BIR presses payment of IPPs’ tax arrears

Independent power producers with tax arrears will be required to settle their obligations this month as the Bureau of Internal Revenues (BIR) sets top-level meetings with company executives to expedite the process.

BIR Commissioner Guillermo Parayno told reporters that the bureau is setting a series of individual meetings with the chief executive officers of these companies to iron out the settlement process without having to go through lengthy legal tussles.

"We want this to go through as swiftly as possible because we want the collections to come in this November," Parayno said. "We are committed to raise at least P41-billion worth of revenues this month so we are pressed to make this happen."

According to Parayno, the BIR has already successfully concluded a similar discussion with the Casecnan power company and the high-level negotiation with its CEO turned out to be more productive.

"When two chiefs negotiate, it is easier to set aside the details that would otherwise bog us down," Parayno said. "When we talk at this level, the process proceeds faster."

Parayno said the BIR has not concluded its calculations on how much is due from the IPPs. He said the bureau expects the amount to be substantial.

"The list of IPPs with unsettled obligations is long but we are evaluating the list so that we can focus on those that are already in the advanced stages," Parayno said. "We will collect them all, we just want to do the easy ones first because that is more realistic."

Early this year, the BIR collected over P500-million worth of back-taxes paid by independent power producers, heading off what could have been a lengthy legal tussle on whether government could tax the income generated by power plants during testing and commissioning period.

The BIR said that seven out of the 19 IPPs with tax arrears have begun payments on about P515.5-million worth of income and value added tax (VAT) arrears incurred in 1995 to 1997.

Parayno told reporters that the first seven IPPs have so far paid around P300 million and the rest would be paid before the end of the year.

Parayno said that most of the IPPs decided to abide by the BIR ruling that taxed the income generated when the power plants were either under rehabilitation or still in their pre-operation testing.

According to Parayno, the question arose from the ambiguities in the IPP contracts that did not specify whether the income generated by IPPs while their power plants were still being tested were covered by the income tax or exempted from income taxes under the incentive program offered to IPPs.

Parayno said the question also arose on whether power plants that were under rehabilitation should also be taxed during the commissioning period.

In both cases, the BIR ruled that the income generated by IPPs during either periods were considered income and should be covered by the usual income tax since they did not fall under the coverage of the income tax holiday offered by the government to IPPs.

Parayno said the remaining 12 IPPs that have not begun to settle their arrears have sent feelers that they would eventually pay. He said most of them were waiting for authorization from their respective parent companies abroad because the tax assessment was not budgeted this year.

Parayno said none of the IPPs have so far threatened to contest the BIR ruling, avoiding what would have been a lengthy debate over whether pre-operating income was taxable or not.