NTRC Tax Research Journal Vol. XXIV.5 September-October 2012 Rationalization of Fees and Charges via Administrative Order No. 31* 1. INTRODUCTION Fees and charges are non-tax receipts or levies imposed on direct recipients of certain public goods and services by government agencies and government-owned and/or controlled corporations (GOCCs) in the exercise of mandated regulatory and service delivery functions. Examples of fees collected by the government agencies are permit fee, license fee, registration/accreditation fee, filing, clearance and certification fees, as well as fees for specific services such as medical and laboratory examinations, The basic principle behind the imposition of fees and charges is cost recovery that aims to relieve the government of its funding burden by making the individuals receiving ‘the services share in the burden of the expenses incurred by the government. Other than cost recovery, fees and charges are sometimes designed and imposed so as to encourage efficiency and equity such that the use of valuable and scarce resources is optimized. An example of this type of fee is the spectrum users’ fee which is based on the radio spectrum frequency usage being collected from the telecommunication industry. They may also serve as sumptuary devices to discourage or regulate certain services or activities provided by the government which is done by imposing higher rates of fees than the estimated administrative costs incurred, an example of which is the ance of a Permit to Carry Firearms Outside of Residence. On the other hand, certain fees may also be charged at lower rates than the administrative costs involved. This is true for certain specific services or activities which are being encouraged by the government or those related to constitutionally mandated free or subsidized services (education, health services to paupers). The cost of rendering government services is continuously increasing over the years brought mainly by inflation. Thus, to keep up with the rising costs and to be able to sustain, expand or improve government services, there is a need to rationalize the rates of * Prepared by Jason P. Raposas, Senior Tax Specialist, reviewed by Emelita A. Tena, Chief Tax Specialist of the Special Research and Technical Services Branch, NTRC. Rationalization of Fees and Char[RRC Tax Research Jourat VoL RIV SepienberOatober 3012 | existing fees and charges and, if found necessary, adjust upward existing fees and/or impose new fees. This authority to rationalize the fees of government agencies was recently granted to the heads of government agencies and GOCCs through Administrative Order (AO) No. 31, issued on October 1, 2012 IL ‘URES OF ADMINISTRATIVE ORDER NO. 31 AO 31 directs all heads of departments, bureaus, commissions, agencies, offices and instrumentalities of the national government including GOCCs to rationalize the rates of their fees and charges and if found necessary, to upgrade the rates of fees and/or impose new fees and charges. The AO provides the guiding principle that in the determination of rates of existing fees and/or in the imposition of new fees, the National Government Agencies (NGAs) should see to it that a balance between recovering the cost of services rendered and the possible socio-economic impact of their new impositions or increases in existing rates is observed or considered. The Department of Finance (DOF), Department of Budget and Management (DBM) and the National Economic and Development Authority (NEDA) are tasked to jointly promulgate the rules and regulations which will provide the parameters and the safeguards to ensure that the rates of fees shall be reasonable. ‘The Task Force on Fees and Charges created under Executive Order (EO) No. 218 with the Secretary of the Department of Finance as chairman, Secretary of the Department of Budget and Management (DBM) as co-chairman and the representatives of the Bureau of the Treasury (BTr), Commission on Audit (COA), and National Tax Research Center (NTRC) as members, is tasked to monitor the compliance of fee collecting agencies with AO 31 The AO repealed MC No. 137, s. 2007, which requires NGAs to seek