NextGen Day

📜 MANILA – President Ferdinand R. Marcos Jr. has taken a significant step to support Independent Power Producers (IPPs) operating under Build-Operate-Transfer (BOT) scheme contracts with government-owned or -controlled corporations (GOCCs). In a move to provide real tax benefits, Executive Secretary Lucas Bersamin, on behalf of the President, signed Executive Order (EO) No. 36 on July 25, 2023. The EO aims to reduce and condone real property taxes (RPTs) assessed by local government units (LGUs) on the power-generating facilities of IPPs within their respective localities.

The EO addresses concerns raised by various LGUs that IPPs may not be entitled to the same exemptions and privileges as GOCCs regarding real property taxes on their machinery and equipment used for power generation and distribution. Some LGUs even threatened enforcement actions against IPPs, including levies and public auctions of properties.

Clarifying the matter, the EO highlights that IPPs are taxable entities and liable to pay RPTs, but a significant portion of these taxes have been contractually assumed by the National Power Corporation/Power Sector Assets and Liabilities Management Corporation under the BOT scheme and similar contracts, thus backed by the full faith and credit of the National Government.

The President and the administration are keen on ensuring IPPs continue their operations, avoiding closures and defaults on tax obligations. Such scenarios could result in substantial losses to the government, push the public to resort to more costly power sources, and cause rotating power outages.

In line with Section 277 of the Local Government Code of 1991, which empowers the President to condone or reduce RPTs and interest when the public interest requires, EO 36 provides concrete measures. All RPT liabilities of IPPs for the calendar year 2023, including special levies accruing to the Special Education Fund, will be reduced to an amount equivalent to the tax due, based on an assessment level of 15 percent of the fair market value of the property, machinery, and equipment, depreciated at 2 percent per annum, minus the amount already paid by the IPPs.

The executive order covers BOT scheme contracts denoted as Power Purchase Agreements, Energy Conversion Agreements, or other contractual arrangements with GOCCs assessed for real property taxes up to CY 2023.

Furthermore, any RPT payments made by IPPs above the reduced amount specified in Section 1 will be applied to their RPT liabilities for subsequent years.

The executive order provides a clear pathway to promote investment and growth in the power generation sector while ensuring a fair tax structure and fostering a supportive environment for IPPs and their contributions to the nation’s energy needs. 💡

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