WARNING of dire economic damage, Malacañang on Friday issued Executive Order (EO) 173 to cut and condone real-property tax liabilities of independent power producers (IPPs) serving government-owned and controlled corporations (GOCCs).
The national government, in effect, moved to stay the forcible collection of real-property taxes by local government units (LGUs) from IPPs serving state firms in their areas, saying such could trigger “massive direct liabilities” on the part of the National Power Corp. and Power Sector Assets and Liabilities and other affected state firms, cause spikes in electricity costs and trigger further cross defaults and subsequent economic losses to all sectors.
It issued EO 173, dated October 31, 2014, moving to reduce or condone the massive interests and penalties assessed on the power-generation facilities of these IPPs that are under build-operate-transfer (BOT) contracts with GOCCs.
According to the Palace order, the problem arose when certain LGUs took the position that IPPs operating in 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.”
As a result, these LGUs “have threatened enforcement action against the IPPs, including the levy and sale at public auction of the affected properties.”
Worried by the serious disruptions across economic sectors and bandwagon effect of such heavy-handed enforcement, the Executive thus issued EO 173. It said the “payment of said real-property taxes by the affected IPPs, some of which obligations 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.”
The Palace invoked Section 277 of Republic Act 7160 as justification for issuing the EO. That section empowers the President, “when public interest so requires,” to “condone or reduce the real-property tax and interest for any year in any province or city or municipality within the Metropolitan Manila area.”
The EO is also drawn from Article 7, Section 17 of the Constitution, giving the President full control of all the executive departments, bureaus and offices.
Under the EO 173, all liabilities levied by LGUs for real-property tax on property, machinery and equipment (including any special levy accruing to the Special Education Fund) and directly used by IPPs for producing electricity under BOT contracts with GOCCs “are hereby 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 said property, machinery and equipment, depreciated at the rate of 2 percent per annum, less any amounts already paid by the IPPs.” It added that, “All fines, penalties and interests on such deficiency real-property tax liabilities are also hereby condoned, and the concerned IPPs are relieved from payment thereof.”