Single franchise tax proposed to cut electricity costs

Wednesday, September 21, 2011

A SENIOR legislator is urging Congress to act swiftly on the passage of a bill that will replace all taxes on electricity with just one tax, a move that is expected to reduce power rates.

The bill proposes to impose a uniform franchise tax on distribution utilities that, in turn, will replace all other taxes imposed on electric consumption, including the value added tax (VAT).

Power costs would be lessened through this system because a franchise tax is a direct tax that cannot be transferred to consumers, Isabela Representative Giorgidi Aggabao, author of the proposed legislation, explained.

"The tax incident lies exclusively on the distribution utilities that cannot be devolved," said Aggabao, vice-chairman of the House committee on ways and means.

Under the measure, distribution utilities shall pay a franchise tax equivalent to three percent of their gross receipt derived from the distribution business granted under the utility’s legislative franchise.

Aggabao said the tax rate of three percent of gross receipt is reasonable and should be adequate to compensate for the revenue loss of the government.

The bill provides that the sale of electricity to marginalized consumers whose monthly electric consumption does not exceed 100 kilowatt hours shall not form part of the gross receipts in the computation of the franchise tax, as well as the distribution charge of the sale of electricity by electric cooperatives duly registered with the Cooperative Development Authority or the National Electrification Administration.

The lawmaker noted that the Electric Power Industry Act of 2001 (Epira) has not served to lower the cost of electricity nationwide contrary to the expectations of the consumers.

Several of Aggabao’s colleagues in the House of Representatives have proposed for the review and or repeal of the Epira.

"Today, the Philippines has acquired the dubious distinction of having the highest power rate in the region, even surpassing Japan. One chief reason for this is the tax component of the power rate," he added.

The lawmaker also said that the value-added tax (VAT) collected pursuant to the Reformed VAT Law has demonstrably increased power rate by 12 percent with the tax being shouldered wholly by the consumer.(Kathrina Alvarez/Sunnex)

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