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President Rodrigo Duterte has issued an executive order reducing and condoning real property taxes and interest or penalties assessed on the power generation facilities of independent power producers (IPP) under build-operate-transfer contracts with government-owned or -controlled corporations.

Duterte signed EO No. 88 on August 13, 2019.

"All liabilities for real property tax, including any special levies accruing to the Special Education Fund, for calendar year 2018, on property, machinery and equipment actually and directly used by IPPs for the production of electricity under a Build-Operate-Transfer scheme and similar contracts (whether denominated Power Purchase Agreements, Energy Conversion Agreements or other contractual agreements) with GOCCs, assessed by LGUs (local government units) and other entities authorized to impose real property tax for all years up to CY 2018, 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 two percent per annum, less any amounts already paid by the IPPs," Section 1 of the EO read.

All interests on such deficiency real property tax liabilities are also condoned and the concerned IPPs are relieved from payment, it added.

The EO also provided for the application to future real property tax liabilities.

"All real property tax payments made by the IPPs over and above the reduced amount under Section 1 of this Order shall be applied to their real property tax liabilities for the succeeding years," it said.

Duterte said the concerned government agencies, including relevant GOCCs and LGUs, were ordered to comply with the EO.

Duterte issued the EO amid the position taken by the various local government units that IPPs operating within their territories, which are not GOCCs, are not entitled to the exemptions or privileges of GOCCs with respect to real property taxes on their property, machinery and equipment used in the generation and distribution of electric power, and have threatened enforcement action against IPPs, including levy and sale at public auction of the affected properties.

The EO noted that since a substantial portion of real property taxes being charged have been contractually assumed by the National Power Corporation/Power Sector Assets and Liabilities Management Corporation and carry the full faith and credit of the national government, the collection of the subject real property taxes by the LGUs will trigger massive direct liabilities on the part of such GOCCs.

This threatens 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, the EO said.

Citing Section 277 of Republic Act No. 7160, otherwise known as the Local Government Code, the EO said Duterte may, when public interest so requires, condone or reduce the real property tax and interest for any year in any province or city or a municipality within the Metropolitan Area.

It also cited Section 17, Article VII of the 1987 Constitution, which provides that the President shall have control over all executive departments, bureaus and offices. Celerina Monte/DMS