The Office of the Government Corporate Counsel (OGCC) has described as “excessive, illegal and unjust” a provision of the Revenue Code of the province of Catanduanes that imposed franchise tax on water districts.
In an opinion rendered upon request of the Virac Water District (VIWAD), Assistant Governor Corporate Counsel Tricia Nicole Q. Velasco-Catera and Government Corporate Attorneys Owen M. Vidad and Augustine M. Vestil, Jr. said the rate of the tax imposed by the provincial government exceeded the explicit limit provided in Section 137 of the Local Government Code when it imposed an additional five percent (5%) to what was allowed under the very same law from which it draws it authority to pass its revenue ordinance.
The limitation on franchise tax to a rate not exceeding 50% of one percent (1%) of the gross annual receipts on businesses enjoying a franchise is likewise found in Article 226 of Administrative Order No. 270, or the Implementing Rules and Regulations of the LGC, they added.
As such, the OGCC stated, Section 2.D.02 of the Revenue Code of the province may be questioned through the filing of a Special Civil Action of Certiorari and Prohibition against the province and the provincial treasurer, with a prayer that the provision be declared invalid and illegal, including the assessments, demands, levies and/or garnishments issued or made against the water district and its funds.
The corporate lawyers said VIWAD can also seek injunctive relief against the province, the Sangguniang Panlalawigan and the treasurer so that no further actions can be taken against VIWAD for the collection of franchise taxes until a final decision is issued.
They also conveyed that it was improper for the Land Bank of the Philippines (LBP) Virac to garnish the funds of VIWAD as the same are government funds since VIWAD is a government-owned-or-controlled-corporation (GOCC).
It cited a Supreme Court ruling that “government funds may not be seized under writs of execution or garnishment to satisfy court judgments, and disbursement of public funds cannot be made unless covered by a corresponding appropriation.”
They likewise stressed that the warrant of distraint is the wrong remedy and the consequent garnishment made by LBP Virac on the funds or deposits of VIWAD constitute illegal and improper actions, considering that VIWAD is a GOCC.
While the opinion urged the water district to question and assail the revenue ordinance’s provision and pray for injunctive relief, the OGCC encouraged VIWAD to exert efforts for constructive discussions and dialogue with the provincial government and the treasurer in the hope that the issue can be resolved without resorting to judicial action and relief.
It may be recalled that in 2017 the provincial treasurer’s office moved to impose franchise tax on VIWAD, which later sought an OGCC opinion and used it to convey to the province that additional taxes would result to higher water bills and the cost to be borne by its constituents.
Disagreeing with the OGCC opinion, the treasurer’s office demanded in June 2018 that VIWAD pay nearly P2.7 million as franchise tax liabilities for 2013 to 2017.
In April 2021, the same office sent a final notice to the water district, with the SP denying VIWAD’s request for a two-year moratorium.
In February 2022, the district received a warrant of distraint issued by the treasurer addressed to LBP Virac, with the latter freezing VIWAD’s deposit account until the total garnishment of P2.7 million is satisfied.
VIWAD General Manager Gabriel Tejerero has already sent copies of the OGCC opinion to the concerned Capitol offices.
Meanwhile, the VIWAD Board of Directors has approved the implementation of the franchise tax as a pass-on charge to customers effective March 2025, as the payment of the tax to the provincial government “significantly impacts the financial operations” of the water district.
Pursuant to Local Water Utilities Administration (LWUA) Memorandum Circular No. 004-22, water districts are authorized to recover the franchise tax expense by passing it to customers as a separate charge.
Thus, water district customers should expect not only the basic water bill but also an additional two percent (2%) of the bill as franchise tax pass-on charge.
For example, those paying P100 monthly will pay an additional P2 for the franchise tax recovery.