Sadly, it is typhoon
and habagat (monsoon) season again. It is usually at this season that our
country suffers the brunt of some of the strongest typhoons to make landfall.
Typhoons, according to the experts, are getting stronger as a result of climate
change. Thus, in an effort to reduce the effects of climate change, renewable
energy (RE) sources are highly encouraged by the government. Currently, RE
sources available in the Philippines include hydro power, ocean energy,
geothermal, wind, solar, and biomass, such as bagasse and palay husk.
More than six years
from the issuance of the Renewable Energy Act of 2008 and its implementing
rules and regulations (IRR), the Department of Energy (DoE) has already awarded
a total of 664 renewable energy contracts, as of the end of April 2015. Some
240 contracts are still pending approval by the department.
Aside from the
business potential of RE sources, most companies are also entering into RE
development due to the fiscal/tax incentives available under the RE Law. Under
the IRR of the said law, the Bureau of Internal Revenue (BIR) shall, in
coordination with DoE, Department of Finance, Bureau of Customs, BOI and other
concerned government agencies, promulgate revenue regulations governing the
grant of fiscal incentives. Unfortunately, several years from the issuance of
the IRR, the BIR has yet to issue the guidelines for the implementation of the
tax incentives under said Act. Thus, with the rising number of RE contracts
being awarded, the government must look into the long overdue revenue
regulations implementing the fiscal incentives.
Among other things, implementation
of the following tax incentives available to RE developer must be clarified in
the said revenue regulations:
Income Tax Holiday
(ITH) incentive on additional investment. Under the law, new investments in RE
project shall be entitled to seven years ITH from start of commercial
operation. Additional investment shall be entitled to not more than three times
the period of initial availment. The ITH for additional investments in an
existing RE project shall be applied only to the income attributable to the
additional investment, which may or may not result in increased capacity.
Thus, the revenue
regulations must provide the formula to compute that income attributable to the
additional investment. For increased capacity, how should the base figure be
computed? Is it based on the highest sales in the last three years, or just
based on the last year’s capacity? For additional investments that do not result
in increased capacity, how should the income attributable to that investment be
computed? Should it be based on increase in net income?
Corporate Tax Rate of
10%. After the allowed period of availment of the ITH, the registered RE
developer shall pay a corporate tax of 10% on its net taxable income, as
defined in the National Internal Revenue Code (Tax Code) of 1997, as amended by
Republic Act No. 9337. However, the said RE developer shall pass on the savings
to end users in the form of lower power rates, pursuant to a technical study by
the DoE.
Yet no results of any
technical study to determine the extent of savings and how the pass-on
mechanism would work has been presented by the DoE. Since there may be RE
developers whose ITH incentive period has or shall already expire, mechanisms
or guidelines on how to implement this incentive should already be in place.
Among other things, the mechanism must provide the basis for the lower power
rates. Should it be determined based on the current period’s rates? Or should
it be based on previous period rates charged to end users?
Tax credit on domestic
capital equipment and services related to the installation of equipment and
machinery. Subject to certain conditions, a tax credit equivalent to 100% of
the value of the value-added tax (VAT) and customs duties that would have been
paid on imported RE machinery, equipment, materials, and parts shall be given
to a registered RE developer who purchases these from a domestic manufacturer,
fabricator or supplier.
As provided in the
IRR, the BIR shall promulgate a revenue regulation governing the granting of
tax credit on domestic capital equipment. But again, no issuance has been
issued yet. Thus, issues on how and where the application shall be made -- can
this be utilized against any tax due? -- among other things are not clear yet.
Zero-percent VAT on
sales and purchases; duty free importation. Sale of fuel from RE sources or
power generated from RE, as well as local purchases needed for the development,
construction, and installation of the plant facilities of RE developers, shall
be subject to 0% VAT. However, for importations, the law provides that
importation of machinery and equipment, and materials and parts thereof,
including control and communication equipment, shall be exempt only from tariff
duties within the first 10 years from the issuance of a Certificate of
Registration to an RE developer. The law does not provide VAT exemption for
importation.
Thus, input tax from
importations of RE machinery or equipment shall be an additional cost to the RE
developer. Being attributable to zero-rated sales, such shall be available as
tax credit or be applied for refund. However, with the current trend now on the
applications for refund, RE developers must still weigh the cost and benefit of
such an application.
These are just some of
the issues that the issuance of the revenue regulations can very well address.
To further tap the unending potential of renewable energy sources available in
our country, our government must provide clear implementing revenue regulations
on the availment of tax incentives. Having this in place shall mean protecting
the environment and assuring our country of additional sources of energy.
Ma. Lourdes Politado-Aclan
Let’s Talk Tax
Punongbayan and Araullo
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