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COA: Gov’t shortchanged by P53 B in Malampaya project

By Leila B. Salaverria
Philippine Daily Inquirer
First Posted 20:32:00 09/18/2010

Filed Under: State Budget & Taxes, Alternative energy, Governance

MANILA, Philippines -- The government is being shortchanged in the Malampaya Natural Gas Project.

The Commission on Audit has found that the government lost P53.140 billion between 2003 and 2009 from its share of the net proceeds from the sale of natural gas and condensates from the Malampaya project.

This came about because the corporate income taxes of the project?s service contractors were deducted from the government?s 60 percent share, the COA said in its 2009 report on the Department of Energy.

The contractors were in effect freed from paying their tax liability in violation of the Bureau of Internal Revenue rules, the COA said.

According to the COA, the deduction of the contractors' corporate income taxes was first made in 2004, but the practice apparently continued through 2008, while the DOE was waiting for the COA's legal office to render an opinion.

Last March, the COA ruled against the DOE's interpretation that the contractors' income tax was part of the 60 percent government share of the proceeds, saying this would exempt the contractor from paying income tax.

The COA noted that although the basis of computing the income tax was the 40 percent contractor?s share, none of it was actually deducted from there.

?Under this arrangement, the contractor practically avoids its obligation under the law by passing the burden to the government, in violation of the principle that a direct tax, like income tax is a direct and primary liability of the taxpayer, hence, the same cannot be shifted to another,? the COA legal opinion stated.

The 40 percent contractors' share should be subject to income tax on its own account, and there should be no exemption from this, the COA legal office said.

Based on this legal opinion that "the corporate income taxes should be for the account of the contractors and not be included in the 60 percent government share," the COA said that the government share collected from the Malampaya Natural Gas Project was understated/undercollected by P53,140,304,739.86.?

It said the service contractors should refund the amount of the tax that the DOE had paid on their behalf and in future, the corporate income taxes should not be deducted from the government's share of the proceeds from the Malampaya project.

The DOE has told the state auditors that discussions are still going on concerning the department?s stand on the issue.

The Malampaya Gas Project, one of the largest industrial undertakings in the country, extracts natural gas from the waters off the northwest coast of Palawan and transports it by pipeline it to a gas plant in Batangas for processing and delivery to three power stations.

The service contractors who operate the natural gas project are the US-based Chevron, Anglo-Dutch Shell Exploration and the PNOC Exploration Corp.

Copyright 2015 Philippine Daily Inquirer. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.



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