prior clearance from the NEDA Board before implementing the proposed imposition of new fees or increase in existing rates of fees. With this development, the task of ensuring that the rates of fees and charges are in accord with the guiding principles and parameters of AO 31 and its implementing guidelines is now vested solely in the heads of agencies, bureaus and commissions with the approval of the concerned Department Secretary. This is in keeping with Section $4, Chapter 12, Book IV of EO 292 (Revised Administrative Code of 1987). Prior to AO 31, the last presidential i departments, bureaus, commissions, agencies, offices and instrumental GOCCS to increase their rates was through EO 197 issued in 2000. Thus, the last mandated adjustment of fees was made more than 11 years ago. uance directing and authorizing all 8 Rationalization of Fees and Charges via AO 31|NTRC Tax Research Journal Vol. XXIV.S September-October 2012 Ill, REVENUE PERFORMANCE OF FEES AND CHARGES Fees and charges are non-tax sources of revenue of the government along with the Bureau of the Treasury income, proceeds from privatization of government assets and foreign grants. Collections from fees and charges of NGAs are generally remitted to the General Fund. In some cases, however, some of the collections are either fully or partially retained by the collecting agency or remitted to the Bureau of the Treasury (BT) as a Special Account in the General Fund, The funds under Special Accounts are either intended to defray the collecting ageney’s operational expenses [e.g., Housing and Land Use Regulatory Board (HLURB)] or earmarked for certain specific purpose [e.g., Land Registration Authority (LRA) Special Account intended for intelligence expenses and for construction/maintenance of buildings/offices under the LRA]. Non-tax revenue contributes on the average about 13% of the total revenue and among the non-tax sources, 35% come from fees and charges. From 2002 to 2011, the collection from fees and charges ranged from PhP 21 billion to PhP 71 billion or an average of about PhP 44 billion annually (Table 1). The collection has the potential to increase if the imposition of new fees and/or increase in existing fees will be rationalized, Table 1. COLLECTIONS FROM FEES AND CHARG! CY 2002-2011 (In Billion Pesos) Ratio of Non-Tax. Fees and. Year | gat Aenes | ehmmeges | Revenue to | Charges To ~ Total Non-Tax Revenue | Revenue 367.14 70.17 237] 12.48% 30.20% | o26.63 88.95 2 14.19% 33.03% 699.17 loL.s 2772 | 14.84% | 27.24% 816.16 11054 30.13| 13.54% 27.26% 979.64 119.78 3098) 12.23% 5.86% | 2007 1,136.56 203.62 44.92 17.92% 22.06% 2008 1,204.60. 155.42 58.63 12.90% 37.72% 2009 112824 | 43.61 70,09 |__12.16% 48.81% | 2010 1,206.39 112.75, 58.65 9.35% 52.02% 2011 1,359.94 157.88 71.08 | 11.61% 45.02% [average 972.21 12631 430) 13.15% 34.92% Source of Basie Data: Budget of Expenditures and Sources of Financing (BESF), [ Rarionaltion of Fees and Charges vie 40 37 7[IRC Tax Research Fournal Val XXIV September Osober 201 The top 10 collecting agencies tuned in a total collection of PhP 19 billion in 2011 which was about 27% of the total revenue from fees and charges during the period. The National Telecommunications Commission (NTC), Land Registration Authority (LRA), Land Transportation Office (LTO), the Bureau of Immigration (BI) and DFA- OSEC/Consular Aflairs are among the agencies consistently landing in the top 5 (Table 2), Table 2. COLLECTIONS OF THE TOP TEN COLLECTING AGENCIES. CYs 2006 - 2011 (In Billion Pesos) Rank*| National Government Agency | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 1 National Telecommunications Commission 2.12 | 2.20 | 3.01 | 3.11 | 3.68 | 4.44 2 [Land Registration Authority 1.79 | 247 | 2.30 | 2.70 | 3.04 | 3.22 3__ [Land Transportation Office 1.35 | 1.43 [1.30 | 2.27 | 204 | 2.61 4 [DFA - OSEC / Consular Affairs 0.96 | 0.97 | 0.80 | 0.94 | 1.73 | 2.02 35 [Bureau of Immigration 1.33 | 146 | 1.32 | 1.52 | 1.83 | 1.91 6 _|Sccurities and Exchange Commission | 0.85 | 1.74 | 1.05 | 1.06 | 1.22 | 1.67 7__[Energy Regulatory Commission ois [043 | 037 [os | 0.99 | 0.99 8 _ [Professional Regulation Commission | 0.75 | 0.77 | 