BIR Ruling

September 8, 1976 Mr. Pedro V. Serranzana Bagumbayan St. Naga City S i r : This refers to your letter dated August 20, 1975 requesting ruling on the following issues: "'1. Is the present procedure of paying the municipality's share of the franchise tax directly to them proper? "2. Since I am supposed to pay only two per centum (2%), from which allotment shall I charge the excess one per centum (1%)? Will it be from the National Treasury's share or from the Municipal Treasury's share? "3. Assuming that the excess of one per centum (1%) is taken from the National Treasury's allocation, to whom shall I remit the two per centum (2%)?" It appears that your are a holder of a legislative franchise (R.A. 5964) for the operation and distribution of electric current in the city of Iriga, and the towns of Baao, Nabua and Sipocot, all of the province of Camarines Sur. At present you are paying a total of 3% franchise tax, 2% of which accrues to the National Treasury and paid to the BIR Collection Agent while 1% accrues to the municipal treasury of the municipalities in which you are supplying electric current and paid directly to the Municipal Treasurers of the Municipalities concerned. In reply, I have the honor to inform you that for operating and distributing electric current, you are liable for the payment of only 2% tax on your gross receipts pursuant to Presidential Decree No. 551, as amended by Presidential Decree No. 648, section 1 of which states that: "Section 1. Any provision of law or local ordinance to the contrary notwithstanding, the franchise tax payable by all grantees of franchise to generate, distribute and sell electric current for light, heat and power and for the manufacture, distribution and sale of city gas shall be two per cent (2%) of their gross receipts received from the sale of electric current and from transactions incident to the generation, distribution and sale of electric current and of manufactured city gas. "Such franchise tax shall be payable to the Commissioner of Internal Revenue or his duly authorized representative on or before the twentieth day of the month following the end of each calendar quarter or month as may be provided in the respective franchise or pertinent municipal regulation and shall, any provision of the Local Tax Code or any other law to the contrary notwithstanding, be in lieu of all taxes and assessments of whatever nature imposed by any national or local authority on earning, receipt, income and privilege of generation, distribution and sale of electric current and of manufactured city gas." In other words, you shall no longer pay any franchise tax to the municipalities concerned as provided in your franchise. The 1% reduction of the franchise tax will pays to the consumers by lowering the rate charged on electric consumption to the extent of the savings realized from the reduction of the franchise tax. (Dept. Order No. 35-74, Sept. 16, 1974) cdi Very truly yours, EFREN I. PLANA Acting Commissioner of Internal Revenue TAN-1456-040-3