Co-Sponsorship Speech on SB No. 2518, CR No. 94
On the Condonation of Tax Liabilities of Water Districts Local Water Districts

A typical Pinoy uses 180 liters of water daily – largely because he bathes twice, and she thrice a day.

This comes up to a per capita water consumption of 66 cubic meters annually.

But because the dog and the car get shampooed too, total water withdrawal per capita in this country is about 846 cubic meters annually.

This number covers what factories and farm need because water, as we all know, is a universal production ingredient.

For example, the cup of coffee in the lounge, from growing the beans to brewing them, went through a process which required 140 liters of water.

The biko which goes with the coffee comes from rice, a kilo of which requires 1,000 liters of water to produce. Palay is a crop with a serious drinking problem.

And to those with a real drinking problem, here’s a sobering thought: It requires 75 liters of water to brew a mug of beer.

Even the steel used in manufacturing the oven where the biko was baked left a huge water footprint to forge – something like 234 liters of water per kilo of steel.

Luckily, the Philippines is abundant with water.

Average annual rainfall here is 7 feet 7 inches – lampas tao. In Australia, it is about 1 foot 9 inches –lampas tuhod. In Bahrain, it is 3.8 inches – hanggang sakong lang.

In all, the annual renewable water available for every Filipino is about 5 million liters.

Yet despite this huge water reserve, we are confronted with the irony of restaurants now offering free unlimited Wi-Fi but not a glass of free drinking water.

Another recent enigma is that of a liter of diesel from oil drilled 8,000 feet below and shipped from refineries 8,000 kilometers away costing less than a liter of mineral water bottled locally.

Water per se is free, goes a familiar refrain, but the cost of bringing it to homes is not.

Water has to be dammed or drilled, filtered and treated, before it can be piped to households. There’s mileage in the drinkable water we flush down the toilet at night.

Much of the work in bringing clean water to homes is done by local water districts. They account for one in five water connections in the country today.

So this bill is about the value and the viability of 514 local water districts which work round-the-clock so that 20 million Filipinos have water to drink.

And to better appreciate what this bill is all about, we have to go back to the source.

The legal fountainhead of water districts is Presidential Decree 198, or the Provincial Water Utilities Act of 1973, which is regarded as the Charter of Local Water Districts.

That PD clothed local water utilities with a tax-exempt status, opening the floodgates for the creation of LWDs.

The exemption covers income taxes, national and local taxes and fees, and duties on imported machinery and equipment.

However, this tax-exempt status was diluted over the years, as a slew of laws cancelled it. To add to the confusion, there were, on the other hand, laws which restored these privileges or conferred tax breaks again.

The result is a muddled pool of laws which, like murky water, must be filtered of its inconsistencies.

The Congress finally had the chance to clear it up by passing Republic Act 10026 in 2010.

RA 10026 unequivocally put LWDs in the list of income tax-exempt government agencies, ending all ambiguities to its tax-exempt status.

This, however, came with the colatilla that what amount that would have been paid as income tax shall be spent by the LWD to improve or expand its services.

In short, foregone taxes will be used to finance improvements, like new wells and fresh sources, new pipes and modern meters to end leaks, and even computers to plug leakages of the monetary kind.

In addition, RA 10026 condoned the tax obligations of a local water district from August 1996 up to the time the RA 10026 took effect in March 2010.

But to avail of this, water districts must comply with certain conditions.

One is for them to submit to Congress a blueprint for internal reforms and good housekeeping.

Another is for the Bureau of Internal Revenue to diagnose an LWD’s financial health, by examining the submitted financial statements, and finding it financially incapable, grant the condonation.

Unfortunately, like many Congress-passed laws signed by the President, RA 10026 bogged down in the execution.

One of the classic implementation hiccups is the unique Philippine phenomenon known as “legislation through the IRR” when what is not intended by the law is inserted in the implementing rules.

But the case of RA 10026 is more disturbing – there was no revenue regulation issued at all.

Instead, what was issued by the BIR – two years after the law’s enactment – was a Revenue Memorandum Circular.

However, this RMC 68-2012 merely prescribes the procedure in submitting the documentary requirements and in applying for condonation.

Compounding the delay in the issuance of the RMC was the narrow compliance period granted by the BIR of less than 6 months.

Despite these, 161 water districts diligently applied for condonation, with 78, in BIR’s view, able to comply with the documentary requirements.

Having met all the requirements set by law, the next logical step is for the LWDs to finally get the condonation from the BIR.

