Palace cuts property taxes on facilities of select IPPs

The Aquino administration has reduced the real property taxes slapped on the facilities of independent power producers (IPPs) dealing with government-owned and/or -controlled corporations (GOCCs) in a bid to prevent increases in power rates.

“All liabilities for real property tax on property, machinery and equipment used by IPPs for the production of electricity under build-operate-transfer (BOT) contracts with GOCCs… for all years up to 2014, are reduced to an amount equivalent to the tax due if computed based on an assessment level of 15 percent of the fair market value, depreciated at the rate of 2 percent per year, less any amount already paid by the IPPs,” according to Executive Order No. 173 issued by Malacañang Palace on Friday.

EO 173 also condoned all fines, penalties and interests on deficient real property tax liabilities. “The concerned IPPs are relieved from payment thereof,” it stated.

Malacañang noted that under Section 234 of Republic Act (RA) No. 7160 or the Local Government Code of 1991, GOCCs engaged in power generation and transmission were already enjoying real property tax exemptions and privileges, such as a 10-percent assessment level on lands, buildings and machinery as well as zero tax rate on all machinery and equipment being used to generate and transmit electricity.

However, a number of local government units (LGUs) had argued that IPPs operating within their respective localities that were not GOCCs “are not entitled to the [real property tax] exemptions/privileges.”

Some LGUs had even threatened “enforcement action against the IPPs, including levy imposition and sale at public auction of the affected properties,” according to Malacañang.

“The payment of the said real property taxes by the affected IPPs, some of which have been contractually assumed by the GOCCs and carry the full faith of the national government, threatens the financial stability of the GOCCs, the government’s fiscal consolidation efforts and the stability of energy prices,” EO 173 stated.

“The forcible collection of the subject real property taxes by the LGUs concerned will trigger massive direct liabilities on the part of National Power Corp./Power Sector Assets and Liabilities Management Corp. and other affected GOCCs, may increase the cost of electricity, and may trigger further cross-defaults and significant economic losses across all sectors,” it added.

In this regard, President Aquino ordered the reduction and condonation of real property taxes as well as interests and penalties assessed on the power generation facilities of IPPs that have BOT contracts with GOCCs, as allowed under Section 277 of RA 7160.

The RA states that “the President of the Philippines may, when public interest so requires, condone or reduce the real property tax and interest for any year in any province or city or a municipality within the Metropolitan Manila area.”

EO 173 will take effect immediately upon publication. Ben O. de Vera