Tag Archives: Environment

RE Developers: Protecting the Environment with Tax Issues

More than six years from the issuance of the Renewable Energy Act of 2008 and its implementing rules and regulations (IRR), the Department of Energy (DoE) has already awarded a total of 664 renewable energy contracts, as of the end of April 2015. Some 240 contracts are still pending approval by the department.

Aside from the business potential of RE sources, most companies are also entering into RE development due to the fiscal/tax incentives available under the RE Law. Under the IRR of the said law, the Bureau of Internal Revenue (BIR) shall, in coordination with DoE, Department of Finance, Bureau of Customs, BOI and other concerned government agencies, promulgate revenue regulations governing the grant of fiscal incentives. Unfortunately, several years from the issuance of the IRR, the BIR has yet to issue the guidelines for the implementation of the tax incentives under said Act. Thus, with the rising number of RE contracts being awarded, the government must look into the long overdue revenue regulations implementing the fiscal incentives.

Among other things,implementation of the following tax incentives available to RE developer must be clarified in the said revenue regulations:

Income Tax Holiday (ITH) incentive on additional investment. Under the law, new investments in RE project shall be entitled to seven years ITH from start of commercial operation. Additional investment shall be entitled to not more than three times the period of initial availment. The ITH for additional investments in an existing RE project shall be applied only to the income attributable to the additional investment, which may or may not result in increased capacity.

Thus, the revenue regulations must provide the formula to compute that income attributable to the additional investment. For increased capacity, how should the base figure be computed? Is it based on the highest sales in the last three years, or just based on the last year’s capacity? For additional investments that do not result in increased capacity, how should the income attributable to that investment be computed? Should it be based on increase in net income?

Corporate Tax Rate of 10%. After the allowed period of availment of the ITH, the registered RE developer shall pay a corporate tax of 10% on its net taxable income, as defined in the National Internal Revenue Code (Tax Code) of 1997, as amended by Republic Act No. 9337. However, the said RE developer shall pass on the savings to end users in the form of lower power rates, pursuant to a technical study by the DoE.

Yet no results of any technical study to determine the extent of savings and how the pass-on mechanism would work has been presented by the DoE. Since there may be RE developers whose ITH incentive period has or shall already expire, mechanisms or guidelines on how to implement this incentive should already be in place. Among other things, the mechanism must provide the basis for the lower power rates. Should it be determined based on the current period’s rates? Or should it be based on previous period rates charged to end users?

Tax credit on domestic capital equipment and services related to the installation of equipment and machinery. Subject to certain conditions, a tax credit equivalent to 100% of the value of the value-added tax (VAT) and customs duties that would have been paid on imported RE machinery, equipment, materials, and parts shall be given to a registered RE developer who purchases these from a domestic manufacturer, fabricator or supplier.

As provided in the IRR, the BIR shall promulgate a revenue regulation governing the granting of tax credit on domestic capital equipment. But again, no issuance has been issued yet. Thus, issues on how and where the application shall be made — can this be utilized against any tax due? — among other things are not clear yet.

Zero-percent VAT on sales and purchases; duty free importation. Sale of fuel from RE sources or power generated from RE, as well as local purchases needed for the development, construction, and installation of the plant facilities of RE developers, shall be subject to 0% VAT. However, for imporations, the law provides that importation of machinery and equipment, and materials and parts thereof, including control and communication equipment, shall be exempt only from tariff duties within the first 10 years from the issuance of a Certificate of Registration to an RE developer. The law does not provide VAT exemption for importation.

Thus, input tax from importations of RE machinery or equipment shall be an additional cost to the RE developer. Being attributable to zero-rated sales, such shall be available as tax credit or be applied for refund. However, with the current trend now on the applications for refund, RE developers must still weigh the cost and benefit of such an application.

These are just some of the issues that the issuance of the revenue regulations can very well address. To further tap the unending potential of renewable energy sources available in our country, our government must provide clear implementing revenue regulations on the availment of tax incentives. Having this in place shall mean protecting the environment and assuring our country of additional sources of energy.

Ma. Lourdes Politado-Aclan is a senior manager with the Tax Advisory and Compliance division of Punongbayan & Araullo.

View the original article here

Mindanao can be RP food basket

By Urooj S. Malik
Philippine Daily Inquirer
First Posted 08/10

The success or failure of nations in their pursuit of economic development depends, among other factors, on nurturing racial harmony and peaceful coexistence, as well as on the manner by which they manage the environment and use natural resources.

Continued conflict among people, overexploitation of resources and poor environmental governance undermine any attempt at sustainable development and erode the prospects for economic growth and poverty reduction.

Long-term peace and stability are, therefore, closely linked to pursuing a socially responsible and environmentally sustainable path to development.

Safety and security for people in the workplace and the availability of reliable land, water, food and energy are essential ingredients for eradicating poverty, raising living standards and ensuring human dignity for all.

