Taxability of the Sale of Excess Electric Power to the National Power Corporation

July 3, 1992 BIR RULING NO. 194-92 99; 117 (a) 000-00 194-92 Paper Industries Corporation of the Philippines PICOP Bldg., Sen. Gil Puyat Ave. Ext. Makati, Metro Manila Attention: Ms . Josefina M . Khe Manager-Corplan Gentlemen : This refers to your letter dated April 3, 1992 stating that PICOP is a VAT registered corporation with preferred pioneer status registration with the Board of Investment for the manufacture of lumber, plywood, pulp and paper products; that your electric power requirements are supplied by your own generating facilities and purchases from NPC; that in January 1992, inorder to alleviate the problem of electric power supply in Mindanao, NPC proposed to rehabilitate your idle 30 MW turbine generator with the condition that the excess electric power generation will be sold to NPC. The rehabilitation is about to be completed and you may be able to sell to NPC the excess power by this month (April). In connection thereto, you request for legal opinion if aside from income tax, you are subject to the value-added tax and to the franchise tax on your sale of excess electric power to NPC. In reply, please be informed that if you will be able to get a law granting you the franchise of selling electricity to NPC, you shall only be subject to the percentage tax of 2% of the gross receipt (section 117(a) of Tax Code). Otherwise, you will be subject to 10% VAT (under section 99, ibid ) for the sale of electricity, in the course of trade or business. cdtech Very truly yours, JOSE U. ONG Commissioner of Internal Revenue