VAT can be imposed on toll fees—SC
MANILA, Philippines – The Supreme Court has ruled that Value Added Tax (VAT) can be imposed on toll fees.
In a 19-page unanimous decision promulgated July 19, 2011, the high court en banc lifted the temporary restraining order it issued on Aug. 13, 2010 on the imposition of a 12-percent VAT on tollways by the Bureau of Internal Revenue (BIR) and the Department of Finance.
“The VAT on franchise grantees has been in the statute books since 1994 when Republic Act 7716 or the Expanded Value Added Tax law was passed. It is only now, however, that the executive has earnestly pursued the VAT imposition against tollway operators,” the high court said.
“The executive exercises exclusive discretion in matters pertaining to the implementation and execution of tax laws. Consequently, the executive is more properly suited to deal with the immediate and practical consequences of the VAT imposition,” it added.
The high court decision stemmed from the petition filed by former Nueva Ecija Representative Renato Diaz and former Assistant Secretary Aurora Maria Timbol of the Department of Trade and Industry.
Diaz, principal author at the House of Representatives of Republic Act 8424 or the Comprehensive Tax Reform Act of 1997 and RA 7716 or the Expanded Value Added Tax Law said that the toll fees were not included in the coverage of sale of services subject to VAT.
“If the lawmakers did not include toll fees as subject to VAT, the BIR, therefore, should not by implication nor interpretation expand what the legislators enumerated under the law. To include matters which the legislators did not intend to include is considerably dangerous, as it is in effect, invading the legislative field,” petitioners said.
Following the high court ruling on Manila International Airport Authority v. Court of Tax Appeals (CTA), Diaz said toll fees were “users’ tax.”
Being a “user’s tax,” Diaz said imposing VAT on user’s tax is in effect was “imposing tax on a tax and not a tax on sale of services.”
But the high court said, “What the government seeks to tax here are fees collected from tollways that are constructed, maintained, and operated by private tollway operators at their own expense under the build, operate, and transfer scheme that the government has adopted for expressways.”
“Thus, the sell remains directly and legally liable for payment of the VAT, but the buyer bears the burden since the amount of VAT paid by the former is added to the selling price. Once shifted, the VAT ceases to be a tax and simply becomes part of the cost that the buyer must pay in order to purchase the good, property or service,” the high court said.
“VAT on tollway operations cannot be a tax on tax even if toll fees were deemed as a ‘user’s tax’. VAT is assessed against the tollway operator’s gross receipts and not necessarily on the toll fees.”
The BIR insisted that with its full implementation, toll charges would translate to P1.3 billion in additional annual revenues for the government.
