vat on toll fees is double taxation

8/8/2019 Vat on Toll Fees is Double Taxation

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VAT ON TOLL FEES IS DOUBLE TAXATION

The BIR Revenue Circular imposing a Value Added Tax of 12% on toll feesimposed on motorists using the expressways in North and South Luzon is

DOUBLE TAXATION! Fmr. Congressman Rene Diaz, Chairman of Center forStrategic Initiatives said. Toll fees are an imposition of government for theuse of the expressways. Merriam Webster Dictionary defines toll: as a tax orfee paid for some liberty or privilege (as of passing over a highway orbridge). To impose a tax on a tax is double taxation Cong. Diaz said.

The toll fees are already a users tax on the motorists passing in theexpressway. VAT can only be imposed on a sale of goods and services.There is no sale when motorists use the expressways and pay the tollimposed by the Toll Regulatory Board (TRB) a government agency. Publicroads are property of public domain and belong to the state. The toll is a tax

on the privilege for the use of the road

The government is obligated to construct roads and finance the same fromthe taxes and revenues it collects from the public. However, since therevenue base is inadequate, Congress enacted the Build Operate Transfer(BOT) law which invited private sector capital to finance the construction andmaintenance of government infrastructures such as roads and expressways.Toll fees are imposed by a government agency called the Toll RegulatoryBoard based on a Toll Operating Agreement on motorists that will use theroad. Thus the toll fees are already a users tax because the motorists arealready paying for the construction and maintenance of the road, plus themargins of the private sector proponent. The government provides for freethe use of roads and highways in the rest of the country. To impose a 12 %VAT on toll fees for users of the expressways in Luzon is a tax on tax Cong.Diaz said. This will discriminate against the users of the expressways inLuzon.

The issue of VAT on tolls is not a recent one Cong Diaz said. UntilSeptember 2003 the BIR has ruled that certain toll operators are exemptfrom VAT on its gross receipts from collection of tolls. But a ruling of the BIR

Commissioner Buag in October stated that toll way operators are subject toVAT. Furthermore, in a Memorandum Circular dated September 28, 2005, theBIR said that the VAT should have been collected as early 1996. Based onthis ruling, the BIR issued assessments on the toll operators.

Cong. Diaz as the principal author of the Comprehensive Tax ReformAct (CTRP) and author and sponsor of the Expanded Value Added Tax lawhas consistently stated that toll fees are not subject by VAT. Congress, in


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enacting the EVAT did not include toll fees in the list that will be covered.The BIR cannot expand the coverage of the VAT law by mere interpretation,Diaz said.

Furthermore, since the imposition of toll fees are covered by a contract

between the private sector proponent and the government, even subsequentlegislation will not cover the operators because of the constitutionalprovision of non-impairment of obligations. This means laws enacted cannothave a retroactive effect if government has previously contracted the same.

The Toll Operating Agreement expressly provides for the basis forcalculating the tolls fees. VAT is not considered in the original formula. Thetoll operator cannot adjust the toll fees upwards or downwards withoutapproval of the Toll Board. Thus, the operators are being asked by the BIR tocollect VAT from the motorists but cannot do so without the approval of the

Toll Board. To add charges on the contracted formula will give theproponents a legal basis to ask for compensation from government. Cong.Diaz also stated that the Philippine government is obligated to allow theexpressway proponents to recover the cost of construction and maintenanceof the roads by means of collecting toll fees. Since the existing roads arerehabilitated or extended, then the toll fees have to be adjusted.

Cong Diaz said he and other advocates are studying other legaloptions to finally settle this issue of whether toll fees are subject to VAT. Astaxpayers and lawmakers, they are prepared to oppose this imposition whichis unfair and constitute a double taxation to all the motorists using the

expressways. The added burden of 12% will be an added cost to motoristsusing the North, South, SCETEX, Coastal and Star expressways located inNorth and South Luzon. They are hoping President Aquino will ask his legaladvisers to review the issues and objections on the VAT on tolls. While thegovernment needs revenues, taxes must be based on legal grounds.

Only Congress can enact tax laws Diaz said. But even Congress cannotimpose VAT on transactions such as the use of toll expressways because thetoll is already a users tax. A tax on tax is certainly unconstitutional.

To a government that needs to scrounge around for money, it may have sounded like a good ideato slap a 12 percent tax on highway toll fees. But to the people who have to shoulder the addedtax burden, the proposal seems a lot like getting raped right after getting robbed.

The Bureau of Internal Revenue says it will impose the 12 percent value-added tax on toll fees

starting Aug. 16, unless the Supreme Court prevents it from doing so. A petition seeking just that

has already been filed before the high court, so perhaps theres still time to stop this foolishness.


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The proposal is precedent-setting because toll road operatorswhether they be government

agencies or their private-sector partnershave never been subject to VAT or any other direct

sales tax on the fees they collect before. The only taxes that toll operators pay are those onincome, not on the important service that they provide itself.

On the other hand, the BIR does have some legal cover for attempting to impose VAT on tollfees. As the VAT laws are currently craftedboth the original and the expanded versionsthere

are no exemptions to the simplified and omnipresent sales tax.

This probably explains why the Senate, especially Senator Ralph Recto (a.k.a. the father of

VAT), were hopping mad at yesterdays hearing on the BIRs toll tax plan. If the VAT laws

themselves do not prevent the government from taxing toll fees, then its probably Congress

fault for not exempting them from the tax in the first place.

Thus, we cant really blame Revenue Commissioner Kim Henares for not backing down on the

proposal and for insisting that the high court should be the only one to slap it down. Because the

VAT laws dont exempt toll fees and because the sale of a service obviously happens whenever amotorist pays a toll, then it sounds logical that the BIR should tax this service, as well.

That said, it does stand to reason, as the senators and the petitioners before the high court have

argued, that a toll is already a tax and that imposing VAT on toll fees is like slapping a tax on a

tax. In fact, the petition before the high court cites a 2006 Supreme Court ruling that defines atoll as a users tax and not a tax on the sale of goods and services, which is the definition of

VAT.

As the petition before the court notes, the construction of roads and highways is primarily the

role of the state, which either operates toll roads itself or partners with private enterprises that

will develop and operate toll roads. Thus, to impose VAT [on tolls] is tantamount to a tax onpublic services. This is certainly violative of the provisions of the Constitution that taxes must be

equitable, the petition said.

In addition, when the government negotiates with proponents of privately-operated toll roads,fees are carefully studied to ensure a balance of both the publics need for reasonable fees and a

return on the proponents investment. In these fee-setting negotiations, the imposition of VAT or

any other sales tax is never included, which makes it unjust to tack them on after the fact.

And if VAT is still to be imposed on toll fees under these circumstances, then Congress shouldbe the one to authorize it, through the passage of a new law. The BIR, even if its mandate is to

raise tax revenues, doesnt have the authority to impose new taxes.

So now it seems that the Supreme Court will have to settle the dispute, based on its interpretation

of the lawand, hopefully, with a view to giving some relief to toll road users who already haveto deal with ever-escalating fees on these critical, for-pay highways.

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vat on toll fees is double taxation

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