AN ACT GRANTING INCOME TAX EXEMPTION TO LOCAL WATER DISTRICTS BY AMENDING SECTION 27(C) OF THE NATIONAL INTERNAL REVENUE CODE (NIRC) OF 1997

Case Overview and Summary

Summary of Republic Act No. 10026

Exemption of Local Water Districts from Income Tax
- Amends Section 27(C) of the National Internal Revenue Code (NIRC) of 1997 to exempt local water districts (LWDs) from income tax. (Section 1)
- Other government-owned or controlled corporations, agencies, or instrumentalities are still subject to income tax, except for GSIS, SSS, PHIC, and PCSO.

Use of Tax Savings by Local Water Districts
- The amount saved from income tax exemption shall be used by LWDs for:
    - Capital equipment expenditure to expand water services coverage. (Section 2)
    - Improving water quality to provide safe and clean water.
- LWDs shall adopt internal control reforms for economic and financial viability.
- LWDs shall not increase personal services, travel, transportation, representation expenses, and purchase of motor vehicles by more than 20% per year. (Section 2)

Condonation of Unpaid Taxes
- Unpaid taxes of LWDs from August 13, 1996, until the effectivity date of this Act are condoned, subject to:
    - Bureau of Internal Revenue establishes the LWD's financial incapacity to pay after providing for expenses, debt servicing, and reserve fund. (Section 2)
    - The LWD submits a program of internal reforms certified by the Local Water Utilities Administration to Congress for economic and financial viability. (Section 2)

Reporting Requirements
- LWDs shall furnish the Congressional Committees on Ways and Means with statistical data, financial statements, and other information annually for monitoring compliance and reviewing tax exemption rationalization. (Section 2)

Implementing Rules and Regulations
- The Secretary of Finance shall promulgate the necessary rules and regulations for effective implementation, upon recommendation of the Commissioner of Internal Revenue and consultation with appropriate government agencies. (Section 3)

Separability Clause, Repealing Clause, and Effectivity Clause are also included. (Sections 4, 5, and 6)