VAT Ruling No. 059-90

February 28, 1990 VAT RULING NO. 059-90 103 (j)-000-00-059-90 Mr. W. R. de la Paz Executive Director Office of Energy Affairs Office of the President of the Philippines Malacaang, Manila S i r : This refers to your letter dated 09 January 1989 (presumably 1990) requesting confirmation of your position that sale of electricity by Private Sector Generation Facilities (PSGF) is exempt from the value-added tax. prcd It is represented that under E.O. No. 215, private corporations, cooperatives or similar associations shall now be allowed to construct and operate various types of electric generating plant, subject to rules and regulations to be formulated by National Power Corporation (NPC) and National Electrification Administration (NEA) for their respective areas; that the rules and regulations, thus promulgated by said Offices to implement the aforesaid law contain the following features: A. Private Sector Generation Facility (PSGF) shall contain the following: 1. any cogeneration and renewable resource power production facility; 2. any electric generating facility particularly a Block Power Production Facility (BPPF), intended primarily to sell and all its production to NPC grids, consistent with the development plans formulated by NPC; 3. any electric generating facility that shall use indigenous energy resources as the primary fuel. It is also represented that the owner or operator of a proposed PSGF shall apply for accreditation as a qualified PSGF to NPC for areas within the jurisdiction of NPC and to NEA for applicants situated in areas not served by NPC grids; and that qualifications as to ownership shall be any of the following: 1. A PSGF may be constructed, owned and operated by private corporations, cooperatives or similar associations not primarily engaged in the generation or sale of electricity and shall be governed by applicable Philippine Laws on corporations or similar associations as to registration, independent auditing, taxation and other related matters as provided by said laws. Foreign entities may participate in electricity generation subject to applicable Philippine laws. 2. Private corporations, cooperatives and similar associations engaged in the generation or sale of electric power and considered as electric utilities , may own, construct and operate generating facilities but shall be subject to electric utility regulations concerning rates, financial limitations, taxes and other laws applicable to their operations as electric utilities . (emphasis supplied) In reply, I have the honor to inform you that inasmuch as PSGF are governed by laws applicable to electric utilities, then they are exempt from the payment of value-added tax on their sale of electricity pursuant to Section 103(j) of the Tax Code. However, as electric utilities granted authority by NPC or NEA, as the case may be, to own, operate and generate electricity, they are subject to the 2% franchise tax prescribed in Section 117 of the Tax Code. Likewise, they are subject to income tax. cdpr Very truly yours, JOSE U. ONG Commissioner of Internal Revenue