise and business tax arrearages have been fully recovered.
In both formulae, an EC has to file a formal manifestation with the ERC for authority to recover or collect the above cited taxes and after satisfying documentary requirements such as the local tax ordinance, local legislative body’s Certificate on the due execution of the said ordinance, and other relevant documents, in support of its claim. The ERC agrees that it shall issue an Order approving an EC’s claim for the collection of current local taxes within thirty (30) days from the date of filing a manifestation under the prospective formula; and within six (6) months from the date of filing for tax arrearages under the retroactive formula. Should the ERC fail to act within the given period, such manifestation will be deemed approved.
All ECs must take note that these recovery mechanisms should be revenue neutral
and no one should benefit out of these at the expense of the consumers.
The imposition of these local taxes is pursuant to the Local Government Code
of 1991 or Republic Act No. 7160 which empowers the LGUs to levy taxes on all
cooperatives, except those registered with the Cooperative Development Authority
(CDA). The said law was questioned by a group of ECs before the Supreme Court
assailing that ECs were created pursuant to PD 269 which grants them tax exemptions.
The Supreme Court, in 2003, ruled otherwise which paved the way for these impositions.
November 11, 2005