Tuesday, July 27, 2010

VAT On Toll Fees is Double Taxation

Got this from an E-mail:


      The BIR Revenue Circular imposing a Value Added Tax of 12% on toll fees imposed on motorists using the expressways in North and South Luzon is DOUBLE TAXATION! Fmr. Congressman Rene Diaz, Chairman of Center for Strategic Initiatives said.  Toll fees are an imposition of government for the use of the expressways. Merriam Webster Dictionary defines toll: as a tax or fee paid for some liberty or privilege (as of passing over a highway or bridge). 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 the expressway.  VAT can only be imposed on a sale of goods and services. There is no sale when motorists use the expressways and pay the toll imposed by the Toll Regulatory Board (TRB) a government agency. Public roads 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 from the taxes and revenues it collects from the public. However, since the revenue base is inadequate, Congress enacted the Build Operate Transfer (BOT) law which invited private sector capital to finance the construction and maintenance of government infrastructures such as roads and expressways. Toll fees are imposed by a government agency called the Toll Regulatory Board based on a Toll Operating Agreement on motorists that will use the road. Thus the toll fees are already a users tax because the motorists are already paying for the construction and maintenance of the road, plus the margins of the private sector proponent. The government provides for free the 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 in Luzon.

       The issue of VAT on tolls is not a recent one Cong Diaz said.  Until September 2003 the BIR has ruled that certain toll operators are exempt from VAT on its gross receipts from collection of tolls. But a ruling of the BIR Commissioner Buñag in October stated that toll way operators are subject to VAT. Furthermore, in a Memorandum Circular dated September 28, 2005, the BIR said that the VAT should have been collected as early 1996.  Based on this ruling, the BIR issued assessments on the toll operators.

        Cong. Diaz as the principal author of the Comprehensive Tax Reform Act (CTRP) and author and sponsor of the Expanded Value Added Tax law has consistently stated that toll fees are not subject by VAT. Congress, in 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 subsequent legislation will not cover the operators  because of the constitutional provision of non-impairment of obligations. This means laws enacted cannot have a retroactive effect if government has previously contracted the same.

       The Toll Operating Agreement expressly provides for the basis for calculating the tolls fees.  VAT is not considered in the original formula.  The toll operator cannot adjust the toll fees upwards or downwards without approval of the Toll Board.  Thus, the operators are being asked by the BIR to collect VAT from the motorists but cannot do so without the approval of the Toll Board. To add charges on the contracted formula will give the proponents a legal basis to ask for compensation from government. Cong. Diaz also stated that the Philippine government is obligated to allow the expressway proponents to recover the cost of construction and maintenance of the roads by means of collecting toll fees.  Since the existing roads are rehabilitated or extended, then the toll fees have to be adjusted.

          Cong Diaz said he and other advocates are studying other legal options to finally settle this issue of whether toll fees are subject to VAT.  As taxpayers and lawmakers, they are prepared to oppose this imposition which is unfair and constitute a double taxation to all the motorists using the expressways.  The added burden of 12% will be an added cost to motorists using the North, South, SCETEX, Coastal and Star expressways located in North and South Luzon.  They are hoping President Aquino will ask his legal advisers to review the issues and objections on the VAT on tolls.  While the government needs revenues, taxes must be based on legal grounds.

Only Congress can enact tax laws Diaz said.  But even Congress cannot impose VAT on transactions such as the use of toll expressways because the toll is already a users tax. A tax on tax is certainly unconstitutional.

For queries contact:
Fmr. Cong. Rene Diaz
Nueva Ecija
Mobile #0917-8432363