Pres. Duterte Reduces Real Property Taxes For Independent Power Producers

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President Rodrigo R. Duterte has ordered the reduction of real property taxes earlier slapped on some independent power producers (IPPs) to deter possible increases in power rates and rotating power outages.

Executive Order (EO) 117, inked by Duterte on July 24 and made public on Wednesday, reduces and condones real property taxes and penalties assessed on power generation facilities of IPPs under Build-Operate-Transfer (BOT) contracts with government-owned and -controlled corporations (GOCCs).

Under Republic Act (RA) 7160 or the Local Government Code of 1991, the President “may, when public interest requires, condone or reduce the real property tax and interest for any year in any province, city, or municipality within the Metropolitan Manila area.”

EO 117 notes that the reduction and condonation cover all liabilities for real property tax, including any special levies accruing to the Special Education Fund for 2019, on property, machinery, and equipment actually and directly used by IPPs for the production of electricity under a BOT scheme and similar contracts.

The order also covers similar contracts under Power Purchase Agreements, Energy Conversion Agreements, or other contractual agreements with GOCCs that were assessed by local government units (LGUs) and other entities authorized to impose real property tax for all years up to 2019.

“(All liabilities for real property tax) 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 said property, machinery, and equipment depreciated at the rate of 2 percent per annum, less any amounts already paid by the IPPs,” EO 117 said.

All interests and penalties on such deficiency real property tax liabilities are condoned and concerned IPPs are relieved from payment, according to the order.

EO 117 also notes that all real property tax payments made by the IPPs over and above the reduced amount shall be applied to their real property tax liabilities for the succeeding years.

Duterte issued EO 117, as he raised concern that a substantial portion of real property taxes being charged against IPPs may prompt massive direct liabilities on the part of GOCCs.

The EO aims to consolidate the government’s fiscal efforts, stabilize energy prices, and avoid further cross-defaults and significant economic losses across all sectors.

“As the operations of affected IPPs contribute largely to tax revenues for the national government and LGUs, and provide grid capacity of around 3,100 megawatts, their closure and non-operation will entail substantial losses to the government and force resort to more costly electric power source alternatives or the implementation of rotating power outages,” it said.

All concerned government entities, including relevant GOCCs and LGUs, are directed to strictly comply with EO 117.

“All rules and regulations, or parts thereof, which are inconsistent with the provisions of this Order are hereby revoked, amended or modified accordingly,” the EO read. “If any provision of this Order is declared invalid or unconstitutional, the other provisions unaffected thereby shall remain valid and subsisting.”

EO 117 takes effect immediately upon publication in a newspaper of general circulation. (PNA)