The refund pertains to rate increase fees and meter deposits that Meralco is currently refunding to its customers. At this rate, it would be worthwhile to take a closer look at how the Meralco refund came about, in relation to previous Bureau of Internal Revenue (BIR) regulations issued on these issues.

On Dec. 23, 1993, Meralco filed with the Energy Regulatory Board (ERB) an application for a rate increase. The ERB granted Meralco a provisional increase on the condition that if Meralco is found to be actually entitled to a lesser rate increase, all excess amounts collected shall be refunded to its customers or credited in their favor for future consumption.

Subsequently, a Commission on Audit (CoA) report found Meralco to be entitled to a lesser rate increase, which prompted the ERB to issue an order asking Meralco to refund or credit the excess amounts to its customers. Meralco brought the case to court, and after years of litigation, the Supreme Court upheld the ERB’s decision, and ordered Meralco to refund its customers.

As to the meter deposits, Meralco previously required a meter deposit from customers applying for a new service connection to guarantee against loss or damage of the electrical meter installed. The deposit was equivalent to one-half of the cost of the electric meter and its accessories. Meralco stopped collecting meter deposits from residential customers in July of 2004, as well as non-residential customers since April of 2006 on account of the resolutions issued by the ERB obligating Meralco to refund the meter deposits to its customers. Specifically, the refund consists of the principal amount paid by the customer, plus interest earned.

With Meralco clients having extra income, the BIR saw the opportunity to subject to CWT the refund payments made by Meralco. Several regulations were issued by the BIR, like RR No. 11-2018, reiterating the CWT on the rate increase refund under the following rates:

– 25 percent for customers with active contracts;
– 32 percent for customers with terminated contracts.
– RR 11-2018 also confirmed the following CWT rates on the interest earned on the refund of the meter deposits:
– 10 percent for residential and general service customers whose monthly electricity exceeds 200 kw/h;
– 20 percent for non-residential customers. 

Under RR 1-2019, the CWT for the rate increase refund has been lowered to 15 percent. As to the interest earned on the refund of the meter deposits, the CWT rate for non-residential customers is also at 15 percent.

Note that these CWT rate reductions are mainly brought about by Republic Act 10963, the “Tax Reform for Acceleration and Inclusion” Law, which provides, effective Jan. 1, 2019, the withholding tax on income payments to persons residing in the Philippines shall not be less than 1 percent, but not more than 15 percent of the income payment.

Ron Arriesgado is a tax lawyer, a transfer pricing specialist, and is a Partner at the LMA Law Offices in Makati City. He has managed and resolved taxation issues of local and multinational entities; resolved various tax assessment cases issued by the Bureau of Internal Revenue; and provided clients with the proper tax strategies to cancel or substantially lower tax assessments, among others.

Manila Times Source

ATTY. RON ARRIESGADO

Partner LMA LAW