Davao City, neighboring town seek resolution on tax split for Aboitiz coal-fired power plant

Business World Online
Posted on October 15, 2014 11:49:00 PM

DAVAO CITY -- Aboitiz Power Corp.’s (AboitizPower) 300-megawatt coal-fired power plant, now 88% complete and expected to be operational by the first quarter of 2015, is posing a tax-sharing dilemma for Davao City and the town of Sta. Cruz, which co-hosts the facility.

The plant is located on the boundary of the two jurisdictions, in Barangay Binugao in the Toril district of Davao City, and Barangay Inawayan in Sta. Cruz.

“The law is silent on how the business taxes in this case should be shared and that has been difficult for us,” said Davao Councilor Danilo Dayanghirang, chairman of the committee on finance.

In its session early this week, the city council did not approve a resolution authorizing Mayor Rodrigo R. Duterte to enter into a tax-sharing agreement with the municipality of Sta. Cruz and to sign a Memorandum of Agreement that will lay down the terms.

The main contention is over annual business taxes, which will be a percentage of the income of Therma South, Inc. (TSI), the Aboitiz subsidiary that will operate the plant.

Mr. Dayanghirang said the real property tax is easy to determine as it is just a matter of identifying which part of the property is located in which jurisdiction.

The part of the plant along the coast is in Sta. Cruz while much of the generating equipment is in Davao.

Manuel M. Orig, AboitizPower first vice-president for Mindanao Affairs, said there is no clear-cut way to determine the specific income generated by the coal plant from each area.

What has been settled so far is 30% of the business tax will go to Davao since TSI’s main office is based in the city. The remaining 70% is up for grabs.

“We were informed that Sta. Cruz wants a 50-50 sharing (for the remaining 70%), which makes it a total of 65% for Davao, which we are not amenable to,” Mr. Dayanghirang said.

The Davao government wants a share of 75% to 80% in total since 80% of the coal plant is located within the city.

Another unresolved issue involves the tax due from the builder of the coal-fired plant, which will be pulling out once the project is completed.

At present, Black & Veatch, the contractor and service provider of TSI, pays 30% of its taxes in Metro Manila since its office is located there.

The remaining 70% is again a matter of dispute between Davao and Sta. Cruz.

Mr. Dayanghirang said Davao City’s Mayor Duterte will soon be meeting with Sta. Cruz Mayor Joel Ray L. Lopez to discuss the matter.

In the meantime, the collections will be put into an escrow fund pending an agreement. -- Carmencita A. Carillo source