SC says VAT may be imposed on toll fees

By Ina Reformina, ABS-CBN News

Posted at Jul 22 2011 10:29 AM | Updated as of Jul 23 2011 03:00 PM

MANILA, Philippines - The Supreme Court (SC) has ruled that a 12-percent value-added tax (VAT) may be imposed on toll fees and lifted a temporary restraining order (TRO) handed down on August 13, 2010 that barred government from imposing VAT coverage on said fees.

In a 19-page unanimous decision promulgated last July 19 but made available only now, the high court junked for lack of merit the petition filed by Renato V. Diaz, former Nueva Ecija representative and co-author of the Expanded VAT Law, and former trade assistant secretary Aurora Ma. F. Timbol that questioned the coverage and imposition of VAT on tollway operations by the Finance Department and the Bureau of Internal Revenue (BIR).

While the high tribunal denied the motion for reconsideration on its August 24, 2010 resolution filed by the Department of Finance (DOF) and the BIR which assailed the petition for declaratory relief for being outside of the jurisdiction of the high court, the magistrates stressed that procedural lapses can be ignored since VAT on toll fees has far-reaching implications on motorists and the public in general.

The high court then treated the instant petition as one for prohibition and ruled on the merits of the case.

"To dismiss the petition and resolve the issues later, after the challenged VAT has been imposed, could cause more mischief both to the tax-paying public and the government. A belated declaration of nullity of the BIR action would make any attempt to refund to the motorists what they paid an administrative nightmare with no solution," the decision read.

In the decision penned by Associate Justice Roberto Abad, the SC held that the Commissioner of the BIR did not usurp legislative prerogative or expand the VAT law's coverage when it sought to impose VAT on tollway operations.

"The VAT on franchise grantees has been in the statute books since 1994 when RA 7716 or the Expanded Value Added Tax law was passed. It is only now, however, that the executive has earnestly pursued the VAT imposition against tollway operators," the decision read.

In their joint petition, Diaz and Timbol argued that imposition of VAT on toll fees is "unconstitutional" and an an "invasion of legislative powers" but the high court held that the executive department is the branch of government that executes and implements tax laws.

"The executive exercises exclusive discretion in matters pertaining to the implementation and execution of tax laws. Consequently, the executive is more properly suited to deal with the immediate and practical consequences of the VAT imposition.

"What the government seeks to tax here are fees collected from tollways that are constructed, maintained, and operated by private tollway operators at their own expense under the build, operate, and transfer scheme that the government has adopted for expressways," the decision read.

The high court further held that "once shifted, the VAT ceases to be a tax and simply becomes part of the cost that the buyer must pay in order to purchase the good, property or service."

The SC stressed that "VAT on tollway operations cannot be a tax on tax even if toll fees were deemed as a 'user's tax'" since "VAT is assessed against the tollway operator's gross receipts and not necessarily on the toll fees."