EO grants tax benefits to IPPs under BOT deals with state firms

FILE: Facade of the Malacañang Palace as seen from Pasig River. (Photo by Architect Jorge Ramos (d. 2015) for the underlying copyrighted work (Malacañang Palace). Image is by Official Gazette of the Philippines, originally uploaded on Commons by User:P-JR – Commons:File:Malacañang Palace (Cropped).jpg, Public Domain)

MANILA – President Ferdinand R. Marcos Jr. issued an executive order granting real tax benefits to Independent Power Producers (IPP) operating under the Build-Operate-Transfer (BOT) scheme contracts with government-owned or -controlled corporations (GOCCs).

Executive Secretary Lucas Bersamin, by the authority of the President, signed Executive Order (EO) No. 36 on July 25, 2023, reducing and condoning real property taxes (RPTs) assessed by local government units (LGUs) on the power generating facilities of IPPs within their locality.

The EO noted that various LGUs have taken the position that IPPs operating in their territories are not entitled to exemptions and privileges enjoyed by GOCCs with respect to real property taxes on their property machinery and equipment used in the generation and distribution of electric power.

The EO further stated that some LGUs “have threatened enforcement actions against IPPs, including the levy and sale, at public auction 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 Corporation/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 explained.

The closure and non-operation by the IPPs, defaulting on their tax obligations with the concerned LGU, “will entail substantial losses to the government, force the public to resort to more costly electric power source alternatives, and cause rotating power outages,” the EO stated.

The EO pointed out that, under Section 277 of the Local Government Code of 1991, “the President may, when public interest so requires, condone or reduce the RPT and interest of any province or city, or a municipality within Metropolitan Manila Area.”

Under Section 1 of EO 36, all RPT liabilities of IPPs for the calendar year 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 two 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 LGUs imposing the real property taxes “for all the years up to CY 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 stated.