PNoy vetoes bill on condonation of water districts’ debts

President Benigno Aquino III has vetoed a proposed legislation removing conditions for the condonation of all unpaid income taxes of local water districts (LWDs), citing the measures’s “serious fiscal policy implications.”

The consolidated House Bill 3675 and Senate Bill 2518 sought to remove two conditions: (1) proof of financial incapacity as determined by the Bureau of Internal Revenue, and (2) a program of internal reforms as submitted to Congress.

President Aquino said the bill will remove the laudable intent of Republic Act 10026 which is to grant tax reprieve only to LWDs which are financially incapable and committed to instituting fiscal reforms.

“The bill creates the misguided impression that the government incentivizes the LWDs’ negligence and omission of one of their primordial responsibility, which is to ensure that the necessary reforms are introduced and institutionalized in order to efficiently operate and maintain these utilities,” Aquino said in his veto message.

“Furthermore, it sends a message to errant taxpayers that delinquency is acceptable since amnesty or condonation may be given anyway, even without the benefit of proper documentation,” he added.

Aquino said the proposed law would also be disadvantageous to the government as other government-owned and controlled corporations (GOCCs) might clamor for the same treatment.

Senator Ralph Recto, the author of the measure, earlier said that his proposal was expected to "free up money which local water districts can only use in improving the quality or expanding the reach of their services."

He said the bill condoning certain taxes of community-owned local water districts removes the administrative bottlenecks in making this claim.

In 2010, Congress passed what would become Republic Act 10026 which grants income tax exemptions to local water districts, in effect extending to them the same privilege government-run utilities like the Metropolitan Waterworks and Sewerage System (MWSS) was already enjoying.

In addition, RA 10026 condoned the tax obligations of a local water district from August 1996 up to the time RA 10026 took effect in March 2010.

The law, however, imposed the condition that water districts who wish to apply for condonation must prove its financial incapacity to the Bureau of Internal Revenue (BIR). They were also required to submit to Congress a program for “internal reforms.”

The senator said despite the submission by LWDs of these documents, the BIR did not issue the corresponding revenue regulations, rendering the law inoperable.

What the tax agency instead issued was Revenue Memorandum Circular 68-2012, which enumerated the procedure, and the documentary requirements for condonation.

Despite these, 161 water districts “diligently applied for condonation,” with 78, whose unpaid taxes amounted to P842 million, able to comply with the documentary requirements.

Recto said under RA 10026, the condoned taxes can only be spent by water districts for the improvement of their services like the purchase of equipment. “In the end, the people will benefit because taxes foregone are mandated to be plowed back to them.” —NB, GMA News