Whether the Special Privilege Tax of Two Percent (2%) Should be Withheld under Revenue Regulations No. 4-88 from Gross Receipts from Sale of Electric Power and from Transactions Incident to the Generation, Transmission and Sale of Electric Power

September 11, 1995 BIR RULING NO. 140-95 50 (b) 100-00 140-95 Hydroelectric Development Corporation 110 Legaspi Street, Legaspi Village Makati City Attention: Atty . Ebenezer D . Cordova Gentlemen : This refers to your letter dated August 28, 1995 stating that your operations including sales of power are governed by Republic Act No. 7156 otherwise known as "An Act Granting Incentives to Mini-Hydroelectric Power Developers and For Others Purposes"; that pursuant to Section 10 of Republic Act No. 7156, you had been paying to the Commissioner of Internal Revenue, the special privilege tax of two percent (2%) of your gross receipts from your sale of electric power; and that Baguio Waterworks District and Napocor which are your main buyers of light and power want to withhold the two percent (2%) special privilege tax allegedly pursuant to Revenue Regulations No. 4-88 implementing Republic Act No. 1051 which requires the withholding of taxes on money payments by Government Offices, Agencies and Instrumentalities. llcd In connection therewith, you are requesting for a ruling as to whether the special privilege tax of two percent (2%) should be withheld under Revenue Regulations No. 4-88 from your gross receipts from your sale of electric power and from transactions incident to the generation, transmission and sale of electric power. In reply thereto, please be informed that Section 10 of Republic Act No. 7156 grants, among others, the following tax incentives and tax exemptions to any person natural or juridical, authorized to engage in mini-hydroelectric power development, "(1) Special Privilege Tax Rates The tax payable by all grantees to develop potential sites for hydroelectric powers and to generate, transmit and sell electric power shall be two percent (2%) of their gross receipts from the sale of electric power and from transactions incident to the generation, transmission and sale of electric power. Such privilege tax shall be made payable to the Commissioner of Internal Revenue or his duly authorized representative on or before the 20th day of the month following the end of each calendar or fiscal quarter; "(2) Tax and Duty-Free Importation of Machinery, Equipment and Materials . Within seven (7) years from the date of award, importation of machinery and equipment, materials and parts shipped with such machinery and equipment including control and communication equipment shall not be subject to tariff duties and value-added tax: Provided, That the said machinery, equipment, materials and parts; (a) are not manufactured domestically in reasonable quantity and quality at reasonable prices; (b) are directly and actually needed and will be used exclusively in the construction and impounding of water, transformation into energy, and transmission of electric energy to the point of use, and (c) are covered by shipping documents in the name of the duly registered developer to whom the shipment will be directly delivered by customs authorities; Provided, further, That prior approval of the OEA was obtained before the importation of such machinery, equipment, materials and parts was made; xxx xxx xxx "(5) Value-Added Tax Exemption . Exemption from the ten percent (10%) value-added tax on the gross receipts derived from the sale of electric power whether wheeled through the NFC grid or through existing electric utility lines; and "(6) Income Tax Holiday For seven (7) years from the start of commercial operation, a registered mini-hydroelectric power developer shall be fully exempt from income taxes levied by the National Government." cdti Section 2 of Revenue Regulations No. 4-88 enumerates the internal revenue taxes which are required to be withheld by government officers, agencies and instrumentalities, but the two percent (2%) special privilege tax under Republic Act No. 7156 is not one of them. In view thereof, the 2% special privilege tax imposed under Republic Act No. 7156 should not be withheld under Revenue Regulations No. 7156 should not be withheld under Revenue Regulations No. 4-88 by Baguio Waterworks District and Napocor from their money payments to you on account of your sale to them of electric power and/or transactions incident to the generation, transmission and sale of electric power. cdta Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue