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.

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.