SC: Manila Water, Maynilad cannot pass on corporate income tax to consumers

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Metro Manila (CNN Philippines, May 25) — The Supreme Court (SC) has ruled that water Metro Manila concessionaires Manila Water and Maynilad are prohibited from charging consumers for corporate income tax as they are public utilities.

In a 102-page decision uploaded on its website recently, the court cited a 2002 ruling where it held that public utilities have no right to pass on to consumers their corporate income tax as operating expenses since they are the ones enjoying the privilege of earning income, not their customers.

The SC further explained that while concession agreements which the two companies entered into with the Metropolitan Waterworks and Sewerage System (MWSS) provide that they are allowed to recover “Philippine business taxes” and to earn a rate of return on these, this doesn’t apply to corporate income taxes.

“As established in jurisprudence, corporate income taxes are not business taxes under Philippine law,” it said in a press release on Thursday.

The court said as public utilities, Manila Water and Maynilad are bound by the 12% limit on the rate of return under the MWSS charter.

But despite this recent decision, the SC noted that customers may no longer recover the amount they previously paid for the concessionaires' income taxes.

It said the right to a refund – which must be exercised within 30 days after the rates took effect — had long prescribed.

Earlier, Maynilad also filed a petition for review on certiorari, arguing it is not a public utility whose rates may be questioned by the National Water Resources Board (NWRB).

In 1997, waterworks and sewerage operations in Metro Manila were privatized to address the national water crisis at the time, with the east area awarded to Manila Water and the west to Maynilad.

The SC held that both concessionaires are deemed public utilities since they are engaged in regularly supplying water – "the most basic of all necessities for human survival” – to an indefinite public.

“Unlike an ordinary private business, public utilities cannot selectively serve a clientele, but must provide service to an indefinite public,” the SC said.

It also ruled that the NWRB, as the successor of the now defunct Public Service Commission with respect to water regulation, has jurisdiction on cases which challenge water rates