Gov't urged to ax 'absurd' VAT on systems losses
By Ronnel Domingo
Philippine Daily Inquirer
First Posted 02:29:00 05/16/2008
MANILA, Philippines--The Federation Of Philippine Industries has called on the Department of Finance to correct the "inadvertent levying" of the value-added tax (VAT) on Manila Electric Co.'s systems losses that has contributed to high power rates.
Jesus L. Arranza, president of the umbrella organization for 101 industry groups and individual companies, said in a letter on May 13 to Finance Secretary Margarito B. Teves that it was "absurd" to levy taxes on losses, more so when the cause was theft.
Systems losses are those incurred because of theft and pilferage of electricity or technical problems, such as friction of power cables that reduce the amount of electricity in the process of delivering it to end users.
The antipilferage law of 1994, or Republic Act No. 7832, penalizes the theft of electricity usually done either by using "jumper" cables to bypass meters in households or making illegal connections to power posts. The law allows Meralco to pass on to consumers up to 9.5 percent of the stolen amount; electric cooperatives up to 14 percent.
The Electric Power Industry Reform Act (Epira) directs the Energy Regulatory Commission to determine a new rate of allowable systems loss recovery through charges to consumers, but ERC has not done this, earning the ire of senators at Monday's hearing of the Joint Congressional Power Commission.
"We do not agree that consumers should shoulder the cost of systems losses at whatever rate," Arranza said.
"But this is what the law allows and we urge Congress to change this," he said. "In the meantime, we ask (Teves) to intercede and take corrective actions on the VAT charge for systems losses."
The VAT on the sale of goods and services is 12 percent.
Former Sen. Ralph Recto, principal author of the expanded VAT law of 2005, on Thursday assailed the ERC for allowing systems losses declared by Meralco to be subjected to tax. He said the law did not provide for a tax on systems losses in the power industry.
Standard practice
"There is nothing in the law that says systems losses are VAT-able," Recto said.
Meralco corporate communications director Elpi Cuna referred to a statement by Sergio Apostol, President Gloria Macapagal-Arroyo's legal counsel, that consumers should file a class suit to recover the systems losses and the cost of the electricity Meralco uses but passes on to them.
Cuna said the recovery of systems losses, as well as the power a utility company uses, from consumers was a standard rate-making practice authorized by regulatory bodies in the Philippines and abroad.
"All electric consumers, whether served by private distribution utilities or electric cooperatives should examine their monthly electric bills," he said. "The systems loss charge is there, why single out Meralco?"
Cuna said that before the unbundling of power rates, the recovery of systems losses and company use was embedded in the basic charges and adjustment mechanisms.
He said that the total kilowatt-hours consumed by Meralco's central office at Ortigas, its substations, operating centers, 30 business centers, and other facilities scattered over its entire service area of 9,337 square kilometers was 77.4 million kWh in 2007, or roughly P500 million annually which it passed on to consumers.
"At 0.27 percent of total kWh purchased, this represents less than one-third of 1 percent, the maximum allowance set by RA 7832," he said.
Part of operating expense
"Businesses and even nonprofit establishments consider electricity costs as part of operating expense," Cuna said.
"For utilities, since we sell energy in kWh, we account for it in terms of the kWh used in providing continuous service to our customers."
Commissioner Lilian Hefti told reporters Friday that the Bureau of Internal Revenue would scrutinize the tax compliance of Meralco and other power companies.
Meralco was earlier reported to have generated P655 million in net income in the first quarter--a 23-percent increase from the P532-million net income in the same period last year.
Deputy Commissioner Nelson Aspe said power companies--whether in the business of generation, transmission or distribution--must pay the 35-percent corporate income tax and VAT and remit taxes withheld from employees.
Picket
Also on Friday, about 50 members of the leftist Bagong Alyansang Makabayan and People Opposed to Warrantless Electricity Rates picketed the offices of National Power Corp. and Meralco demanding the removal of "unjust charges" to consumers.
Bayan party-list Rep. Teodoro Casiño said Meralco's passing on systems losses and its own electricity bills to its customers was "illegal."
With a report from Michelle V. Remo, Jerome Aning and TJ Burgonio
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