DOE to Agree on Abolishing Renewable Energy Perks Under TRAIN Law
Author: Darvin Tocmo Date Posted:17 April 2018
The Department of Energy (DOE) will likely throw its support to the proposal to scrap the value-added tax (VAT) zero rating incentives for renewable energy (RE) projects under package 2 of the Tax Reform for Acceleration and Inclusion (TRAIN) Act of the Duterte administration.
In a forum hosted by multinational firm GE, Energy Undersecretary Felix William B. Fuentebella indicated “we will just provide our inputs to the DOF (Department of Finance) and our lawmakers,” relative to the proposed policy.
Asked on the department’s specific position on this policy matter, the energy official asserted “we serve under just one President, so we should have one voice,” perceptibly hinting that they will accede to the finance department’s proposal to remove such incentive scheme for the industry.
The energy official opined the tax measure is not likely to stifle the flow of capital into the envisioned 20,000 megawatts of RE installations into the country through year 2040 – a development milieu that shall position the Philippines as a mecca for green energy.
That has been the target set under the Renewable Portfolio Standards (RPS) crafted by the National Renewable Energy Board and correspondingly approved by Energy Secretary Alfonso G. Cusi. It will escalate RE’s share in the country’s energy mix at 1.0 percent increment annually.
Fuentebella noted the tax perk scrapping shall not be a dilemma for the investors, but the only aspect to be managed shall be RE projects’ cost impact on Filipino consumers.
He admitted the energy department does not have calculation yet on how much increase this will have on the cost of RE-generated electricity supply, but he said a DOE study team will have to handle that.
Despite the competitive tariff already gauged on RE developments, investors have previously warned about the probable rise in power rates on the discarding of incentives in this particular sector – or even rationalizing it into just a tax exemption policy.
RE industry players have emphasized that this could escalate power rates being billed to consumers, but apparently, the Department of Finance (DOF) is focused on a much gigantic concern of revenue-raising to bankroll the country’s massive infrastructure projects.
It was explained that under a zero-rating incentive mechanism, “all VAT is removed from the zero-rated goods, activity or firm. In contrast, the 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.”
It was explicitly prescribed under Section 15 (g) of Republic Act 9513 or the Renewable Energy Act, 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).”
By far, that was underpinned by provisions of the National Internal Revenue Code of 1997 set forth by the Bureau of Internal Revenue. But that is seen modified under the TRAIN-2 Law.