President Rodrigo Duterte has ordered the reduction and condonation of real property taxes and penalties assessed on some independent power producers (IPPs).
Duterte signed Executive Order 126, which reduces and condones real property taxes and penalties assessed on power generation facilities of IPPs under Build-Operate-Transfer contracts with government-owned and -controlled corporations.
The EO, signed by Duterte on March 4, states that “all liabilities for real property taxes, including any special levies accruing to the Special Education Fund, for calendar year 2020, on property, machinery and equipment” directly used by IPPs for the production of electricity will be 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 said property or equipment, depreciated at the rate of 2 percent per year, less any amounts already paid by IPPs.
“As the operations of affected IPPs contribute largely to tax revenues for the national government and LGUs (local government units) and provide grid capacity of around 3,100 megawatts, their closure or non-operation will entail substantial losses to the government and force resort to more costly power source alternatives or the implementation of power outages,” the EO reads.
Under Republic Act 7160 or the Local Government Code of 1991, the President “may, when public interest requires, condone or reduce the real property tax and interest for any year in any province, city, or municipality within the Metropolitan Manila area.”
The order intends to consolidate the government’s fiscal efforts, stabilize energy prices, and avoid further cross-defaults and significant economic losses across all sectors.
The EO also states that it is necessary given that a substantial portion of real property taxes being assessed on these IPPs have been contractually assumed by the state-run National Power Corporation and Power Sector Assets and Liabilities Management Corporation which carry the full faith and credit of the national government.
“The collection of the real property taxes by the local government units concerned will trigger massive direct liabilities on the part of such GOCCs, thereby threatening their financial stability, the government’s fiscal consolidation efforts, the stability of energy prices, and may even trigger further cross-defaults and significant economic losses across all sectors,” it added.