Vetting the VAT

Contrary to first impressions woven, spun and eventually peddled to the public by the original engineers behind the expanded value added tax (E-VAT), there is no specific exemption granted tolls against the imposition of an E-VAT. We combed through R.A. 9337, the VAT Reform Act, and Bureau of Revenues Regulation 16-2005 that deal with the question. The spin concocted following the opposition to exponential increases in toll way charges, whether tax-related or as a function of rising costs, panders to political populism more than the actual word of the law. However unpopular, there is indeed a basis for applying increases despite the multidimensional criticism that bears upon revenue authorities rightfully performing their duties and correctly interpreting their charge. Unfortunately, both our new Finance Department authorities and those tasked to increase revenue collections after a long period of government excesses are duty bound and must confront popular issues as well as the statutory realities. While the public remains the sovereign voice above all clutter and din, dura lex sed lex, or more appropriately, dura tax sed lex, nowhere in the equation of priorities is there room for spins concocted by politicians no matter their evocation of representative government or self-serving claims as authors of a measure as controversial as it is condemned. Filter out the cacophony and read through the statutory foundations which, by their own hand, they carved into R.A. 9337. They provided the foundations for the application of a value added tax specifically on the NLEX and SLEX (North Luzon Expressways and South Luzon Expressways). While we are uncertain such is applicable on a nationwide basis covering all roads for which a toll and fees are demanded, on the NLEX and SLEX we see exactly where the VAT might be justified. The pertinent provisions are R.A. 9337’s Section 108 dealing with the imposition of a value added tax on the sale of services. This is the same foundation for a VAT on telecommunication services. The same for water service contractors charged with a private management contract and the state utility behind those. The rationale behind a VAT on services is undeniable. While water resources might be considered part of the sovereign domain, ancillary services, from water management, maintenance and billing comprise services subject to VAT. As statutory basis, R.A. 9337’s Section 108 is supported by BIR Regulation 16-2005 dated September 1, 2005. Sections 4.108-1 and 4.108-2, the first dealing with the sale of services, while the second defines a “sale or exchange of services” as the “performance of all kinds of services” for a fee. While it is easy to argue that a tax cannot be imposed on another tax where toll charges are considered such and therefore cannot be imposed a VAT, this argument’s simplicity hides its sorely simplistic nature. A toll on the use of a road is a road user’s tax. A toll is applied to recover capitalized costs or periodic maintenance not beyond the ordinary. In the NLEX and the SLEX, that aspect of road usage is present. There is however an aspect of the total taxes and fees charged that extend beyond the issue of a road user’s tax, perhaps more in the NLEX and SLEX than other roads. The NLEX and SLEX are road systems. Where fees are concerned, extraordinary operating costs enter the equation and special services provided become the subject of VAT. Fortunately, both issues are simultaneously on the table for debate diametrically delineating the differences. One argues on the tax sense, the other, on the increase in operating expenses sense. Those issues in the NLEX when combined turn intricate when we break down a toll between its tax components and its cost recovery components, the latter allowed as a VAT on services. Where proceeds pay for services such as the management and maintenance of the road complex, the state-of-the-art traffic systems, the clean-ups, the security, computerization, lighting systems, cameras, speed monitors, communications and public phone systems, fences, dividers, and competitive wages ensuring the roads are competently managed, then extraordinary services are provided and tariffs charged go beyond being a road user's tax. The SLEX issue, the increase in fees to compensate for the increase in the operating expenses, illustrates the need for current revenues to cover expenses more directly. On this second issue, the authorities are not calling the increase a tax but rather, a fee to compensate for expenses. This issue is un-clouded by definitions of taxes and tolls and is clearer albeit, between the two, it is the one authorities can suspend temporarily. As both interpretations are currently before us - the NLEX increase on a question of VAT, and SLEX where fees are raised to dovetail expenses – it would be interesting to see how one might be stricken down while another is sustained.