Business World Online
Posted on January 26, 2011 10:16:37 PM
Taxwise Or Otherwise -- By Christopher De GuzmanExperience in recent years has shown how much energy production, necessary to support human existence, has weighed not only the global economy but on the environment as well.
We have seen how economies around the world have reeled from the effects, on the one hand, of the constant fluctuation of price and availability of oil, coal, gas and other traditional sources of energy and, on the other hand, the tragedies brought about by floods, droughts and other natural disasters caused by centuries of human abuse of Mother Nature.
It is thus in the midst of such global state of affairs that various sectors have begun to push for the development and use of renewable sources to meet the world’s growing demand for energy.
In the Philippines, the first concrete step towards adherence to such growing advocacy is the promulgation of Republic Act No. 9513, more popularly known as the Renewable Energy Act of 2008 or quite simply, the RE Law.
Through this law, the State has declared its commitment to accelerate the exploration and development, and at the same time increase the utilization, of renewable energy in the Philippines.
To encourage the support and enthusiasm of all prospective investors and project proponents, the RE Law provides certain fiscal and non-fiscal incentives to renewable energy developers and others who will be participating in the renewable energy industry.
Such incentives include the following:
1. Income tax holiday
RE Developers are entitled to an income tax holiday in the first seven years of commercial operation, with the right to apply for additional income tax exemptions to cover any additional investments in their RE projects. At the end of the seven-year period, they shall be subject to corporate income tax at the preferential of 10% based on net taxable income. Entitlement to the 10% rate, however, is subject to the condition that the RE developer would pass on its tax savings to energy end-users in the form of lower power rates.
2. Accelerated depreciation
If an RE project fails to receive an income tax holiday before its full operation, the RE developer may apply for the accelerated depreciation of all plant, machinery and equipment that are reasonably needed and actually used in its RE operations, and use such accelerated depreciation as the basis for computing its corporate income tax liability. The rate of accelerated depreciation shall not be greater than twice the rate that would have been used had the annual allowance been computed in accordance with existing Department of Finance rules and regulations.
3. Net-operating loss carry-over
Net operating losses incurred by RE developers in the first three years from the start of commercial operations may be carried over as deduction to the next seven years immediately following the year of loss.
4. Zero-rated value-added tax (VAT)
Zero-rated VAT shall apply to the RE developer’s sale of fuel or power generated from renewable sources of energy; and purchases of local supply of goods, properties and services needed for the development, construction and installation of plant facilities.
5. Tax exemption of all proceeds from sale of carbon emission credits
6. Duty-free importation/tax credit on local purchase
Within 10 years from the issuance by the Department of Energy of a Certificate of Compliance, RE developers are entitled to duty-free importation of machinery and equipment (including spare parts) used exclusively in their RE operations. In the case of machinery and equipment (including spare parts) purchased locally, RE developers may claim a tax credit equal to 100% of the VAT and custom duties otherwise due had the same been imported.
7. Lower real property tax
Civil works, equipment, machineries and other improvements actually and exclusively used in the RE operations are subject to a lower real property tax equivalent to a maximum of 1.5% of the net book value of real property.
8. Cash incentive
RE developers who provide missionary electrification are granted cash incentive based on per kilowatt-hour generated and equal to 50% of the universal charge for power need to service missionary areas where they operate the same.
There are a lot more fiscal and non-fiscal incentives under the RE Law which have not been touched in this article. But, sans these provisions in the RE Law, the use of renewable energy must be aggressively pursued and promoted since it is indispensable in achieving an effective balance between the goals of economic growth and the protection of health and the environment.
The author is a manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of PricewaterhouseCoopers global network. Readers may send feedback atchristopher.g.de.guzman@ph.pwc.com.
Views or opinions presented in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The firm will not accept any liability arising from such article; the author will be personally liable for any consequent damages or other liabilities.
It is thus in the midst of such global state of affairs that various sectors have begun to push for the development and use of renewable sources to meet the world’s growing demand for energy.
In the Philippines, the first concrete step towards adherence to such growing advocacy is the promulgation of Republic Act No. 9513, more popularly known as the Renewable Energy Act of 2008 or quite simply, the RE Law.
Through this law, the State has declared its commitment to accelerate the exploration and development, and at the same time increase the utilization, of renewable energy in the Philippines.
To encourage the support and enthusiasm of all prospective investors and project proponents, the RE Law provides certain fiscal and non-fiscal incentives to renewable energy developers and others who will be participating in the renewable energy industry.
Such incentives include the following:
1. Income tax holiday
RE Developers are entitled to an income tax holiday in the first seven years of commercial operation, with the right to apply for additional income tax exemptions to cover any additional investments in their RE projects. At the end of the seven-year period, they shall be subject to corporate income tax at the preferential of 10% based on net taxable income. Entitlement to the 10% rate, however, is subject to the condition that the RE developer would pass on its tax savings to energy end-users in the form of lower power rates.
2. Accelerated depreciation
If an RE project fails to receive an income tax holiday before its full operation, the RE developer may apply for the accelerated depreciation of all plant, machinery and equipment that are reasonably needed and actually used in its RE operations, and use such accelerated depreciation as the basis for computing its corporate income tax liability. The rate of accelerated depreciation shall not be greater than twice the rate that would have been used had the annual allowance been computed in accordance with existing Department of Finance rules and regulations.
3. Net-operating loss carry-over
Net operating losses incurred by RE developers in the first three years from the start of commercial operations may be carried over as deduction to the next seven years immediately following the year of loss.
4. Zero-rated value-added tax (VAT)
Zero-rated VAT shall apply to the RE developer’s sale of fuel or power generated from renewable sources of energy; and purchases of local supply of goods, properties and services needed for the development, construction and installation of plant facilities.
5. Tax exemption of all proceeds from sale of carbon emission credits
6. Duty-free importation/tax credit on local purchase
Within 10 years from the issuance by the Department of Energy of a Certificate of Compliance, RE developers are entitled to duty-free importation of machinery and equipment (including spare parts) used exclusively in their RE operations. In the case of machinery and equipment (including spare parts) purchased locally, RE developers may claim a tax credit equal to 100% of the VAT and custom duties otherwise due had the same been imported.
7. Lower real property tax
Civil works, equipment, machineries and other improvements actually and exclusively used in the RE operations are subject to a lower real property tax equivalent to a maximum of 1.5% of the net book value of real property.
8. Cash incentive
RE developers who provide missionary electrification are granted cash incentive based on per kilowatt-hour generated and equal to 50% of the universal charge for power need to service missionary areas where they operate the same.
There are a lot more fiscal and non-fiscal incentives under the RE Law which have not been touched in this article. But, sans these provisions in the RE Law, the use of renewable energy must be aggressively pursued and promoted since it is indispensable in achieving an effective balance between the goals of economic growth and the protection of health and the environment.
The author is a manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of PricewaterhouseCoopers global network. Readers may send feedback atchristopher.g.de.guzman@ph.pwc.com.
Views or opinions presented in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The firm will not accept any liability arising from such article; the author will be personally liable for any consequent damages or other liabilities.
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