Tax Exemption for Local Water Districts

A water district created pursuant to Presidential Decree No. 198, as amended is exempt from the payment of income taxes, except taxes on interest income from deposits and on investments that have no direct relation with water service operations under Section 1.
A water district is exempt from the payment of franchise taxes under Section 1.
A water district is exempt from duties and taxes on imported machinery, equipment and materials required for its operations under Section 1.
The import-duty and tax exemption applies only when the machinery, equipment, and materials are not domestically manufactured at comparable and competitive prices and quality under Section 1.

All lands, buildings, and other real property, including equipment attached thereto, used for water supply generation and distribution are exempt from real property taxes under Section 2.
The real property tax exemption applies only if the land or building is not used for office or any other commercial purposes under Section 2.

The tax exemption privileges under Sections 1 and 2 are enjoyed only for five (5) years from the effectivity of Republic Act No. 7109 under Section 3.
Exemption is conditioned on the adoption of internal control reforms that bring about the water district’s economic and financial viability under Section 3.
During the exemption period, appropriations for personal services, and for travel, transportation or representation expenses, and for purchase of motor vehicles, must not be increased by more than twenty-five percent (25%) a year under Section 3.

Water districts shall furnish, through the Local Water Utilities Administration, the Bureau of Local Government Finance of the Department of Finance (the Bureau) under Section 4.
The furnishing must be done on an annual basis under Section 4.
The water districts must provide statistical data and financial statements regarding their operations and other information as may be required under Section 4.
The Bureau uses the submissions for monitoring compliance with Republic Act No. 7109 and for reviewing the rationalization for tax and duty exemption privileges under Section 4.

Unpaid taxes and duties (or any portion thereof) due from a local water district for the period starting October 15, 1984 until the effectivity date of Republic Act No. 7109 are condoned by the Government under Section 5.
The condonation is subject to the Bureau’s determination that, after careful review of a water district’s statistical data and financial statements, the water district is financially incapable of meeting the obligations, after providing for maintenance and operating expenses, debt servicing and reserve fund, for the period stated under Section 5.
A water district availing of condonation must submit to the Bureau a program of internal reforms, duly certified by the Local Water Utilities Administration, to bring about economic and financial viability under Section 5.

The Secretary of Finance shall promulgate rules and regulations necessary for effective implementation under Section 6.
Section 7 repeals or modifies all other laws, decrees, orders, rules and regulations, or parts thereof, that are inconsistent with Republic Act No. 7109.