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EO prescribes uniform real property tax rates for power projects

Published
By Myrna M. Velasco

A new Executive Order (EO) issued by President Rodrigo R. Duterte renders a uniform assessment rate on real property taxes (RPT) to be levied to power plant projects; while also condoning interest charges on unsettled real property taxes of project developers.

EO 60, which was issued by Malacañang on July 25 this year, effectively reduced the assessment rate level of real property taxes of power projects to 15-percent of the fair market value of specified property, machinery and equipment.

That was basically trimmed down from the 40 to 80-percent assessment rates that most local government unit-hosts of power projects have opted to apply in their calculation of RPT dues of the generation companies (GenCos) and independent power producers (IPPs).

For more than two decades, the RPT assessment levels and settlements had been that “P40 billion to P80 billion unresolved headache” of almost all players in the power industry – and it is just being addressed this time by the Duterte administration.

In the Duterte-sanctioned EO, it was likewise prescribed that the RPT payments of power companies be allowed a 2.0-percent depreciation rate per annum, and “less any amounts already paid by the IPPs.”

The EO further directed that “all interests on deficiency real property tax liabilities are also hereby condoned and the concerned IPPs are hereby relieved from payment thereof.”

The Palace order similarly stated that “all real property tax payments made by the IPPs over and above the reduced amount shall be applied to their real property tax liabilities for the succeeding years.”

The EO thus stipulated that “all concerned departments, agencies and instrumentalities of the government, including relevant government-owned and controlled corporations (GOCCs) and LGUs are hereby ordered to strictly comply with this Order.”

In the build-operate-transfer (BOT) deals with IPPs that have power supply deals underwritten then by state-run National Power Corporation, it was expressly provided that RPT payments shall be to its account or its successor-firm Power Sector Assets and Liabilities Management Corporation.

And while it was rendered under the Local Government Code that GOCC-contracted IPPs be extended a special assessment rate of 10-percent, it had been manifest that many LGU-host communities had not been adhering to that prescription.

Given the accumulation of such tax liabilities then, even the national government fears that this will adversely affect the State’s fiscal consolidation initiatives, hence, the Department of Finance (DOF) batted for a uniform RPT assessment rates for power projects.

The EO chiefly acknowledged that “since a substantial portion of real property taxes being charged have been contractually assumed by NPC/PSALM and carry the full faith and credit of the national government, the collection of the subject RPT by the LGUs concerned will trigger massive direct liabilities on the part of such GOCCs, thereby threatening their financial stability, the government’s fiscal consolidation efforts, the stability of energy prices and may even trigger further cross-defaults and significant economic losses across all sectors.”
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