Napocor must pay La Union P288 million in taxes, Supreme Court rules

MANILA, Philippines - The Supreme Court (SC) has upheld a decision of the Court of Tax Appeals (CTA) against the attempt of government-owned National Power Corp. (Napocor) to seek exemption from paying taxes on the machineries and equipment used in a build-operate-transfer (BOT) project in La Union.

In a 21-page decision, the SC’s second division ruled in favor of the notice of assessment and tax bill issued by the Local Board of Assessment Appeals (LBAA) of La Union and ordered Napocor to pay P288.58 million covering 1995 to 1998.

The SC upheld the CTA’s ruling dated Feb. 13, 2006 that denied the consolidated petitions of Napocor and the Bauang Private Power Corp. (BPPC) seeking to declare the tax bill null and void.

Napocor said it is the actual owner and user of the machineries and equipment used in building the 215-megawatt Bauang diesel power plant in Barangay Payocpoc, thus it should be exempted from paying real property tax under Section 234 (c) of Republic Act 7160 or the Local Government Code.

Records show that Napocor entered into a BOT agreement with the First Private Power Corp. on Jan. 11, 1993 for the construction of the power plant.

The deal provided for the creation of the BPPC that would own, manage and operate the power plant.

The BPPC, under the agreement, would convert Napocor’s supplied diesel fuel into electricity and deliver the product to the state-owned power firm.

On Oct. 5, 1998, Napocor filed a petition with the LBAA, arguing that its machineries covered by the tax declarations were exempt from real property tax under the Local Government Code.

The LBAA, however, denied Napocor’s petition for exemption in an Oct. 26, 2001 ruling, saying such an exemption applies only when a government-owned or controlled corporation owns and actually uses machineries and equipment to generate and transmit electric power.

The LBAA ruled that it was the BPPC, not the Napocor, which owned and operated the machineries and equipment.

Napocor appealed the LBAA’s ruling to the Central Board of Assessment Appeals, which subsequently dismissed it, prompting Napocor and BPPC to elevate the case before the CTA through a petition for review. The CTA also denied the petition.