AN ACT GRANTING TAX EXEMPTION PRIVILEGES TO LOCAL WATER DISTRICTS

Case Overview and Summary

Summary of Republic Act No. 7109 (An Act Granting Tax Exemption Privileges to Local Water Districts)

Tax Exemptions for Water Districts:
• Exemption from payment of:
    - Income taxes, except on interest income from deposits and investments not related to water service operations (Section 1)
    - Franchise taxes (Section 1)
    - Duties and taxes on imported machinery, equipment, and materials required for operations, if not domestically manufactured at comparable prices and quality (Section 1)
• Exemption from real property taxes on lands, buildings, and other real property, including equipment, used for water supply generation and distribution, provided they are not used for office or commercial purposes (Section 2)

Period and Conditions of Exemptions:
• Tax exemption privileges shall be enjoyed for a period of five (5) years from the effectivity of this Act (Section 3)
• Conditions for exemption:
    - Water districts shall adopt internal control reforms to bring about economic and financial viability (Section 3)
    - Appropriation for personal services, travel, transportation, representation expenses, and purchase of motor vehicles shall not increase by more than twenty-five percent (25%) a year during the exemption period (Section 3)

Reporting and Monitoring:
• Water districts shall furnish the Bureau of Local Government Finance with statistical data, financial statements, and other required information annually for monitoring compliance and reviewing the rationalization for tax and duty exemption privileges (Section 4)

Condonation of Taxes and Duties Due:
• Unpaid taxes and duties due from a water district from October 15, 1984, until the effectivity date of this Act are condoned, subject to the following conditions:
    - The Bureau establishes the water district's financial incapability to meet such obligations after providing for maintenance, operating expenses, debt servicing, and reserve fund (Section 5a)
    - The water district submits a program of internal reforms certified by the Local Water Utilities Administration to bring about economic and financial viability (Section 5b)

Implementation:
• The Secretary of Finance shall promulgate the necessary rules and regulations for the effective implementation of this Act (Section 6)
• All other inconsistent laws, decrees, orders, rules, and regulations are repealed or modified accordingly (Section 7)
• This Act shall take effect upon its approval (Section 8)