The future is renewable

Times have indeed been tough for the ordinary Juan and Maria dela Cruz.

As inflation rates soar during the ongoing pandemic, living comfortably has turned into such a stretch goal for most of our kababayans as they struggle to make ends meet. With more uncertainty looming, the government is expected to step in and step up now more than ever to soften the blow of the continuous increase of the price of basic commodities, especially on lower to middle-class households.

In a way, the government does appear to be stepping up by focusing again on building and strengthening clean energy technology. Ideally, this will not only lessen the country’s carbon footprint, but also help alleviate the effects of inflation on daily costs while at the same time increasing the country’s power supply and energy production through renewable sources of energy (e.g., solar, wind, biomass, geothermal, and hydro).

While the government has already been encouraging the use of clean energy for more than a decade since Republic Act (RA) 9513 or the Renewable Energy Act of 2008 was enacted, the public was only recently reminded of its commercial perks through Revenue Regulations (RR) 7-2022, reiterating and simplifying the salient points of the guidelines, policies, and available tax incentives under the said law.

Fiscal incentives for RE projects, activities

Section 4 of RR 7-2022 reiterates the fiscal incentives available for Renewable Energy (RE) projects and activities:

A. Income tax holiday (ITH) – ITH for seven years from the start of commercial operations for existing RE projects that has been issued a Certificate of Compliance (COC) or resulting from new investments, whichever is applicable. ITH for additional investment in an existing RE project shall be applied only to the income attributable to the additional investment.

B. Net Operating Loss Carry-Over (NOLCO) – The NOLCO of the RE developer during the first three years from the start of the commercial operation shall be carried over for the next seven consecutive taxable years as a deduction from the gross income. However, this provision shall only be applied if, (1) NOLCO had not been previously offset as a reduction to gross income, and (2) the loss should be a result from the operation and not from the availment of incentives.

C. Ten percent Corporate Tax Rate – All registered RE developers and existing RE facilities that were or have been in commercial operation for more than seven years, upon the effectivity of the act shall pay a corporate tax rate of 10 percent on their net taxable income upon registration with the Department of Energy (DOE).

The following requirements shall be submitted to the Bureau of Internal Revenue for the availment of the above corporate tax rate of 10 percent.

1.  Copy of the Certificate of Endorsement from the DOE issued prior to the first year of its availment of the incentive.

2.  Valid and subsisting renewable energy service/operating contract and the corresponding Certificate of Registration (COR).

3.  Sworn undertaking attached to the ITR stating that the year of its availment of the incentive has no subsisting breach on its obligations under the RE service/operating contract, and that it shall pass on the savings derived from this incentive in the form of lower power rates.

D.  Accelerated depreciation – In the event that the RE fails to receive an ITH before full operation, the RE developer may apply for accelerated depreciation. The project or its expansions shall be eligible longer to avail of the ITH if an RE developer decides to apply for accelerated depreciation in its tax books.

E.   Zero Value-Added Tax (VAT) rate – The sale of power or fuel generated through renewable sources of energy shall be subject to zero VAT. Ancillary services generated through renewable sources of energy shall also be subject to zero VAT.

F.  Tax exemption of carbon credits – All proceeds from the sale of carbon emission credits shall be exempt from any and all taxes.

Incentives for RE commercialization

The following are the privileges entitled to manufacturers, fabricators, and suppliers of locally produced RE equipment and components on their sale to RE developers.

A.  VAT-free importation of components, parts, and materials – All shipments necessary for the manufacture and/or fabrication of RE equipment and components shall be exempt from VAT on importation, subject to certain conditions.

B.   Income tax holiday and exemption – For seven years starting from the date of registration and accreditation with the appropriate government agencies, an RE manufacturer, fabricator, and supplier of RE equipment shall be fully exempt from income taxes on net income derived only from the sale of such goods.

C.   Zero VAT transaction – All manufacturers, fabricators, and suppliers of locally-produced RE equipment shall be subject to zero VAT on their transaction with local suppliers of goods, properties, and services needed in the manufacture/fabrication of RE equipment, subject to certain conditions.

Incentives for farmers engaged in the plantation of biomass resources

All individuals and entities engaged in the plantation of crops and trees used as biomass resources shall be exempt from payment of VAT on all types of agricultural inputs, equipment, and machinery within 10 years from the effectivity of the Act, subject to the certification of DOE and conditions as stated in the issuance.

Certifications/accreditations from appropriate government agencies

Section 3 of RR 7-2022 provides that the following certifications/accreditations must be secured from the concerned government agencies and must be submitted to the BIR for the availment of the tax incentives:

A.  Certificate of Registration/accreditation with the DOE

B.  Certificate of Endorsement (COE) by the DOE

C.  Registration with the Board of Investments

D.  Certificate of ITH entitlement

Efforts like this by the government to attract investors are truly appreciated. Hopefully, this reminder will allow the renewable energy industry in the country to become more robust and thrive in the long run. This would translate to lesser dirty energy imports, economic development, and a better life for our kababayans.

Warlo C. Yu is an analyst from from the tax group of KPMG R.G. Manabat & Co. (RGM&Co.), the Philippine member firm of KPMG International. The firm has been recognized in 2022 as a Tier 1 in Transfer Pricing Practice and in General Corporate Tax Practice by the International Tax Review.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity. The views and opinions expressed herein are those of the author and do not necessarily represent KPMG International or KPMG RGM&Co.

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