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Father of EVAT (Extended Value Added Tax)

March 14, 2021 Uncategorized

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Ralph Recto is the author of Extended Value Added Tax (EVAT). Below is an article which explains EVAT: (source)

Recto raps ERC for making consumers pay tax on systems loss

MANILA, Philippines — Former senator Ralph Recto, principal author of the Expanded Value Added Tax law of 2005, assailed the Energy Regulatory Commission on Thursday for allowing “systems losses” declared by Manila Electric Co. and other power distributors to be subjected to the tax.

Recto said Republic Act 9337 or the E-VAT law did not provide for tax on “systems losses” in the power industry.

“Systems losses,” which is part of the electricity charges passed on to consumers, refers to electricity that is lost due to pilferage and other inefficiencies in the distribution system.

But Meralco disclosed that it includes as part of its “systems losses” also the electricity it uses for its operations and even in its administrative offices.

“There is nothing in the law that says systems losses is VAT-able,” Recto said when interviewed over ANC cable channel.

“I took that up already with the ERC one-and-a-half years ago when I was still in the Senate because when I looked at the electricity charges, I was surprised why there was a VAT on systems losses,” he added, pointing out that “no law talks about systems losses.”

He said the ERC, which has the power to approve petitions for power rate increases, could still reverse its past rulings allowing the imposition of E-VAT on systems losses.

“They (ERC) do not understand the VAT law. They’ve not read the VAT law, that’s their problem,” said Recto, who is widely believed to have lost his re-election bid in 2007 because of the unpopularity of the E-VAT law.

The E-VAT law, signed in May 2005, allowed the government to raise the value-added tax from 10 percent to 12 percent effective January 1, 2006 and to impose it on a wider range of items, including electricity.

During Monday’s hearing of the Joint Congressional Power Commission, legislators questioned the imposition of 12 per cent E-VAT on every aspect of electricity charges – from transmission, generation distribution and even on “systems losses.”

Legislators have also assailed the ERC for not imposing a cap on allowable “systems losses” lower than 9.5 per cent of total power used, as it was tasked to do under the 2001 Electric Power Industry Reform Act (Epira).

Senator Francis Escudero, who succeeded Recto as chairman of the Senate ways and means committee, said the Bureau of Internal Revenue only has to issue a revenue regulation circular to repeal the E-VAT on systems losses.

“That is a misinterpretation of the law. You can not tax something that is lost or not even used. Lost or stolen electricity is not good service, so you cannot tax it,” he said.

Escudero said his committee was still studying a proposal to lift or suspend the VAT on electricity as well as on petroleum products. He said they were looking for ways to make up for the revenue losses this action will entail.

“Personally I’m against VAT, period. I did not vote for VAT for petroleum and electricity when I was still in the House of Representatives. My position has not changed,” he said.

Senator Loren Legarda has filed Senate Bill 2289 which seeks to prohibit power utilities from passing their systems losses on to consumers.

“If they cannot pass systems losses to consumers, electric companies will be motivated to go after pilferers and to improve their systems to minimize naturally occurring losses,” she said.

Legarda said systems loss accounts for at least eight percent of the bill of an average consumer or about 58 centavos per kilowatt hour. From 2003 to 2007, Meralco customers paid P84.6 billion in systems losses based on the 70.55 centavos systems loss charge per kWh.

Under RA 7832, electric utilities are allowed to pass on to consumers 9.5 per cent of their systems losses.

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