President Ferdinand Marcos Jr. has issued an executive order granting real property tax breaks to independent power producers (IPPs) operating under Build-Operate-Transfer (BOT) contracts with state-owned corporations.
Executive Order No. 36 signed on Tuesday reduced and condoned real property taxes (RPTs) assessed by local governments on the power generating facilities of IPPs within their locality.
According to the EO, various local governments have taken the position that IPPs operating in their territories were not entitled to exemptions and privileges enjoyed by government-owned or -controlled corporations (GOCCs) with respect to taxes on their property, machinery and equipment used in the generation and distribution of electric power.
The EO said some local governments “have threatened enforcement actions against IPPs, including the levy and sale at public auction of affected properties.”
“While IPPs are taxable entities liable to pay the said RPTs, a substantial portion of the RPT has been contractually assumed by the National Power Corp. (Napocor)/Power Sector Assets and Liabilities Management Corporation under the Build-Operate-Transfer scheme and similar contracts, and therefore carry the full faith and credit of the National Government,” the EO said.
This means that under the IPPs’ BOT contracts with Napocor, a GOCC, the latter must shoulder real property tax.
Local gov’t threats
The EO noted that the closure and non-operation by the IPPs, defaulting on their tax obligations with the concerned local government, would “entail substantial losses to the government, force the public to resort to more costly electric power source alternatives, and cause rotating power outages.”
Indeed, for years, IPPs, or those who own power generation facilities and sell electricity to distributors such as Manila Electric Co. (Meralco), have been fighting local governments’ threats to deny them business permits or to take over their operations due to real property tax issues.
In 2010, they went after IPPs for owing them around P64 billion in real property taxes.
The Philippine Independent Power Producers Association Inc., which includes the country’s energy generation companies, had pointed out that these threats could negatively impact power supply.
The EO should allay these concerns, citing the provision under the Local Government Code of 1991 that empowered the President to “condone or reduce the RPT and interest of any province or city or municipality within Metropolitan Manila Area” in the name of public interest.
Computation
According to Section 1 of EO 36, all RPT liabilities of IPPs for 2023, including special levies accruing to the Special Education Fund on property, machinery and equipment actually and directly used by the IPPs for the production of electricity under the BOT scheme and similar contracts, “are hereby reduced to an amount equivalent to the tax due if computed based on an assessment level of 15 percent of the fair market value of the property, machinery and equipment depreciated at the rate of 2 percent per annum, less the amount already paid by the IPPs.”
This included the BOT scheme contracts of the IPPs denominated as power purchase agreements, energy conversion agreements or other contractual agreements with GOCCs that were assessed by the local governments imposing the real property taxes “for all the years up to CY (calendar year) 2023.”
“All RPT payments made by IPPs over and above the reduced amount under Section 1 of this Order shall be applied to their RPT liabilities for succeeding years,” the EO read.
Similar Duterte move
In 2021, then President Rodrigo Duterte also reduced and condoned real property taxes and penalties assessed on the power generation facilities of IPPs, saying that their non-operation would entail “substantial losses to the government” and force distributors to resort to more costly alternative power sources.
Charges from IPPs are included in the generation charge, or the cost of power purchased from suppliers, of a customer’s monthly bill.
Generation charge accounts for more than 50 percent of the total bill of Meralco.
—With a report from Meg J. Adonis INQ
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