DOF seeks BOI tax review for energy efficiency projects

Published November 28, 2021, 7:45 PM

by Myrna M. Velasco

The Department of Finance (DOF) has tossed to the Board of Investments (BOI) the need to review the re-classification of the tax incentives being granted to energy efficiency (EE) projects under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act.

In a letter-response to the Philippine Energy Efficiency (PE2) Alliance, Finance Secretary Carlos G. Dominguez III said that DOF “defers to the BOI on the reclassification of EE projects from Tier I to Tier III.”

The finance chief added that the BOI “shall review the current SIPP (Strategic Investment Priority Plan) and consider recent developments in the industry using the criteria for investment priority determination.”

Based on this, Dominguez said “BOI shall adopt reasonable and justifiable positions of the private sector and other related government agencies.”

As proposed by the PE2 Alliance, an aggrupation of EE investors in the country, the Tier III tax perks reclassification for their industry could be anchored on the income tax holiday (ITH) incentives for domestic market activities as provided under the CREATE-SIPP framework, and must be in support of the fiscal incentives prescribed under Republic Act 11285 or the Energy Efficiency and Conservation Act.

Dominguez explained that the grant of tax incentives under the CREATE Act is limited to Tier I. The SIPP though is still being formulated for approval by the President.

The finance chief emphasized that the transitional classification accorded to EE ventures may still get the chance of getting upgraded for classified economic activities that shall be integrated into the SIPP.

The DOF similarly explained that the existing and recent policies sufficiently provide for crafting of the SIPP to be led by the BOI. This is in coordination with the Fiscal Incentives Review Board (FIRB), investment promotion agencies, as well as the other government agencies that are administering tax incentives, and in collaboration with the private sector.

On concerns of the EE investors in their inclusion in the government’s carbon emissions reduction pledge to the 26th Conference of the Parties (COP26) that is in line with the Paris Agreement, Dominguez extended his invitation to the PE2 Alliance for them to scrutinize and appreciate his pronouncements as to how the country could pare its carbon emissions, and in the process be able to attain sustainability toward goals on helping ease off climate change risks.

Dominguez stated that in the “climate finance” pitch of the Philippines, it factored in at least three elements — grants, investments and subsidies.

He thus differentiated that for grants, such “may be used to improve the capacity of local communities in climate-vulnerable areas to undertake mitigation and adaptation measures,” emphasizing that “these grants should come in the form of educational or technical assistance programs to help people conceive of and execute localized projects.”

On the other factor relating to investments, Dominguez said these shall “focus on adaptation and mitigation programs, projects and activities that are bankable and will yield high returns.”

The third component of the Philippine sustainability agenda – which is the subsidies, Dominguez pointed out that these are “meant to support initiatives leading to the transition to a climate-resilient economy,” hence, these must address financial costs and risks of such adjustments.