President Duterte has ordered the reduction and condonation of real property taxes and penalties assessed on power generation facilities of independent power producers (IPPs) under Build-Operate-Transfer contracts with government-owned or -controlled corporations (GOCCs).
Duterte issued the directive through Executive Order (EO) No. 117 that he signed on July 24 but was only made public on Wednesday, July 29.
Under the EO, all liabilities for real property tax (RPT), including any special levies accruing to the Special Education Fund, for calendar year (CY) 2019, on property, machinery and equipment actually and directly used by IPPs for the production of electricity under a Build-Operate-Transfer scheme and similar, whether denominated Power Purchase Agreements, Energy Conversion Agreements or other contractual agreements, with GOCCs, assessed by local government units (LGUs) and other entities authorized to impose real property tax for all years up to CY 2019, 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, and less any amount already paid by IPPs.
All interests and penalties on such deficiency RPT liabilities are now condoned and the concerned IPPs are relieved from payment.
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.
Concerned government departments, agencies, and instrumentalities, including GOCCs and LGUs, are ordered to comply with Duterte's order.
In his EO, Duterte cited Section 218 of the Local Government Code which states that GOCCs engaged in the generation and transmission of electricity enjoy a number of exemptions and privileges with respect to real property taxes, including an assessment level of 10 percent on all its lands, buildings, pieces of machinery, and other improvements.
They also enjoy an exemption for all machinery and equipment that are actually, directly, and exclusively used in the generation and transmission of electric power, and those used for pollution control and environmental protection.
Based on the EO, various LGUs claim that IPPs which are not GOCCs are not entitled to exemptions or privileges under the Local Government Code. They also reportedly threatened action against IPPs, including the auction of their properties.