BIR Ruling No. 005-2025

BUREAU OF INTERNAL REVENUE REPUBLIC OF THE PHILIPPINES DEPARTMENT OF FINANCE

National Office Building Quezon City

Sections 27(c) and 119 of the BIR Ruling No. 179-2012 Tax Code of 1997, as amended GT= 0.05 - 2 0.2_5

Tanay, Rizal TANAY WATER DISTRICT IFP Bldg., No. 41 F.T. Catapusan St.. JAN 0 6 2n?5

Attention: ENGR. ARMANDO H. BONGAT OIC -- General Manager C

Gentlemen:

requesting, on behalf of Tanay Water District, for a Certificate of Tax Exemption pursuant to Republic Act (RA) No. 10026, otherwise known as, "An Act Granting Income Tax Exemption of 1997 (1997 Tax Code), as Amended, and Adding Section 289-A." to Local Water Districts by Amending Section 27 (C) of the National Internal Revenue Code This refers to your letter, indorsed to this Office by Revenue Kegion No. 7B-East NCR.

RA No. 10026, provides for the exemption of tocal water districts from income tax as follows: In reply, please be informed that Section 27 (C) of the 1997 Tax Code, as amended by

"Sec. 27. Rates of Income Tax on Domestic Corporations. -

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districts (LWD) and the Philippine Charity Sweepstakes Office (PCSO),, industry, or activity." (Underscoring supplied) instrumentalities owned or controlled by the Government, except the Government Service Insurance System (GSIS), the Social Security System shall pay such rate of tax upon their taxable income as are imposed by this Instrumentalities. -- The provisions of existing special or general laws to Section upon corporations or associations engaged in a similar business, C) the (SSS), the Philippine Health Insurance Corporation (PHIC), the local water contrarynotwithstanding. Government-Owned or Controlled Corporations, Agencies or all corporations, agencies, 4

of tax as imposed on other domestic corporations engaged in a similar business, industry or Based on the above-cited provision, a local water district is not liable to pay such rate

1 Under RA No. 10963, the taxable income of Philippine Charity Sweepstakes Office(PCSO) is now subject to tax.

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the creditable withholding tax. (BIR Ruling No. 179-2012 dated March 14, 2012) activity. Accordingly, Tanay Water District is not subject to income tax and, consequently, to

However, Section 119 of the 1997 Tax Code provides that ---

to the contrary notwithstanding, there shall be levied, assessed and collected in respect to all franchises . . . and on gas and water utilities, a tax of two percent (2%) on the gross receipts derived from the business covered by the law granting the franchise: . . "SEC. 119. Tax on Franchises. -- Any provision of general or special law

corporate income tax of 25%, it is nevertheless subject to the 2% franchise tax as prescribed in Section 119 of the 1997 Tax Code, as amended, as there is no express provisions in RA No. from the said 2% franchise tax. (BIR Ruling'No. 179-2012 dated March 14, 2012) 10026 and Revenue Memorandum Circular No. 28-2010 exempting the local water districts Thus, while a local water district, like Tanay Water District, is exempt from the

amended, provides: Moreover, Section 5.116 (A) (4) (b) of Revenue Regulations (RR) No. 2-98, as

"Sec. 5.116.Withholding of Percentage Tax.

government-owned or controlled corporations as well as their subsidiaries. individuals, corporations, partnerships and/or associations are required to deduct and withhold the percentage taxes due from the payees on account provinces, cities and municipalities making any money payment to private of such money payments. Bureaus, offices and instrumentalities of the government, including

on gross money payments to the following shall be subjected to withholding at the rates herein prescribed. Internal Revemue Taxes Required to be Withheld. -- Percentage taxes

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() Franchises. .

xX XX X

(b percent (2%) On gross payments to franchisees on gas and water utilities. -- Twe

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offices and instrumentalities of the goyernment, including'government-owned or controlled corporations as well as their subsidiaries, provinces, cities and municipalitics, is subject to the withholding of 2% franchise tax. The said 2% franchise tax withheld from the gross payments Based on the foregoing, gross money payments to Tanay Water District by bureaus.

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to Tanay Water District can be applied against its franchise tax liability under Section 119 of the 1997 Tax Code, as amended.

offices and instrumentalities of the government, including government-owned or controlled corporations as well as their subsidiaries, provinces, cities and municipalities. and, consequently, to the creditable withholding tax, it shall be subject to the 2% franchise tax as imposed in Section 119 of the 1997 Tax Code, and to the 2% creditable franchise tax imposed under Section 5.116 (A) (4) (b) of RR No. 2-98 in case payment is made by bureaus, In sum, this Office holds that while Tanay Water District is not subject to income tax.

if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. This ruling is being issued on the basis of the foregoing facts as represented. However,

Cor ROM oner of Internal Revenue AGI YR

K-1-SLO

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