Scrapping of zero VAT RE to drive up electricity rates

By Myrna M. Velasco – May 14, 2017, 10:01 PM

from Manila Bulletin

The country’s renewable energy (RE) developers are appealing to Congress for the retention of value-added tax (VAT) zero-rating incentive set forth for such projects, noting that enforcing otherwise could drive up electricity rates for Filipino consumers.

The plea had been anchored on proposals relating to the Department of Finance’s (DOF) tax reform package, that in part, has been intending to amend the VAT status of RE developers from VAT zero-rating to a VAT exemption on the sale of electricity.

The various associations of RE developers have noted that VAT zero-rating treatment is a better package in the tax regime for these energy technologies, rather than the proposed VAT exemption.

“In zero rating, all VAT is removed from the zero-rated goods, activity or firm. In contrast, exemption only removes the VAT at the exempt stage, and it will actually increase – rather than reduce the taxes on the input goods and therefore, increase the cost of production,” the RE industry players said.

With VAT exemption, they opined that “the produced goods or service will have a higher price and the customer or consumer will ultimately shoulder the burden.”

Under Section 15 (g) of Republic Act 9513 or the Renewable Energy Act, it was provided that “the sale of fuel or power generated from renewable sources of energy, such as but not limited to, biomass, solar, wind, hydropower, geothermal, ocean energy and other emerging energy resources such as fuel cells and hydrogen fuels, shall be subject to zero percent (0%) value-added tax (VAT).” That is pursuant to the provisions of the National Internal Revenue Code of 1997.

RE project developers have reiterated that changing the tax regime to VAT exempt, “will have the effect of increasing the price of electricity from RE sources and negate the state policy of promoting RE development.”

They added that such will also render “renewable energy projects uncompetitive and even more expensive rather than fossil fuel power plants.”’

As further explained, “if the sale of electricity from RE resources is exempted from VAT rather than VAT zero-rated as provided by the RE Law, the result is that any input VAT incurred by the RE developer in the course of business will not be allowed by the Bureau of Internal Revenue (BIR) to be credited against the VAT-exempt transaction and cannot be refunded from the government.”

They added that the zero-VAT regime “is a necessary component of the fiscal incentives package enabling the RE industry to provide clean, sustainable and lower cost of electricity to end-consumers.”

Until this date, however, the RE players raised that even the BIR has yet “to come out with the guidelines for the implementation of VAT zero-rating of the local purchase of goods and services.”

They stressed that “because of the absence of the guidelines, RE developers are constrained to initially pay the VAT on their purchases, when these purchases should have been VAT zero-rated in the first place, and (they) just file for VAT refund.”