BIR Ruling [DA-020-05]

January 19, 2005 BIR RULING [DA-020-05] Ruling #074-98 dtd May 27, 1998 Atty . Marcelinda Omila-Yap Regional Director BIR Revenue Region No. 19 Davao City M a d a m : This refers to your letter dated October 19, 2004, requesting clarification on whether or not Rural Waterworks Development Corporation (RWDC) are now subject to the corporate income tax pursuant to Section 27 of the Tax Code in view of the expiration of exemption privileges of local water districts. HSCcTD It is represented that Rural Waterworks Associations are non-stock, non-profit entities, duly organized and registered by virtue of Executive Order No. 577 (creating the Rural Waterworks Development Corporation) and later by Executive Order No. 869 renaming RWA as Rural Waterworks and Sanitation Associations (RUWASA), that pertinent provisions of the laws covering the same are quoted hereinunder as follows: "The Rural Waterworks Development Corporation is a public corporation which shall be primarily responsible for the formation of rural waterworks associations that will construct, operate and maintain water supply systems in the rural areas (Sec. 2, E.O. No. 577) "It shall apply only to franchise to supply water in areas outside the coverage of the LWUA (Local Water Utilities Administration) and the MWSS (Metropolitan Waterworks and Sewerage System) . . . Section 33, E.O. No. 577) "Exemption from Securities and Exchange Commission; Exemption from taxes, impost, duties, fees a) RUWASA shall be exempt from regulation by the Securities and Exchange Commission. xxx xxx xxx b) The RUWASA shall be exempt from all National Government, local government and municipal taxes and fees, including any franchise filling, recordation, license or permit fees or taxes, charges or cost involved in any court or administrative proceeding in which it may be a party, and all duties or imposts on foreign goods acquired for its operations (Sec. 6, E.O. No. 869); that this query is posed considering that rural waterworks associations are different from local water districts registered under P.D. No. 198 for which RMC No. 69-2003 had been specifically issued." ITSacC In reply, please be informed that pursuant to Section 27(C) of the Tax Code of 1997, it is stated that "SEC. 27. ... (C) Government-owned or Controlled Corporations, Agencies or Instrumentalities. The provisions of existing special or general laws to the contrary notwithstanding, all corporations, agencies, or instrumentalities owned or controlled by the Government, except the Government Service Insurance System (GSIS),the Social Security System (SSS),the Philippine Health Insurance Corporation (PHIC),the Philippine Charity Sweepstakes Office (PCSO) and the Philippine Amusement and Gaming Corporation (PAGCOR),shall pay such rate of tax upon their taxable income as are imposed by this Section upon corporations or associations engaged in a similar business, industry or activity." The above-quoted provision specifically excepted only five (5) corporations, namely, GSIS, SSS, PHIC, PCSO, PAGCOR, from the payment of regular corporate income tax. All other government-owned or controlled corporations, agencies or instrumentalities engaged in a similar business, industry or activity as that of an ordinary taxable corporation, which are not mentioned therefore are deemed taxable on their gross income. In relation to this, Section 7 of the Tax Reform Act of 1997 provides, among others, that charters of government-owned or controlled corporations which are inconsistent with the said law are therefore repealed or amended accordingly. Corollarily, Rural Waterworks Associations (RWA) are subject to income tax in view of the effectivity of Section 27(C) of the Tax Code of 1997. Please be guided accordingly. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group