House panel approves tax incentives for energy efficiency projects

  • House panel approves tax incentives for energy efficiency projects
    Former President and now House Speaker Gloria Macapagal-Arroyo attended on Monday the hearing of the House Committee on Ways and Means chaired by Rep. Estrellita Suansing (1st District, Nueva Ecija). The panel hit the ground running on its first day back as it approved the unnumbered substitute bill principally authored by Rep. Eric Olivarez (1st District, Parañaque City) to grant incentives to energy efficiency and conservation projects. (Sources: Perfecto Camero / Czarina Engracia, Press and Public Affairs Bureau, House of Representatives)

With the resumption of session, the House Committee on Ways and Means chaired by Rep. Estrellita Suansing (1st District, Nueva Ecija) hit the ground running on Monday, as it approved an unnumbered substitute bill granting incentives to energy efficiency and conservation projects.

The panel, joined by former President and now House Speaker Gloria Macapagal-Arroyo, approved the tax provisions of the measure without amendment.

The unnumbered substitute bill entitled "Energy Efficiency and Conservation Act" is principally authored by Rep. Eric Olivarez (1st District, Parañaque City).

It seeks to institutionalize energy efficiency and conservation, enhancing the efficient use of energy.

It provides that a duly certified energy efficiency project will enjoy an income tax holiday for its first six years of commercial operations and additional investments; a zero percent VAT rate on purchases of local supply of goods, properties, and services needed for development, construction, and installation of plant facilities as well as on the process of developing energy efficiency projects, including but not limited to, the services performed by subcontractors and/or contractors; and a tax and duty exemption on imported capital equipment within the first 10 years of an issuance by the Department of Energy (DOE).

The incentives shall be available to all proponents of duly certified projects for a period of 15 years from the passage of the bill. 

At the end of the period, the grant of incentives may be suspended or canceled upon a joint recommendation by the DOE and the Board of Investments that the incentives are no longer required in order to ensure the financial viability of efficiency investments.

According to Rep. Carlos Roman Uybarreta (Party-list, 1-CARE), who sponsored the measure during the committee hearing, the Philippines is the only member-state of the Association of Southeast Asian Nations that has yet to pass an energy efficiency and conservation law.

"Vietnam had their law on economical and efficient use of energy enacted in 2010. Thailand had their own version enacted in 2017, Singapore in 2012, Indonesia in 2007, and Malaysia in 2001," he said.

In addition, the World Bank Regulatory Indicators for Sustainable Energy ranked the Philippines and its energy policies as 50th of 100 nations.

To address this, the substitute bill employs tax-based incentives, which Uybarreta said accords with the tendency of ASEAN members and other Asian states to utilize tax reductions instead of tax credits.

"Reduction on VAT (value-added tax) on import tax on energy efficiency equipment is widely used in developing countries. Several energy policies and measures incorporate not only fiscal but tax-based incentives," he said.

Uybarreta explained that tax incentives are an investment by the government that will yield high returns.

"For every peso that we will give, as far as incentive is concerned, it will go back to the government more than two times… For every P1 that the government will give as an incentive, it will amount to P2.05 investment to this country. And that investment will translate to P11.64 in energy savings. Not to mention that the investment will also have a cascading effect as far as employment and other related industries are concerned," he said. 

The tax incentives will also result in higher net earnings for industry stakeholders and therefore higher taxable incomes.

"That P1 will translate to an increase of net earnings of P10.52. Pag tumaas ang kita ng kompanya nang ganyan kalaki, ibig lang sabihin tataas rin yung taxable income ng ahensya or industriya na ganun. The increase in taxable income of end-users will also be at P10.52. The increase in tax revenue for the government will be P2.31," Uybarreta stated.

Meanwhile, Department of Finance Director Juvy Danofrata cautioned that historically, tax incentives have not always resulted in industry growth and that the projected returns presented by Uybarreta may not be achieved by the proposed measure.

She noted that an ASEAN report on Malaysia and Thailand—states that have been very keen to prioritize energy efficiency—showed that the countries utilized not only tax incentives but other government policies and subsidies for their energy efficiency efforts. 

Furthermore, the report found that tax incentives only work for companies that are large enough to have the taxable income.

"But on the part of the DOF, we would like to maintain the simplicity of the tax system. Hindi naman po kami nagdadamot sa tax incentives, gusto lang namin simplified at uniform for all. So especially sa mandatory inclusion sa IPP (Investment Priorities Plan) or SIPP (Strategic Investments Priorities Plan), i-subject natin siya to review," Danofrata said.

Meanwhile, Philippine Energy [Efficiency] Alliance, Inc. representative Alexander Ablaza voiced support for the measure.

He urged the government to reconsider its rationalization of tax incentives especially for the energy efficiency industry because it has yet to see benefits from the incentives.

"We want this to happen… We believe that for every P1, kung maging puhunan 'yon by government, and it will come back to National Treasury as P2.31, we have already demonstrated that unlike other economic activities, this does not present any leakage to the internal revenue system of government. On contrary, it is a tax revenue generator," Ablaza said.

Written/Posted by: 
Czarina Engracia, Press and Public Affairs Bureau

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