0.74 | 0.98 | 0.99 | 0.96 9 [Mines and Geo-Sciences Bureau 0.06 | 0.18 | 0.29 | 0.32 | 0.61 | 0.86 jo _ [Land Transportation Franchising & - Regulatory Board 0.56 | 0.55 | 0.51 | 0.52 | 0.69 | 0.67 Total 10.13 [12.17 [11.69 [13.89 [17.43 [19.35 * Ranking based on CY 2011 collections IV, JUSTIFICATIONS FOR THE RATIONALIZATION OF FEES AND CHARGES A. The review of fees has a legal basis. Section 54, Book LV, Title III of EO 292 (Administrative Code of 1987) provides the heads of bureaus, offices or agencies upon approval of the concerned department head, the continuing authority to revise their rates of fees and charges to recover the cost of services rendered, however, still many NGAs were identified to have not adjusted 1a presidential issuance is deemed necessary to reiterate such Despite this authori their fees for years. Henc authority. io tion Fs edhe vi 071)NTRC Tax Research Journal ‘Val. XXIV.5 September-October 2012 ] B. The last mandated adjustment of fees was made more than 1] years ago. The last presidential issuance before AO 31, directing all departments, bureaus, commissions agencies, offices, and instrumentalities including GOCCs to increase their rates was made through EO 197 in 2000, As shown in Table 3, there are top fee collecting agencies which have not revised their fees since 2000. Despite this, their budgets continuously increased to enable them to sustain or improve their services to the public. Table 3. COMPARATIVE BUDGET OF TOP FEE COLLEC AGENCIES {In Million Pesos) Budget i Darley Cumulative SN. Particulars Year of | 2Ott | Percentage Lane, | Budget | Inerease in | Budget 1 National Telecommunications Com 2004) 1914S) 49.90% 2 |Land Registration Authority 2003, 498.00] 16.49% 3 Bureau of Immigration 1999 37933| 121.48% 4 Securities and Exchange Commission 2004 202.61| 238.54) 17.73% 5 Professional Regulation Commission 2008 254.92| 308.99) 21.21% 6 National Statistics Office 2001 589.22| 1,190.68] 102.08% 7. |National Bureau of Investigation 2000 526.16| 784.53] 49.10% 8. |Mines and Geo-Sciences Bureau 2003 402.45 | 682.09] 69.48% 9. |DENR -osEC 2000 | 4,857.98 8981.77] 84.89% 10 |DPWH - OSEC/Bureau of Research & 2006 | 3,752.62) 9,925.72] 164.0% ‘Standards* L - - * Exclusive of locally and internationally funded projects. Source of Basic Data: General Appropriations Act (various years) ©. The cost of rendering services has risen drastically over the years. Expense items which are assumed to affect the cost of administering government services such as the cost of fuel, light and water more than doubled from 2002 to 2011 while the cost of office supplies and materials increased by 22% during the same period. Hence, agencies which have not adjusted their fees since 2000 will have very low rates. For other agencies which have revised their fees for the last five (5) years or more, their current impositions may likewise no longer be reflective of the true cost; hence, the need for an adjustment in their existing fees. ationalization of Fees and Charges via AO 37 ~ aNIRC Tax Research Journal Vol. XXIV.5 September-October 2012 ‘Table 4. CONSUMER PRICE INDEX OF SELECTED GOODS AND SERVICES CY 2002-2011 (C¥2000 = 100) , : Percentage Increase Year | Light | Omfice Supplies | Fuel, Light & | Office Supplies L & Water | & Materials Waite aeMsieets 2002 | 115.9 109.0 248% L7TM% 2003 123.2 Md 6.30% 1.93% 2004 132.3 113.5 7.30% 2.16% 2005 156.2 7.1 18.07% 3.17% 2006 176.4 120.6 12.93% 2.99% 2007 182.1 122.5 3.23% “1.58% 2008 193.9 126.1 6.48% 2.94% 2009 188.8 129.4 2.63% 2.62% 2010 214.3, 131.2 13.51% 1.39% 2011 234.3, 133.0) 9.33% 137% Source of Basic Data: Sel Bangko Sentral ng Pil ‘ed Philippine Economic Indicators (December 2011), nas. V. CONCLUSION The issuance of AO 31 is an opportune time for the government agencies to rationalize or review and evaluate their fees and charges. The DOF, DBM and NEDA shall soon jointly issue the implementing rules and regulations (IRR) of this AO, The IRR shall provide the parameters for determining just and reasonable rates, as well as safeguards to protect the public from unreasonable and arbitrary fees and charges. 2 Rationalization of Fees and Charges via AO 31