Bureau of Local Government Finance Opinion

November 12, 2002 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Hon. Katherine H. Gordon City Mayor Olongapo City Dear Mayor Gordon : This refers to your letter dated October 1, 2002. It is represented that the city government operates the Public Utilities Department (PUD) which handles in full the operation of the electrical power system. However, the PUD is experiencing a lot of default in the payment of electric bills. You wish to be advised whether the PUD can condone interest and penalties on delinquent accounts by applying Sec. 192 of the Local Government Code which provides that: "Authority to Grant Tax Exemption Privileges. Local Government Units, through ordinance duly approved, grant tax exemptions, incentives or relief under such terms and conditions as they may deem necessary." At the outset, we wish to point out that the electric bill being charged by the City through the PUD could not be regarded as "taxes". Taxes are the enforced proportional contribution from persons and property levied by the State by virtue of its sovereignty for the support of government and public needs. On the other hand, electric bills charged by the PUD was brought about between a contract of service between the City and the taxpayers. Any default in the payment of the electric bill will be considered as "debt" and not a "tax". A tax is not a debt because it is not an obligation that is created by contracts express or implied. A tax is an obligation imposed by law. In a case it was held that, "there is a material and fundamental distinction between a tax and a debt. Debts are due to the Government in its corporate capacity while taxes are due to the Government in its sovereign capacity." In view of this reason, we believe that Sec. 192 of the LGC could not be used as a justification in condoning the interest and penalties incurred by the taxpayer due to the non-payment of their electric bills. However, under the LGC, the city council is empowered to "provide for and set the terms and conditions under which public utilities owned by the city shall be operated by the city government". The matter of condonation of the interest and penalties is left to its discretion. We hope to have addressed your concerns. Very truly yours, (SGD.) MA. PRESENTACION R. MONTESA Executive Director