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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

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.

To a government that needs to scrounge around for money, it may have sounded like a good idea
to slap a 12 percent tax on highway toll fees. But to the people who have to shoulder the added
tax 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 there’s still time to stop this foolishness.
The proposal is precedent-setting because toll road operators—whether they be government
agencies or their private-sector partners—have 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 on
income, 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 toll
fees. As the VAT laws are currently crafted—both the original and the expanded versions—there
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 yesterday’s hearing on the BIR’s toll tax plan. If the VAT laws
themselves do not prevent the government from taxing toll fees, then it’s probably Congress’
fault for not exempting them from the tax in the first place.

Thus, we can’t 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 don’t exempt toll fees and because the sale of a service obviously happens whenever a
motorist 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 a
toll as a user’s tax and not a tax on the sale of goods and services, which is the definition of

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 on
public 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 public’s need for reasonable fees and a
return on the proponent’s 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 should
be the one to authorize it, through the passage of a new law. The BIR, even if its mandate is to
raise tax revenues, doesn’t 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 law—and, hopefully, with a view to giving some relief to toll road users who already have
to deal with ever-escalating fees on these critical, for-pay highways.

Ideally, of course, the government would be able to construct and maintain all roads and
highways without requiring motorists and commuters to pay for any additional tax for their use.
It can even be convincingly argued that taxpayers already pay enough for new and existing road
networks, particularly through the road users’ tax and other such imposts.

But because the new Aquino administration needs quick infusions of money for its upkeep and
for the implementation of the various projects that it wants to give priority to, it can be expected
to seek new and radical ways to make taxpayers cough up more such as the proposal to slap VAT
on toll roads. However, the Executive should realize that new taxes (whether collected under old
schemes like VAT or not) carry a significant political cost—especially if it hits the poor.

For instance, the insistence of the Finance Department to raise the fares of both the Light Rail
Transit and the Metro Rail Transit, in a bid to reduce the subsidies paid by government to these
two important commuter train systems, may make good fiscal sense. But the plan must consider
the need for cheap, reliable and convenient public transportation for the millions of low-income
people who use these trains every day—people whose wages have not increased significantly
over the years just like the LRT and MRT fares that they pay.

Also, people are a lot more likely to pay taxes when they see that tax laws are applied evenly. If
they believe that the government is not doing a good enough job of taxing the rich, then they will
not cotton to the idea that they have to pay more to underwrite the government’s work.

Indeed, those who talk of the government subsidizing the citizens often forget that it is really the
people who are subsidizing the government through their taxes. And that, if the government were
more frugal and more prudent in spending taxpayers’ money, it wouldn’t always be dreaming up
new ways to exact tribute from the citizenry.

Besides, didn’t the new administration promise to rid graft and corruption, by far the biggest
cause of the waste of scarce government funds, before it even considers raising any news taxes?
Why does it now seem to be falling into the same trap of its much-reviled predecessor, which
seemed to care more about balancing the books and fixing financial system (like through hated,
Recto-authored VAT) than about the welfare of its citizens?

Perhaps the government’s finance people have forgotten that the tax on toll fees will most
certainly not be borne by the toll operators, but will simply be passed on to the people who pay
them. And the businessmen who operate buses and who transport goods will pass on the
additional cost of a VAT on toll fees to the commuters and consumers—who will have no one to
pass the new tax to.

The dispute on taxing toll fees, in the end, would be meaningless if it does not teach the new
administration to go slow on adding additional tax burdens on the citizenry. Here’s hoping that
our new officials are reminded about who they’re really working for and why they were given
that opportunity.