Tax relief granted to IPPs under GOCC contracts

President Ferdinand Marcos Jr. has approved the reduction and condonation of real property taxes (RPT) and penalties for Independent Power Producers (IPPs) operating under Build-Operate-Transfer (BOT) contracts with government-owned and controlled corporations (GOCCs).

Under Executive Order No. 83, signed by Executive Secretary Lucas Bersamin, all RPT liabilities for 2024, including special levies accruing to the Special Education Fund, on property, machinery, and equipment used by IPPs for electricity production, are reduced. The new tax amount is equivalent to the tax due if computed at 15 percent of the fair market value of the property, machinery, and equipment, depreciated at a rate of two percent per annum, minus any amount already paid by the IPPs.

All interests and or penalties on such RPT liability deficiencies were also condoned and the IPPs concerned were relieved of payment.

Any RPT payments made by IPPs beyond the reduced amount will be credited toward future tax liabilities in the succeeding years.

According to the Department of Finance (DOF), local government units (LGUs) assert that IPPs operating in their jurisdictions are not entitled to the tax exemptions and privileges granted to GOCCs regarding RPTs on property, machinery, and equipment used in electricity generation and distribution.

LGUs have also threatened enforcement action against IPPs, including the levy and auction of affected properties to recover unpaid taxes.

While IPPs are taxable entities responsible for RPT payments, a significant portion of the RPT charges are contractually assumed by the National Power Corporation (Napocor) and the Power Sector Assets and Liabilities Management (PSALM) Corporation under BOT schemes.

Malacañang emphasized that these obligations carry the full faith and credit of the national government.

As assessed by the concerned LGUs at the maximum assessment level of 80 percent, pursuant to Section 218 of Republic Act 7160 (Local Government Code of 1991), the collection of RPTs in 2024 could trigger massive direct liabilities for Napocor and PSALM. This, in turn, threatens financial stability, fiscal consolidation efforts, energy price stability, and may cause cross-defaults and economic losses across multiple sectors.

Upon implementation, government departments, agencies, and GOCCs, along with LGUs, are required to comply with the Executive Order.

The DOF and the Department of the Interior and Local Government (DILG) have been tasked with monitoring LGU compliance.

The DOF and DILG must submit compliance reports to the Office of the Executive Secretary after six months.