Law Summary

Introduction

Executive Order No. 173, signed by President Benigno S. Aquino III on October 31, 2014, addresses the reduction and condonation of real property taxes and associated penalties for Independent Power Producers (IPPs) under Build-Operate-Transfer (BOT) contracts with Government-Owned and/or Controlled Corporations (GOCCs).

Background

• Legal Framework:
  • Section 234 of Republic Act No. 7160 (Local Government Code of 1991) provides real property tax exemptions to GOCCs involved in electricity generation and transmission.
  • It specifically allows for a reduced assessment level of 10% on their properties and full exemption on equipment used for power generation and pollution control.
• Issue:
  • Local Government Units (LGUs) have argued that IPPs, which are not GOCCs, do not qualify for these exemptions, leading to the threat of tax enforcement actions against them.
  • The payment of these taxes by IPPs may adversely affect the financial stability of GOCCs and the broader economy.

Section 1: Reduction and Condonation

• Legal Provision:
  • All liabilities for real property tax on properties, machinery, and equipment used by IPPs for electricity production are reduced.
• Calculation of Tax:
  • Tax is computed at 15% of the fair market value of the property, machinery, and equipment, depreciated at 2% per annum.
• Condonation of Penalties:
  • All fines, penalties, and interests on deficiency tax liabilities are condoned.
• Timeframe:
  • This applies to all tax liabilities assessed up to the year 2014.

• Key Details:

• Reduction applies to properties under BOT contracts with GOCCs.
• IPPs are relieved from paying penalties and interest on the assessed taxes.
• The order retroactively affects tax liabilities assessed until the end of 2014.

Section 2: Compliance by All Government Entities

• Requirement:
  • All government entities, including GOCCs and LGUs, must comply with the provisions of this Executive Order.

• Key Details:

• Ensures uniform application and adherence to the Order across all government bodies.

Section 3: Repealing Clause

• Provision:
  • Any prior orders, issuances, rules, or regulations inconsistent with this Executive Order are repealed or modified accordingly.

• Key Details:

• Clarifies that this Order takes precedence over conflicting regulations.

Section 4: Separability Clause

• Provision:
  • If any part of this Order is deemed invalid or unconstitutional, the remaining provisions shall remain effective.

• Key Details:

• Provides legal robustness to the Order by ensuring its operability even if parts are invalidated.

Section 5: Effectivity Clause

• Provision:
  • The Order takes effect immediately upon publication in a newspaper of general circulation.

• Key Details:

• Emphasizes the immediate applicability of the Order following its public announcement.

Key Takeaways

• Executive Order No. 173 aims to alleviate the financial burden of real property taxes on IPPs to ensure stability in the power sector.
• It condones all penalties and interest associated with these tax liabilities up to 2014.
• Compliance across all government entities is mandated, reinforcing the Order's authority.
• The Order includes provisions for repealing inconsistent regulations and maintaining validity of unaffected sections.
• Immediate effectivity upon publication ensures prompt application of the Order's provisions.