President Marcos grants tax benefits to independent power producers

MANILA, Philippines — The Marcos administration has provided tax benefits to independent power producers (IPPs) operating under Build-Operate-Transfer (BOT) contracts with corporations owned or controlled by the government to prevent power outages and higher electricity costs.

Executive Order (EO) No. 36 dated July 25 and signed by Executive Secretary Lucas Bersamin by authority of President Marcos reduced and condoned the real property taxes by local governments on the power generating facilities of IPPs within their locality.

According to the order, various local governments have taken the view that IPPs operating within their territories are not entitled to exemptions and privileges enjoyed by government-owned or controlled corporations (GOCCs) with respect to real property taxes on their property, machinery and equipment used in the generation and distribution of power.

The local governments have threatened enforcement against the IPPs, including the levy and sale at public auction of affected properties, the EO added.

Marcos pointed out that while IPPs are taxable entities liable to pay real property taxes, a substantial portion of the tax being charged has been contractually assumed by the National Power Corp. and Power Sector Assets and Liabilities Management Corp. under a BOT scheme and similar contracts and therefore “carry the full faith and credit of the national government.”

“The closure or non-operation of these IPPs will entail substantial losses to the government, force the public to resort to more costly electric power source alternatives and cause rotating power outages,” the President said in the order.

The EO cited Section 277 of the Local Government Code of 1991, which states that the President may, when public interest so requires, condone or reduce the real property tax and interest for any province or city or a municipality within the Metropolitan Manila area.

Section 1 of the order states that all real property tax liabilities for calendar year 2023, including special levies accruing to the Special Education Fund on property, machinery and equipment actually and directly used by the IPPs for the production of electricity under the BOT scheme and similar contracts with GOCCs 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 of the property, machinery and equipment depreciated at the rate of two percent per annum, less any amount already paid by the IPPs.

The provision covers the BOT scheme contracts of the IPPs denominated as power purchase agreements, energy conversion agreements or other contractual agreements with GOCCs that were assessed by the LGUs imposing the real property taxes for all the years up to calendar year 2023.

“All interests and penalties on such deficiency RPT (real property tax) liabilities are also hereby condoned and the concerned IPPs are relieved from payment thereof,” the order said.