By John Victor D. Ordoñez, Reporter
PRESIDENT Ferdinand R. Marcos, Jr. issued an executive order (EO) that will reduce real property tax for independent power producers (IPPs) engaged in build-operate-transfer (BOT) deals with government-owned and -controlled corporations (GOCCs).
The Palace said Executive Order 83 signed by the President on Feb. 13 and made public on Wednesday. The EO grants IPPs an effective reduction in real property tax by setting an assessment level of 15% of the fair market value. It also calls for machinery and equipment to be depreciated at 2% a year.
All interest and penalties on deficiency real property tax liabilities of IPPs will be condoned, according to the EO.
Real property tax payments made by IPPs exceeding the reduced amount will be applied to their property tax liabilities in the succeeding years.
The Local Government Code of 1991 provides that GOCCs engaged in the generation and transmission of electricity are entitled to tax privileges such as a lower real property tax assessed on 10% of market land value, buildings, machinery, and other equipment.
The law also grants the President the authority to condone or reduce these real property taxes for any province, city, or municipality within Metro Manila “when public interest so requires.”
“As the operations of affected IPPs provide an estimated grid capacity of 3,100 megawatts, the closure or non-operation of these IPPs will entail substantial losses to the government and force the public to resort to more costly electric power source alternatives or rotating power outages,” according to the order.
Mr. Marcos said in the EO that the collection of the real property tax from the IPPs last year, which had assessment levels of as high as 80% of fair market value from local government units (LGUs), will “trigger massive direct liabilities” for the National Power Corp. and Power Sector Assets and Liabilities Management Corp.
He said such liabilities would threaten the financial stability of the agencies, disrupt the government’s fiscal consolidation efforts, and upend the stability of energy prices.
“This is good news but only touches on a small part of the permitting and regulatory framework that needs to be improved,” Anne E. Montelibano, president of the Philippine Independent Power Producers Association, Inc. (PIPPA), told BusinessWorld via Viber.
“To effectively make the country an attractive destination for power generators, various issues need to be resolved and addressed,” she added.
The Executive needs to clarify whether the lower property tax and condonation can be implemented without the consent of affected LGUs, since they handle collecting these taxes, Terry L. Ridon, a public investment analyst and convenor of think tank InfraWatch PH, said via Messenger chat.
“In other words, a mere executive order cannot trump the power of local government units to impose and collect real property taxes on properties within their jurisdiction.”
PIPPA last year called on the Energy Regulatory Commission (ERC) to review the implementation of a secondary price cap on prices, which the ERC uses to prevent excessive increases in electricity prices.
Ms. Montelibano has said the cap would discourage investment in the power sector, despite an ERC a resolution providing for additional compensation to power plant generators once a price cap is triggered.
“Taxes can in fact be raised as long as the long-term profits of the power plants are secured,” Leonardo A. Lanzona, who teaches economics at the Ateneo de Manila, said via Messenger chat.
“The effectiveness of tax reduction depends on whether or not there exists forward and backward linkages to the power sector.”