The Energy Regulatory Commission will have to decide on the legality of the franchise held by Bohol Light Company Inc. before ruling on the application by the utility firm to pass-on charges of franchise taxes paid since 2001.

Some P36.5-million have been paid by Bohol Light to the national and city government in franchise tax and this will be charged on the monthly billings of electric consumers within a period of three years if the ERC grants their petition.

During the public hearing last Thursday, a pre-judicial question was raised by City Mayor Dan Lim questioning the legality of the power company's franchise which was issued by the National Electrification Commission (NEC).

Citing the provisions of the Electric Power Industry Reform Act (EPIRA) that gave exclusive authority to the House of Representatives in issuing franchises in the transmission and distribution of electricity, Lim asked the ERC, through Commissioner Rauf Tan, to rule first on the franchise issue before giving due course to Bohol Light's petition.

Bohol Light was issued a certificate of franchise by the NEC on July 10, 2003 while the EPIRA took effect on June 26, 2001.

Commissioner Tan gave ten days for Bohol Light and the mayor to submit its arguments on the pre-judicial question raised.

CONGRESS INTERVENES

Representatives Edgar Chatto, Roberto Cajes and Adam Relson Jala, however, submitted a letter-request for the Commission to defer its ruling on the application of Bohol Light to pass the burden of the franchise taxes to its consumers.

The request, which was signed by House Speaker Prospero Nograles, was in consideration of a Bill filed by Jala which is now pending deliberation at the House committee on legislative franchises.

PASS-ON CHARGE

In a period of three years, Bohol Light will be charging an additional 16-centavos per kilowatt/hour to its consumers to recover the franchise tax it paid to the national government from 2001 to 2006 and the city government from 2002 to 2008.

The utility paid P22.1-million to the national government and P14.4-million to the local government.

Bohol Light manager Noel Alingig explained they are just complying with ERC guidelines on full-cost recovery which includes franchise taxes.

During the said hearing, Commissioner Tan himself confirmed that most distribution utilities, including big industry player Meralco, was already given authority by the ERC to charge franchise taxes to its consumers.

In the case of Bohol Light, the commissioner said, they will have to examine the company's authority to recover said costs.

FINANCIAL STATEMENTS

Among the key issues presented by Lim during the public hearing is the representation made by Bohol Light in its financial statements that its yearly franchise tax payments were treated as outright expense and not as a recoverable cost.

According to the mayor, such misrepresentation in its financial statements is "a criminal act of fraud".

By disclosing the franchise tax payments as expense, Bohol Light reduced its yearly taxable revenue while having the intention to charge the same to its consumers, Lim said.

Under generally accepted accounting principles, the payment of franchise tax should not have been treated as a reduction to the company's equity but a collectible from its consumers since they have the intent of recovering it, he added.

The mayor said the city government will pursue another case in the courts in relation to the misrepresentation in Bohol Light's financial statements.

PRIVILEGE TAX

Another contention made by Lim in his opposition is that franchise tax, by nature, is a tax on a privilege of someone who enjoys the franchise issued by a proper government authority.

He said, there is no legal provision which subjects consumers of franchise tax other than the franchise grantee.

Unlike the value-added tax (VAT) which is a pass-through charge, the burden of paying a franchise tax cannot be shifted to the end-consumers, Lim said.

Referring to the ERC guidelines which prescribes to electric utilities full-recovery of costs from consumers, the mayor said that "there is nothing in the National Internal Revenue Code (NIRC) and the Local Government Code (LGC) authorizing the recovery and collection of the franchise tax incurred by a utility firm to its captive consumers."
Even the EPIRA does not prescribe such cost recovery, he said.

"Passing the burden of the franchise tax to the consumers makes the consumers subject such tax and the franchise holder exempt, a situation which circumvents the intention of the law the very nature of the franchise tax," the mayor argued.

Lim added that by passing the tax to the consumers, it "will create a situation where a large utility is not paying taxes to the city government while small sari-sari stores are diligently paying taxes."

OPPOSITORS

The provincial government, through legal officer Atty. Handel Lagunay likewise submitted its opposition during the public hearing.

Other oppositors include the Integrated Bar of the Philippines (IBP) Bohol Chapter, Holy Name University Alumni Association, the Tagbilaran Consumers Association (TACO) and Rep. Jala, who was represented by his lawyer.

Several barangay officials were also present during the public hearing.