November 11, 2021

The CTA confirms that real estate tax caps are an incentive for renewable energy companies.

The Davao del Sur provincial government filed a lawsuit challenging a judgment by the Central Board of Assessment Appeals (CBAA) over tax credits granted to a renewable energy (RE) firm, but the Court of Tax Appeals en banc dismissed it.

The CTA refused the petition brought by the province treasurer of Davao del Sur and the municipal treasurer of Sta. Cruz, Davao Del Sur to seek local taxes levied on hydro-electric power plant operator Hedcor Sibulan, Inc. in a 19-page ruling issued by Associate Justice Juanito C. Castaeda Jr. (HSI).

The CTA upheld the CBAA’s ruling of Oct. 18, 2019, that HSI is only liable for realty taxes at a maximum rate of 1.5 percent of the original cost under Republic Act 9513, generally known as the Renewable Energy Act of 2008 or RE Law, an incentive aimed at encouraging renewable energy investment.

The firm paid more than PHP9 million in taxes to the Davao del Sur local government units (LGU) under protest in 2015, but claimed that PHP2.27 million should be refunded or tax credit because the amount was collected in excess of the maximum realty tax rate of 1.5 percent imposed on registered RE developers under the RE Law.

The CBAA ruled on Oct. 19, 2020, that HSI is liable for realty taxes only up to a limit of 1.5 percent as specified by the RE Law, and granted HSI’s refund claim, causing the LGUs to appeal to the CTA en banc.

The LGU contends that the RE Law does not restrict it from levying an additional 1% special education fund (SEF) levy, in addition to the 1.5 percent realty taxes allowed under the Local Government Code.

The CTA stated in dismissing the LGUs suit that the RE Law was enacted on December 16, 2008, whereas the Local Government Code was enacted on January 1, 1992.

“The Court views the RE Law, as the most recent legislation, as an express and real intention on the part of Congress to limit the LGU’s delegated taxing power on renewable energy resources within their jurisdiction,” according to the CTA.

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