Thursday, July 03, 2008 Water district in trouble anew By Mark D. Francisco and Annabelle Ricalde
CASH-trapped, the troubled Cagayan de Water District (Cowd) sees hampered operations in the next days while admitting it may break auditing rules by using daily collections to continue operating.
Cowd's bank accounts were confiscated by the regional office of Bureau of Internal Revenue (BIR)-Northern Mindanao last week to collect the company's assessed tax liabilities from 1997 to 2003, all amounting to P340,948,913.57.
Engineer Bienvenido Batar, Cowd assistant manager, said they would question in court why the BIR-Northern Mindanao proceeded to garnish its bank accounts last Thursday despite a court order that supposedly prevented the tax agency from doing so.
Lawyers from the Office of the Government Corporate Counsel (OGCC) on Wednesday tried but failed to convince BIR officials to lift the Warrant of Distraint and/or Levy, Batar said.
Cowd is classified as a government-owned and controlled corporation (GOCC).
In a full-page advertisement that appeared in Sun.Star Wednesday, Cowd said the garnishment contradicts the Writ of Preliminary Injunction issued by a regional court last March. The company noted that aside from the pending dispute being heard in a local court, a similar case is awaiting arbitration at the Department of Justice (DOJ).
A lawyer told that Oscar Mañalac, BIR-Northern Mindanao chief legal officer, defended the seizure of Cowd's bank assets despite an on-going case.
However, Mañalac said: "It's true that there is a pending case, but the matter is entirely separate from the tax liabilities of the water district, which has been asking for extension since 1996."
Cowd cannot also cite the March 17 injunction since BIR has already filed a petition for case review before the Court of Appeals recently, Mañalac said.
He added that the new Warrant of Distraint and/or Levy was for the 2005 tax liabilities of the water utility, while last year's covered the period from 1997 to 2003.
Cowd officials said the garnishment was unjustified since the company has already settled its franchise taxes "as a show of good faith.
BIR-Northern Mindanao, however, argued that the company must also pay income taxes that have ballooned over the years.
In dispute are several laws upon which the country's 540 water districts anchor their defiance to pay income taxes, and BIR in pressing payments.
For its part, Cowd says since water districts are categorized as GOCCs, it should be exempted from paying taxes.
Section 46 of Presidential Decree 198, Cowd officials say, exempts water districts from paying taxes.
They also cited Republic Act (RA) 8424, known as the Tax Reform Act of 1997, which exempts from tax obligations all income "derived from any public utility or from the exercise of any essential governmental function."
However, the BIR, invoking RA 7109, which set for a five-year limit within which water districts will enjoy a tax-exempt status, has proceeded in pressuring water districts their tax dues.
The five-year limit has lapsed on August 1991 and in 2003, and BIR issued a Revenue Memorandum Circular (RMC) subjecting all water districts to franchise and corporate income taxes.
That became a basis for the BIR to garnish Cowd's bank deposits for the first time last year.
Meanwhile, Batar said they would ask the Commission on Audit (COA) to allow them to use all available "cash-on-hand" instead of depositing these to the banks, as required by government auditing rules.
With monthly collection averaging at P40 million, Batar said Cowd could attend to its fixed monthly expenditures pegged at around P32 million.
