Financial Benefits to Host Communities Under ER 1-94, as Amended

Energy Regulations No. 1-94

As to its validity:

Legal Basis

 Section 5 (i) of Republic Act No. 7638, otherwise known as the

"Department of Energy Act of 1992"
 Section 66 of Republic Act No. 9136, otherwise known as
"Electric Power Industry Reform Act (EPIRA) of 2001," as detailed
in rule 29, Part A of the Implementing Rules and Regulations of
EPIRA.

Policy Objectives

 To recognize and provide recompense for the contribution made

by the host local government units or region.
 To lessen conflict of rights among host local government units,
community and people affected, the energy resource developers
or power producers, and the appropriate agencies of the national
government.
 To promote harmony and cooperation among host local
government units, the energy-resource developers or power
producers and the appropriate agencies of the national
government. (www.doe.gov.ph)

Nature of Contribution:

 The Generation Company and/or energy resource developer

should set aside one centavo per kilowatt hour (P0.01/kWh) of the
total electricity sales as financial benefits to host communities.
 One-centavo per kilowatt-hour (P0.01/kWh) of the Total
Electricity Sales. (Rules and Regulations Implementing Section 5
(i) of RA No. 7638, Otherwise Known as “Department of Energy
Act of 1992”)
Source: (www.doe.gov.ph)

Validity of Expense as Deduction:

 ER 1-94 is part of the rate imposed on the electricity end-users, duly

approved by ERC.

 Trans-Asia Power Generation v. The Commissioner of Internal

Revenue

CTA CASE No. 8289

 DECISION

SECTION 2. Obligation to Provide Financial Benefits. -

The Generation Facilities and/or energy resource

development facilities, such as but not limited to the following, are
required to provide the financial benefits under Energy Regulations No.
1-94 of the DOE:

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SECTION 4. Nature of Benefits Provided under ER 1-94.-

(a)The Generation Company and/or energy resource

developer shall set aside once centavo per kilowatt-hour
(P0.01/kWh) of the total electricity sales as financial
benefits of the host communities of such Generation
Facility, where applicable.

SECTION 7. Administration of Trust Accounts. –

XXX XXX XXX

(b)The obligation of the Generation Companies to DOE with

regard to the remittance of funds shall be settled in the
following manner:”

o Based on the afore-quoted law and regulations, the

Universal Charges and Benefits to Host Communities are
merely passed-on charges that will be remitted to their
proper beneficiaries; hence, should not be included in the
gross receipts subject to 12% VAT.
o Gross receipts for computing tax, specifically VAT, should
exclude any money which is specially earmarked by law,
regulations or contract for someone other than the
taxpayer. Moreover, in Commissioner of Internal Revenue
 vs. Tours Specialists, Inc and The Court of Tax Appeals, the
Supreme Court held that:

 Gross receipts for computing tax, specifically VAT, should

exclude any money which is specially earmarked by law,
regulations or contract for someone other than the taxpayer
(Commissioner of Internal Revenue vs. Manila Jockey Club, G.R.
Nos. L-13887 and L-13890)
 Gross receipts to tax under the Tax Code do not include monies
or receipts entrusted to the taxpayer which do not belong to
them and do not redound to the taxpayer’s benefit; and it is not
necessary that there must be a law or regulation which would
exempt such monies and receipts within the meaning of gross
receipts under the Tax Code.” (Commissioner of Internal
Revenue vs. Tours Specialists, Inc. and The Court of Tax
Appeals)
 Revenue Memorandum Circular No. 61-2005 further clarified that
Universal Charges and Benefits to Host Communities shall be
excluded in determining the gross receipts of the generation,
transmission, and distribution companies and electric
cooperatives. For purposes of this RMC, Gross Receipts shall
refer to the following:

XXX XXX XXX

Gross Receipts shall not include the Energy Tax under BP

36, the Universal Charges implemented under EPIRA (RA9163),
Benefits to Host Companies under Energy Regulation 1-94; and
security deposit for metering machine including interest provided
that when applied to the consumer’s liability it shall be subject to
VAT.

Gross Receipts shall be net of discounts and gross of

penalties.