IPPs under BOT contracts need to pay real-property tax

The Court of Tax Appeals (CTA) has ruled that independent power producers (IPPs) under the build-operate-transfer (BOT) contract with the National Power Corp. (Napocor) are not exempt from real-property taxes, and are not entitled to the special assessment level of 10 percent imposed on real properties used by government-owned and -controlled corporations (GOCCs) in generating electric power.

In the case of Luzon Hydro Corp. (LHC) and NPC v. Provincial Assessor of Ilocos Sur, the CTA dismissed the appeal of the petitioners, in which they questioned the real-property tax assessment on real properties and machineries in the province used by LHC in generating electricity.

LHC and Napocor argued that the Napocor was the “owner and actual, direct and exclusive user of the subject properties,” and that the Napocor, being a GOCC engaged in the generation and distribution of power, was exempt from real-property tax as provided for by Section 234 of the Local Government Code.

But the CTA, however, ruled that real-property tax is imposed on the beneficial user of the real property, and that Napocor must prove that it is the actual and beneficial user of such properties to exempt such properties from real-property tax.

In this case, the CTA said that the Napocor was “not the actual, direct and exclusive user of the subject machineries and equipment,” although it might be the exclusive buyer and user of all the power generated by the power plant.

The CTA also dismissed the argument of LHC and Napocor that the BOT law allows the GOCCs to shield IPPs from real-estate taxes imposed by local government units (LGUs). Instead, the implementing rules of the BOT law allows LGUs to “waive or grant special rates on real-property taxes” on the BOT project as a direct subsidy for such project.

“To the Court’s mind, the above-cited provisions in the revised implementing rules and regulations of the BOT law, as amended, recognize, rather than impair the power of LGUs under the Local Government Code to impose real-property taxes, and to grant reliefs therefrom,” the CTA said.

The CTA said that IPPs are not entitled to the 10-percent special assessment levels on real properties used by GOCCs in the generation or transmission of electric power, and should be subjected instead to the regular assessment levels. The assessment level is the percentage of the fair market value of a real-property on which the real property tax rate shall be imposed to arrive at the actual tax due.

David Cagahastian

source:  Business Mirror

The economics of the BBL

WHEN we talk about the Autonomous Region in Muslim Mindanao (ARMM), the discussion about the past, present, and the future seems circular. The peace and order problem is because of the economic problems which are caused in part by the peace and order problem.

Because you can have peace and order without the ‘money’, but you can rarely have the money without peace and order, perhaps the best place to break the circular chain is by looking closely at the economic provisions contained in the Bangsamoro basic law (BBL). Granted that the BBL is only a framework, the terms and conditions embodied in the BBL are what the parties have initially agreed to and will form the basis of the actual law moving forward.

The newly established Bangsamoro Territory (BT) from the present geographical area of the ARMM has been considered a first step to the federalization of the other Philippine provinces. Others have said that the BT will function as an independent state. The truth probably lies somewhere in between. However, the current specific provisions of the BBL clearly show that the BBL is fully a part of the Philippines and under the national government and in other cases is, for all intent and purposes, completely independent from the Philippines.

In Section 3, “Exclusive Powers” of the BBL, we find the following: “Exclusive powers are matters over which authority and jurisdiction shall pertain to the Bangsamoro Government. The Bangsamoro government shall exercise these powers over the following matters within the Bangsamoro.” Sub-section 5 reads “Labor, employment, and occupation.”

Wages are obviously a part of “Labor, employment, and occupation.” Would workers in the BT be subject to the minimum wage laws passed by the national government? In the US federal system, the national government sets the minimum wage and state government can set a higher wage but not lower. In this regard, the BT might as well be an independent country.

Subsection 4 under these Exclusive Powers reads, “Trade, industry, investment, enterprises and regulation of businesses taking into consideration relevant laws.” Now we have a grey area. What exactly is going to be the definition of “consideration”? The legal definition deals with contract law-something given in return for payment. Otherwise, consider means only to take into account when making a decision. Therefore, there is not a legal reason why the BT government needs to follow Philippine national law in this regard.

The BT could conceivably pass investment laws which would give it a greater advantage in attracting investment than other provinces have under current national law. This includes foreign investment.

Section 13 allows the BT government full and complete control and jurisdiction over the exploration, development, and utilization of mines and minerals in its territory. There is not any provision in the BBL that requires the BT government to adhere existing PHL government environmental regulations regarding mining. “The Bangsamoro Government shall have the authority to protect and manage the environment.” Further, “Permits and licenses and the granting of contracts for this purpose shall be within the powers of the Bangsamoro Government.”

Yet in Section 10: “The Bangsamoro Government and the Central Government shall jointly exercise the power to grant rights, privileges and concessions over the exploration, development and utilization of fossil fuels (petroleum, natural gas, and coal) and uranium in the Bangsamoro.” That sounds like Federalism.

Also under its “Exclusive Powers” (Section 15), “The Bangsamoro Government shall have authority to regulate power generation, transmission, and distribution operating exclusively in the Bangsamoro and not connected to the national transmission grid.” The BT may have cheap nuclear generated power before the rest of the country.

However, “The Bangsamoro shall be able to interconnect and sell power over the national transmission grid to electric consumers.” With interconnection, “the Central Government and the Bangsamoro Government shall cooperate and coordinate” whatever that might mean.

The most important economic provision comes in Section 6: Revenue Sources. “The Bangsamoro Government shall have the power to create its own sources of revenues and to levy taxes, fees, and charges. Such taxes, fees, and charges shall accrue exclusively to the Bangsamoro Government.”

That may ultimately be what the BBL is all about. For better or worse and notwithstanding other considerations like the constitutionality, if the BBL is enacted into law as currently written, the future of the Bangsamoro people will be solely in the hands of its own government.

Lost in the dust of history is the name of the person who once said, “Be careful what you ask for; you may get it.

****

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source:  Business Mirror

Government waives penalties, cuts taxes on facilities of IPPs

MANILA, Philippines - With the country facing imminent power crisis, the government has reduced the real property taxes and waived the penalties imposed on the facilities  of independent power producers (IPPs) under build-operate-transfer contracts with government-owned or controlled corporations.

The Bureau of Internal Revenue issued memorandum circular 6-2015 stating President Aquino’s directive that all liabilities for real property tax on property, machinery and equipment of IPPs 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.

The same order states that all fines, penalties and interest on such deficiency real property tax liabilities are also condoned and the concerned IPPs are relieved from payment thereof.

The directive was issued after various LGUs threatened to seize the assets of delinquent IPPs and sell them at a public auction to settle their tax obligations.

According to the BIR, various LGUs have taken the position that IPPs operating within their territories which are not GOCCs are not entitled to the exemptions/privileges of GOCCs with respect to real property taxes on their property, machinery and equipment used in the generation and distribution of electric power.

“The payment of said real property taxes affected by the IPPs , some of which obligation have been contractually assumed by the GOCCs and carries the full faith of the national government, threatens the financial stability of the GOCCs, the government’s fiscal consolidation efforts and the stability of energy prices,” Henares said.

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Henares said the forcible collection of real property taxes would  trigger massive direct liabilities on the part of the National Power Corp./Power Sector Assets and Liabilities Management Corp.

She noted this may increase the cost of electricity and trigger further cross-defaults and significant economic losses across all sectors.

source:  Philippine Star