TRAIN 2 to scrap P11.2-billion energy sector’s tax incentives

By Myrna M. Velasco – March 18, 2018, 10:01 PM
from Manila Bulletin

Roughly P11.2 billion worth of tax and import duty incentives for investments in the energy sector will be scrapped under the propounded package 2 of the Tax Reform for Acceleration and Inclusion (TRAIN) law of the Duterte administration.

In a presentation to industry stakeholders that will be affected by the tax package, the Department of Finance (DOF) noted that this is part of the concerted effort of the government to rationalize tax incentives being granted to various businesses.

For the energy sector alone, about 14 laws will be affected by the TRAIN-2 package, chiefly impacting on policies and edicts that have been governing businesses and investment flows in the oil and power sectors.

At this stage, it was indicated that the major laws to be affected will be the franchise of the National Grid Corporation of the Philippines (NGCP) of which tax payment structure will likely be modified; as well as the value-added tax (VAT) zero rating treatment prevailing in the renewable energy (RE) sector.

Under the TRAIN-1 package deliberations, the RE developers have fiercely lobbied that their VAT zero rating tax privilege be sustained because this could result in higher electricity rates if the policy shifts.

Nevertheless, it is apparent now that the DOF has not exactly given up on such policy proposition, thus, chipping away this tax privilege is now being incorporated in the second tax package.

In a correspondence lodged with Congress, various groups of RE developers indicated 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.”

Under Section 15 (g) of Republic Act 9513 or the Renewable Energy Act, it was stipulated 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 “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.”’

The earlier proposal had been to rationalize the taxation system for RE projects, from being VAT zero-rated to having VAT exemption.