BIR Ruling [DA-329-04]

June 17, 2004 BIR RULING [DA-329-04] January 13, 2004 Hon. Alberto G. Romulo Executive Secretary Office of the President Malacaang, Manila S i r : This refers to your memorandum dated January 9, 2003 referring to this Office for comment and recommendation the request on behalf of Engineer Ranulfo "Noli" C. Feliciano, President of the Philippine Association of Water Districts, Inc., for a proposed Executive Order deferring the assessment and collection of all forms of taxes being levied by the BIR on local water districts pending final resolution of the Petition for Review (CA-GR No. 72412) filed by Engineer Feliciano with the Court of Appeals. In reply, please be informed that the tax exemption privileges (income and franchise taxes) granted to local water districts were limited only to a period of five (5) years from the effectivity of Republic Act (R.A.) No. 7109, otherwise known as "An Act Granting Tax Exemption Privileges to Local Water Districts", which took effect upon its approval on August 14, 1991. Section 3 of R.A. 7109, provides, to wit: "SEC. 3. Period and Conditions of Exemptions. The tax exemption privileges provided for in Sections 1 and 2 to all water districts shall be enjoyed only for a period of five (5) years from the effectivity of this Act: Provided, That the water districts shall adopt internal control reforms that would bring about their economic and financial viability: Provided, further, That, for a water district to be entitled to the tax exemption, its appropriation for personal services, as well as for travel, transportation or representation expenses and purchase of motor vehicles, shall not be increased by more than twenty-five (25%) a year during the period of exemption." CacHES Local water districts are subject to income taxes and franchise taxes effective August 13, 1996 or five (5) years from the effectivity of R.A. 7109. No other law has been passed reviving such exemption. (Memo No. 014-2002 dated October 24, 2002 signed by then Deputy Commissioner for Legal and Inspection Group, Edmundo P. Guevara addressed to the Office of the Revenue District Officer of Revenue District No. 23, Cabanatuan City; and Revenue Memorandum Circular No. 63-2003) In view of all the foregoing, we regret to advise that the request for deferment of the assessment and collection of all forms of taxes upon local water districts cannot be given due course for lack of legal basis. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group