DOF: No double taxation in power rates

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MANILA — The Department of Finance (DOF) opposes the proposal raised by the Energy Regulatory Commission (ERC) to remove the 12 percent value-added tax (VAT) on generation charge in order to lower consumer electricity bills.

Finance Secretary Carlos Dominguez III on Thursday stated that there is no double taxation in the power industry that consumers have to pay for as raised by ERC chairman Agnes Devanadera.

According to Dominguez, the Electric Power Industry Reform Act has unbundled the pricing at every level of electricity production, making it necessary for the government to impose VAT separately at each of those stages.

Dominguez, however, noted that the electric bill received by consumers only carries a single VAT of 12 percent. He pointed out that for double taxation to exist—as alleged by Devanadera—two taxes must be imposed with the same purpose, by the same authority, within the same jurisdiction.

Dominguez said the law mandates that the pricing of electricity be disintegrated. In such a mechanism, the government is mandated to collect VAT at every level of the supply chain.

“With this unbundled pricing mechanism, VAT is imposed on every level of the value chain and it is not integrated vertically like other sectors,” Dominguez said.

The finance chief stressed that the VAT paid by consumers only applies to electricity distribution, as providers are responsible for paying the VAT on power generation and transmission.

Dominguez, as head of the DOF, the same department advocating for fiscal consolidation, urged the incoming administration should reconsider policies on power generation pricing rather than suspending, if not completely eliminating, the VAT imposed on consumers.

If Devanadera’s proposal to eliminate VAT is adopted, electrical companies can no longer be able to charge output VAT consumers , but they would still be required to pay VAT on their own inputs. In such an instance, the input VAT becomes an additional cost that they will attempt to recover from their consumers.

Dominguez attributed the ballooning price of electricity in the Philippines to the expensive costs of producing power. For one, the generation charge collected by Manila Electric Co. accounted for around 59 percent of an electric bill in the first quarter.

“VAT exemption is not the solution [because] if the intention is to unburden consumers, the next administration needs to review existing policies on power generation pricing,” Dominguez said.

The DOF hopes that the next administration consolidate its finances by removing VAT exemptions to make room for debt payments.

Meanwhile, Devanadera said in a text message that there is a disconnect between what was she pitching for and what the finance chief may have heard.

“We never said that it will bring a reduction of 12 percent. I think what we said was not accurately relayed,” she said.

House committees to hold hearings during break

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Spread the loveMANILA – The House of Representatives has authorized for its committees to conduct hearings during the five-week congressional break, extending until late April.