The Energy Regulatory Commission, on 8 August 2023, made the correct decision in suspending Resolution No. 07, S. 2011, which unfairly allowed the National Grid Corporation of the Philippines, or NGCP, to pass on its three-percent franchise tax to energy consumers.
The suspension order was triggered by the Senate Energy Committee hearing in July where Senator Raffy Tulfo, chairman, moved to raise a review of the franchise tax of NGCP amid delays in the completion of 37 transmission projects. He pointed out the NGCP projects were delayed by 820 days or 2 years and 3 months.
Adding insult to injury, Senator Tulfo said, the NGCP has been passing on its franchise tax to consumers since 2011.
“Perhaps it’s time for ERC to revisit its Resolution No. 7, series of 2011. And since we’re at it, maybe it’s about time to revisit the franchise tax of NGCP and impose a regular income tax on them instead,” declared the good senator.
Senator Win Gatchalian, vice chairman of the committee, said the ERC should not allow NGCP to pass on its franchise tax to consumers because there is a 2002 Supreme Court ruling that the income tax, which is not an operating expense, cannot be passed on by a utility to its consumers.
In the case of NGCP, the franchise tax is not an operating expense. Moreover, the franchise tax, according to the NGCP franchise, is in lieu of income tax. As such, NGCP should not be allowed to pass on its franchise tax to consumers.
You see, the government in granting NGCP a franchise to operate the power transmission system in the country, exempted the company from all kinds of taxes, including the 30 percent corporate income tax, except for a 3 percent franchise tax based on its annual gross receipts.
However, in 2011, the ERC granted the NGCP’s application to allow the franchise tax to be part of the transmission costs included in the electricity bills of consumers.
In RP vs Meralco (G.R. No 141314, 15 November 2002), the Supreme Court ruled that a public utility cannot charge its income tax to consumers by including it in its operating expenses that form part of the electricity bill since no benefit is derived from it by the consumers.
The Supreme Court said that to charge consumers for expenses incurred by a public utility that is not related to the service or benefit derived by the consumers is unjustified and inequitable.
Quoting from the case of Smyth v. Ames, 169 U.S. 466, 545 (1898), the Supreme Court declared: “[T]he public cannot properly be subjected to unreasonable rates in order simply that stockholders may earn dividends… If a corporation cannot maintain such a [facility] and earn dividends for stockholders, it is a misfortune for it and them which the Constitution does not require to be remedied by imposing unjust burdens on the public.”
This 2002 ruling was recently reiterated in the May 2023 Supreme Court decision barring Maynilad and Manila Water from passing on to consumers their corporate income taxes as operating expenses.
In a 102-page decision penned by Justice Marvic Leonen, the SC ruled that in operating the waterworks and sewerage system, Maynilad and Manila Water are public utilities that are expressly prohibited from passing on to consumers their corporate income taxes as operating expenses.
Indeed, the act of NGCP of passing on its franchise tax to consumers is simply repulsive when the corporation has been given all the special privileges to operate the monopoly business of transmitting electricity and is exempted from all other taxes.
The franchise tax is the single obligation imposed on NGCP, yet its handful of billionaire owners deigned to pass it on to the ordinary consumers, who do not enjoy the same privilege of tax exemption of the wealthy corporation.
Passing on the NGCP’s franchise tax obligation to the consumers only furthers an economic system that makes the poor poorer and the rich richer.