PRESIDENT Marcos Jr. has given independent power producers (IPPs) who have a build-operate-transfer (BOT) arrangement with the government an unexpected business push with the issuance of an executive order reducing and condoning their real property tax (RPT).
Malacañang Palace announced on Wednesday that Executive Order 83 was signed by the President on February 13. The order grants IPPs an effective reduction in real property tax by setting an assessment level of 15% of the fair market value. It also calls for machinery and equipment to be depreciated at 2% a year.
The President and presumably his economic team are concerned that the IPPs might entail losses because of the unfavorable business climate, thus the RPT cuts and condonation.
“As the operations of affected IPPs provide an estimated grid capacity of 3,100 megawatts, the closure or non-operation of these IPPs will entail substantial losses to the government and force the public to resort to more costly electric power source alternatives or rotating power outages,” the order read.
The net effect of this directive is a clear tax bonanza for the IPPs. The EO commands: “All RPT liabilities for 2024, including special levies accruing to the Special Education Fund (SEF), on property, machinery, and equipment actually and directly used by IPPs for electricity production under BOT scheme and similar contracts, are reduced to the tax due based on a 15-percent assessment level of fair market value and depreciated at the rate of two percent per annum, minus payments paid.”
The Chief Executive noted in the EO that the RPT collection from the IPPs last year, which had assessment levels of as high as 80% of fair market value from local government units (LGUs), will “trigger massive direct liabilities” for the National Power Corp. and Power Sector Assets and Liabilities Management Corp. He added that such liabilities would threaten the financial stability of the agencies, disrupt the government’s fiscal consolidation efforts, and upend the stability of energy prices.
All interest and penalties on deficiency real property tax liabilities of IPPs will be condoned, according to the EO. Real property tax payments made by IPPs exceeding the reduced amount will be applied to their property tax liabilities in the succeeding years.
Marcos gave more teeth to the EO with this admonition: “All concerned departments, agencies, and instrumentalities, including government-owned and controlled corporations and local government units, are hereby directed to strictly comply with this Order. Any violation of the provisions of this Order shall be dealt with in accordance with relevant laws, rules, and regulations.”
It should be noted that the Local Government Code of 1991 provides that GOCCs engaged in the generation and transmission of electricity are entitled to tax privileges such as a lower real property tax assessed on 10% of market land value, buildings, machinery, and other equipment.
The law grants the President the authority to condone or reduce these real property taxes for any province, city, or municipality within Metro Manila “when public interest so requires.”
Some experts on the subject, however, have raised the point that since the LGUs are the ones collecting these taxes and allocating them for various projects and programs, they should have been consulted before the EO was finalized. They believe that a mere EO from the Palace cannot supplant the power of LGUs to collect real property taxes from owners of properties located within their jurisdiction.
