MRT 3 private owner must pay P1.7B in tax liabilities

The Court of Tax Appeals (CTA) has ordered the private owner of Metro Rail Transit (MRT) 3 to pay at least P1.73 billion in taxes for the year 2007.

In a 68-page decision dated Jan. 8, the court’s Special Second Division affirmed the liability of MRT Corp. for deficiency income tax, expanded withholding tax and fringe benefits tax.

The amount also included a 25-percent surcharge, a 20-percent deficiency interest and a 20-percent delinquency interest—penalties for late payment—on the aforementioned taxes computed until Dec. 31, 2017.

Because of the Tax Reform for Acceleration and Inclusion Act, the basic taxes of P968.75 million would earn another 12-percent delinquency interest from Jan. 1, 2018, until full payment.

The tax liabilities arose from underreported income uncovered by the Bureau of Internal Revenue in an audit of the books of MRT Corp., the consortium that financed the construction of the railway under a 25-year build-lease-transfer agreement.

BIR officers found out that some lease financing income—rentals paid by the government for the construction and public use of the rail system—was not fully taxed.

Discrepancies

Although MRT Corp. reported a lease financing income of P3.49 billion in its 2007 income tax return, its audited financial statements actually reflected a higher figure of P4.28 billion.

The company treated the rentals as an “operating lease” and deducted depreciation costs and ordinary expenses to arrive at a lower figure when it reported income for tax purposes.

This could not otherwise be done for a “financing lease,” according to Philippine accounting standards.