But how could they when the BIR itself has not issued the necessary Revenue Regulation almost five years after the law’s enactment?

Without this all-important “RR” no grant of condonation is possible. This makes RA 10026 dead in the water.

Apparently, this kind of delay or desistance on the part of agencies tasked to carry out laws is not confined to BIR alone.

This practice has even prompted the Senate President to propose a provision in the bill raising the tax-exempt bonus in that failure on the part of the implementing agency to promulgate the rules and regulation shall not prevent the immediate implementation of the law.

If huge revenue loss is the reason why the BIR had been inflicted with amnesia on this issue, then such excuse – pun intended – does not hold water.

Let us look at the numbers. The 78 LWDs had a combined liability of P842 million. And the total receivables from all LWDs is P1.005 billion.

The reason I am citing these is to compare it with obligations incurred by other industries which the government, in an act of grace, condoned in the past.

The fact is, debt cancellation is not a principle alien to the government which it seldom practices.

We have undertaken bailouts of distressed firms and buyouts of their liabilities.

We have written off debts and crossed out arrears in the books of government corporations in amounts far greater than what LWDs are asking.

Worse, some infusion, in the billions of pesos, were made without the executive informing us of the move which by law is not solely theirs to make.

Three years ago, P30 billion, in three tranches, was plowed to the Central Bank as added capitalization without congressional leaders receiving a text that the transfer has been made.

In the power sector, we have written off hundreds of billions of their debts.

In numerous pieces of legislation, banks, which are hardly examples of penury, have been given reprieves, the SPAV, to cite one.

In legislative franchises granted to operators of public utilities, tax waivers are embedded.

At least those waivers were debated in the open. Incentives, tax holidays granted by bureaucrats were not.

In contrast, what LWDs are asking is a drop in the bucket of what have been given to private companies.

Far bigger amounts have been forgone by the government to improve the bottom line of profit enterprises. The investment red carpet is rolled out to firms that will later repatriate profits made bigger by tax breaks.

Yet LWDs organized for the common good has to go through the legislative wringer so they can retain part of their income to improve their customer services.

The latter, after all, is the commandment of RA 10026: that money which should have been paid as tax be used to make services better and bigger.

And the records show that they have done so.

The Cagayan de Oro water district applied P20 million in tax savings to resuscitate dead wells. In the Visayas, the Metro Cebu Water District plowed back P67 million in capex for better distribution lines.

This is the kind of dividends we want to see – not through checks to stockholders but better service to customers.
There are two kinds of water companies – those whose profits trickle up to their owners and those whose income trickle down to their customers.

As senators, we are routinely flooded with pleas from groups who want us to forgive their debts and deliver them from liabilities.

Of the many prayers we receive, this is one which we should grant because the dividends realized will not end up as private profits but better public service.

And in this age of unbridled profiteering, public service may very well include restraint in levying tariff hikes which many LWDs serving poor communities observe.

To cite one example, Mambajao Water District in Camiguin charges 55 pesos for the first 10 cubic meters.

That is what Maynilad charges additional cubic meter in excess of 150 cubic meters of water a month.

Mr. President:

The challenge of providing clean water for all in the years to come is getting tougher.

If 1.8 million people are added to our population yearly, then we have to correspondingly increase our potable water supply by 118 billion liters annually.

In addition to this future demand which must be met, there is a backlog to be wiped out.

At a time when man has landed a rover in Mars, the irony is that 16 percent of homes still have no access to clean water in this part of the world.

At a time when we have catapulted a probe 15 billion miles from the Sun, the equivalent of a galactic homerun, 12 percent of the population here have no flush toilets.

There is no right as basic as access to clean water. While technology has cloned many things and invented substitutes for many commodities, it has yet to create synthetic water.

It is for this lack of any alternative to water that its denial to a person exacts a heavy toll on his quality of life.

Regular handwashing alone cuts by one-third to one-half the number of severe diarrhea cases of which about half a million are reported yearly.

Water-borne diseases cost Filipinos P2.8 billion annually in treatment and lost economic opportunities.
Local water districts say they can help solve these problems and the beauty of it all is that they are not asking us to appropriate even a single centavo.

They can do that and many more if we pass this bill that removes the conditionalities and instead grants them outright condonation of their income tax liabilities.

This is because for local water districts to remain viable, they will need not only a reservoir of water but a reservoir of funds as well.

Mr. President, my dear colleagues, let us pass this bill.

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