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