VAT bill to hike cost of electricity by 10%
IGNORE OPPOSITION: It is not completely true that the refusal of President Gloria Macapagal Arroyo to declare this early her final plan for the 2004 election is the reason for the confusion around us.
The President should ignore the call of opposition politicians for her to announce this early whether or not she is running for president next year. She should follow her own timing and not fall for the ruse.
Whatever her announcement for 2004, the opposition will still continue with its destabilization. Whether she is running for president or not, the opposition will press its campaign to hound her out of office or see her fail miserably as president.
So what’s the point is making an early announcement as suggested by the opposition?
In fact, even if President Arroyo resigns tomorrow and Vice President Teofisto Guingona takes over, that will not calm down the opposition. The destabilization will continue till the opposition is able to bounce back to power.
It’s the old story of those outside wanting to barge in and those inside blocking those outside from getting in.
The tragedy is that pare-pareho lang naman silang lahat (they are all the same).
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10% RATE HIKE SEEN: Don’t look now, but some sneaky old hands in Congress are tacking on a 10-percent VAT (Value-Added Tax) on the cost of power that can pad further our already bloated electricity bills.
Approved on second reading last Wednesday, House Bill No. 5242 authored by Rep. Herminio Teves would slap a 10-percent output VAT on sales of independent power producers (IPPs).
But you know how it is: the IPPs will surely pass on that expense to us consumers. At 10 percent of current rates, that new imposition is expected to translate to 30 to 50 centavos more per kilowatt-hour of electricity used.
The administration has not fulfilled its promise to eliminate the hated PPA (purchased power adjustment) — they just renamed the item to remove it from our bill — and now this. Wala na bang katapusan ang pahirap kay Juan Pasang Krus?
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PASS-ON EXPENSE: How does Teves, who is normally sober and level-headed, explain this impending robbery in broad daylight?
The gentleman from Negros says that since the state-owned National Power Corp. does not pay VAT, Congress through the Electric Power Industry Reform Act (EPIRA) also granted VAT exemption to IPPs “to level the playing field.”
Simple-minded lawmakers thought that the IPPs, out of the goodness of their hearts, would pass on to consumers the 10-percent savings by way of lower electricity rates.
The opposite has happened. Rates went soaring for various reasons, including the cost of graft and inefficiency being inputted into pricing.
The no-VAT benefit accrued to the IPPs, not to consumers. In fact, many IPPs cashing in on sweetheart contracts wallow in mega-profits. One of them netted P12 billion in net profits last year!
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WHO DID IT?: Teves and 128 other congressmen (not one of them voted against HB 5242) opined that if nobody — except probably the smart IPPs — benefited from the VAT exemption, we might as well put the tax back and enable the government to collect additional taxes.
The VAT zero-rated privilege given to IPPs, he said, has deprived the government of substantial revenues. Considering that the government owes the IPPs an estimated $14 billion (around P700 billion!), the impact of foregone taxes can be staggering.
The paper trail leads to the Department of Finance, which granted IPPs the exemption from output VAT on sales. Teves said somebody up there made a wrong interpretation of Section 108 of the 1997 Internal Revenue Code.
He added that the tax-exemption was illegal, because a tax privilege must be explicitly specified by law, not implied. Who will pay now for this apparent criminal abuse of discretion?
There are indications of a lobby. The bill approved by the House did not give a VAT exemption to IPPs, but it was inserted in the bicameral conference committee. Teves said this “violates the unique constitutional power of the House to exclusively initiate tax measures.”
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BACK TO OLD DAYS: If approved, HB 5242 will return the power industry to the old system wherein the private IPPs charge VAT to their customers. With Napocor enjoying tax exemption, this will bring back the same uneven playing field that existed in the pre-EPIRA days.
Another implication is that the proposed imposition of VAT on private IPPs may hold back private groups planning to invest in power generation and those interested in buying Napocor.
The proposed law will terminate the VAT-free operation of Napocor as a government company when its ownership is transferred to private investors. With a 10-percent VAT imposed on it, a privately owned Napocor is not likely to shoulder the burden but pass it on to consumers.
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PRICING DISPARITY: Private power producers are complaining against a regime that allows a giant power generator (Napocor) to enjoy undue advantage compared to the rest of the field.
One of the objectives of EPIRA was to smooth out the differences between the tax treatment of Napocor and the private generators that have resulted in a pricing disparity in favor of Napocor.
Private producers complain that unfair competition exists because of the huge government subsidies granted to Napocor. They said that Napocor rates are “suppressed, fake and artificial.”
The pricing disparity will worsen, they added, the moment Napocor is privatized under the Teves plan of imposing a 10-percent output VAT on sales of private generators.
Napocor has been suffering huge losses, contributing to the ballooning budget deficit. This year, its losses totaled some P70 billion. If the plan to privatize Napocor fails, because of the proposed 10-percent VAT, the state firm will continue to bleed the government.
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DAMAGING EFFECTS: Ernesto Pantangco, president of the Private Independent Power Producers Association (PIPPA) composed of foreign and local private power generating firms, said that HB 5242 “will not have any impact on power sales of Napocor and its related IPPs.”
With private IPPs selling their power to distributors burdened with a 30 to 50-centavo (per kwh) increase in rates due to the additional VAT, he said the “gap between Napocor selling prices, which are already heavily subsidized, and that of private generators, will increase by the amount of VAT to be imposed.”
He added that the increase in power generation cost under the Teves bill is damaging. “Since there is no input VAT on major operating expenses of IPPs such as fuel, lube oil, salaries, etc., the VAT on power generation sales is mandated to be reflected as a gross amount,” he said. “This will be charged to distributors and subsequently to consumers as part of generation cost.”
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