VAT ON TOLL FEES LEGAL: SUPREME COURT WON'T STOP VAT ON TOLL FEES
MANILA, OCTOBER 2, 2011 (STAR) By Edu Punay - The Bureau of Internal Revenue (BIR) may impose the 12 percent value-added tax (VAT) on toll fees starting tomorrow despite the pending appeal on its imposition, the Supreme Court (SC) said yesterday.
In July, the SC ruled on the legality of VAT on toll fees. In the same ruling, the Court lifted the temporary restraining order (TRO) it issued on Aug. 13 last year on the imposition of the tax.
It also upheld the power of the executive branch to impose VAT on franchise grantees like tollway operators.
"With the lifting of the TRO, the VAT on toll can now be imposed, notwithstanding the pendency of a motion for reconsideration," said Court Administrator Midas Marquez.
Through a memorandum filed last week, the petitioners in the case – former Nueva Ecija congressman Renato Diaz and former trade assistant secretary Aurora Ma. Timbol – made a last ditch effort to stop the collection of VAT on toll fees, insisting on their argument that toll fees should be exempt from taxes.
Marquez said the SC failed to act on the pleading because the justices were not able to hold their regular full-court session last Tuesday because of typhoon "Pedring."
He said the Court will still resolve the appeal and eventually rule with finality on the legality of the imposition of the tax on toll fees.
In its ruling in July, the SC cited the lack of law exempting toll fees from coverage of the 12-percent VAT levied on goods and services.
"If the legislative intent was to exempt toll way operations from VAT,as petitioners strongly allege, then it would have been well for the law to clearly say so. Tax exemptions must be justified by clear statutory grant and based on language in the law too plain to be mistaken. But as the law is written, no such exemption obtains for tollway operators. The Court is thus duty-bound to simply apply the law as it is found," stated the ruling penned by Associate Justice Roberto Abad.
The petitioners, however, argued: "It is the clear intent of the legislature (in RA 8424 or Comprehensive Tax Reform Act of 1997 and RA 7716 or Expanded Value Added Tax law) to exclude the toll operations and the toll fees collected are excluded from 'sale of services.'"
They also reiterated their argument that the new tax measure violates the law because it is tantamount to the imposition of a double tax on motorists.
The petitioners cited the ruling of Court on the case Manila International Airport Authority vs. Court of Tax Appeals, City of Parañaque, in which it declared toll fees as a user's tax.
"Considering that toll fees are considered 'user's tax', it logically follows that the imposition of VAT on a user's tax is in effect imposing a tax on a tax, and not a tax on 'sale of services.'
There can be no VAT if there is no sale of services," the petitioners argued.
They also argued that imposing VAT on toll fees is "impractical and incapable of implementation" and "will just create an arbitrary and unwarranted financial burden to motorists in Luzon."
'No significant effect'
BIR Commissioner Kim Henares said the imposition of 12-percent VAT on toll fees will not significantly raise fares and prices of consumer goods because it translates to a toll fee increase of only 1.6 centavo every kilometer per person.
"I'd like to clarify that it should not have a significant effect on fares or prices," Henares said.
She warned bus operators and goods suppliers that unreasonable increase of fares and prices of goods is tantamount to profiteering.
She also noted that VAT on toll is a different issue from toll fare hike.
"It's a different issue from the toll fare hike. Whether or not the toll will increase, the VAT on toll is going to be collected," Henares said.
The BIR expects to collect P500 million to P800 million from the imposition of VAT on toll from October to December this year and an estimated
P2.3 billion to P3 billion for the year 2012.
Back taxes for VAT on toll fees, estimated at P6.5 billion, will no longer be collected.
The amount represents VAT on toll that should have been collected from 2007 to 2009.
The tax was supposed to have been implemented as early as 2005 when amendments to the VAT law were passed, but strong opposition from toll way operators caused the delay.
The BIR had been arguing that the VAT on toll is not a new tax and should be imposed in accordance with the VAT law.
Under the amendments
to the law in 2005, franchise receipts of franchise holders such as toll operators are subject to VAT.
The agency, under the administration of then BIR commissioner Joel Tan-Torres, had planned to implement the controversial VAT on toll in April last year but deferred this after the Toll Regulatory Board and tollway operators asked for more time to prepare for its implementation.
The BIR was assigned a tax collection target of P940 billion this year, higher than last year's target of P860 billion. Next year, the agency is mandated to collect P1.06 trillion.
'Ill-timed, ill-advised'
Sen. Ralph Recto, an ally of President Aquino in the Liberal Party, maintains that the imposition of VAT in toll fees is "ill-timed" and "ill-advised" because of the rising prices of fuel and fares which can affect the prices of basic commodities.
He said the government does not need to impose the tax, having enough funds because of under-spending this year.
"It's not needed; it's not in the law. It has no intention and is ill-timed. Economic mayhem is coming, especially in Europe and the US. Now is not the time to do that," he said after the budget hearing of the Department of Energy yesterday.
He said, nonetheless, that he respects the decision of the President to impose the tax.
"There is a decision made, and they have decided that. There is nothing we can do," said Recto. "The wishes of the President should be followed. Even if we pass a bill, the President can veto it. Majority have signed the resolution because they know it. This matter has been discussed for a year now."
He believes the difference in their opinion will not affect his relationship with the President.
"I cannot speak for the institution… it's a judgment call. And that is his judgment. I think it is ill-advised," he said.
Senators Joker Arroyo, Manuel Villar and Recto introduced Resolution 602, which expressed the sense of the Senate on the move to increase the fares at the Light Rail Transit and the Metro Rail Transit and the VAT on toll.
A total of 14 senators have expressed support to defer the imposition of the tax.
Senate President Juan Ponce Enrile has expressed support for the resolution while Senate President Pro-Tempore Jinggoy Estrada, Majority Leader Vicente Sotto III, and Senators Loren Legarda, Francis Escudero, Gregorio Honasan, Ramon Revilla Jr., Ferdinand Marcos Jr., Antonio Trillanes IV manifested to become co-authors.
Minority Leader Alan Cayetano and Miriam Defensor-Santiago also signed the resolution.
Revilla, chairman of the Senate committee on public services, debunked the explanation of government economic managers that only Metro Manila residents benefit from the yearly P8-billion subsidy provided to LRT and MRT.
Revilla noted that a majority of train commuters also come from nearby provinces who work and study in Metro Manila, and use the trains.
Malacañang has rejected the resolution.
Arroyo said President Aquino should engage in a dialogue with the Senate.
"The Palace should listen to the Senate. It is a Senate resolution, which reflects the sentiment of the Senate, meaning that is the Senate stand," he said. "This attitude (of the Palace) is unhealthy. They insist on their position, period. Our recommendation is not wrong, we have discussed this a number of times."
Arroyo pointed out that train operations worldwide are subsidized by the government.
"The resolution is a polite way of telling the executive to reconsider their position," he said. "The Senate is going out of its way…I think we deserve an explanation, and a little more consideration." - With Iris Gonzales, Christina Mendez
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