Food shortage

Today, the Philippines is unable to grow enough food to feed its population of nearly 100 million and yet each year it continues to add 2 million more mouths to feed.

At the same time, our ability to produce food is steadily declining. Luzon, which has been the traditional rice granary of the Philippines, is now beset with unpredictable weather patterns that have become the normal annual pattern: too much rain and flooding with typhoons, and extended dry seasons without enough rainfall or irrigation water to sustain crop production.

Rice imports

There are many other reasons why we are facing a food shortage, some of which were also touched upon by President Aquino in his first State of the Nation Address (Sona). Governance in our institutions is weak and allegations of mismanagement in rice imports and distribution persist.

Security of land tenure for farmers remains an issue, with much remaining to be done through the agrarian reform process. Much of land is being converted into real estate and property leaving less available land for agriculture and crop production. And, farmer-training and extension services need improvement.

Loss of forest cover

Another important reason for the emerging food crisis has to do with loss of forest cover. As a result of massive logging and slash-and-burn practices as well as natural fires, our primary forest cover has declined from over 70 percent in the 1970s to less than 3 percent today.

Forests are a vital source for regulating our climate and help provide the rainfall needed for our agriculture. They also absorb the carbon in the atmosphere, thereby helping mitigate against the dangers of global warming and climate change.

Hunger

As a result of the aforementioned factors, we have a rather serious food situation in the country. We import on average about 1.5 to 2 million tons of rice annually and have a hunger rate of 20 percent.

Unless serious efforts are made to reverse these trends, the hunger rate could rise to as much as 30 percent in just the next decade due to rising population growth, which is estimated to reach nearly 120 million by the year 2020, i.e., 20 million more people in just 10 years.

A key issue we face is the future of the culturally unique and resource-rich island of Mindanao. Peace in Mindanao is critical not just for ensuring safety and security for all in the Philippines as well as in the Asia Pacific. The island is also vital for our food security.

Conflicts

However, despite numerous attempts to bring about peace and development, Mindanao remains one of the poorest islands in the country. Internal and external conflicts and all-out wars over many decades have claimed the lives of far too many people, and continuously aggravated poverty and despair on the island.

Such instability has disrupted agricultural production, destroyed economic infrastructure, affected the social fabric of society, displaced thousands of people from their homes, and deterred the much needed investment.

Dialogue

We must find an appropriate solution for Mindanao through deepened dialogue with our Muslim brothers and sisters.

Engaging the enlightened leadership of Mindanao and finding young champions who truly believe in promoting racial harmony and social stability would be essential for inclusive and equitable development, and for ensuring that the dividends of peace are sustainable over the long term.

Mr. Aquino recognized in his Sona the critical need for revitalizing the peace process and mentioned the need for resuming the dialogue with Mindanao leaders.

Investment proposals

This will entail continuing the peace dialogues started earlier by the government with its partners, engaging the private sector and identifying viable investment proposals in close consultation with the people of Mindanao.

Equally, partnerships with non government organizations will be important for helping to build capacity and provide ground-level support for implementing investment and development projects.

Undoubtedly, the prospects for a peaceful coexistence are greater when partnerships with local communities and tribal leaders are strengthened, when more economic opportunities are provided to the masses to reduce poverty, and when there is enough food on the table to feed all members of the family.

Food basket

The island of Mindanao is fortunate not to have extended dry seasons as we witness today in Luzon and has the water resources to support two to three crops a year—it can be, as it has often been called, the “food basket” of the Philippines.

Mindanao’s highly fertile soils account for bountiful harvests of a variety of farm products: It grows most of the Philippines’ major crops such as rubber (100 percent of national production), pineapple and cacao (90 percent), as well as banana, coffee, corn and coconut (over 50 percent).

Taken together, these crops account for over 40 percent of the country’s food requirements. The island economy also contributes more than 30 percent to the national food trade, making agriculture the driving force for the island’s socioeconomic development.

However, while Mindanao does not suffer the unpredictability of the northern typhoon belt, it does face its own challenges. As noted earlier, as with the rest of the country, slash-and-burn farming and illegal logging in Mindanao have caused the loss of mountain forests that produce rainfall for the plains and rivers and provide safe water for drinking, irrigation and hydroelectric power generation downstream.

Such is the extent of the damage that in rivers such as the Agusan and Kumaykay the water discharge (estimated in liters per second) has decreased by up to 75 percent, and the Pulangi hydroelectic power station operates at about 50 percent of its capacity, thus adversely affecting food production and energy supply for the island and the country as a whole.

If this trend is not reversed, the Philippines will lose its only viable food basket, and we will be facing a starving population.

Reforestation

We must, therefore, tackle this issue through an aggressive campaign for reforestation and watershed management in the pristine natural environments of Mindanao.

Principally, these areas include the five mountain ranges that are the haven for primary mossy forests and the critical watersheds which are located in the heart of Mindanao, especially Bukidnon and parts of Lanao del Sur, including one of the largest water reservoir on the island—Lake Lanao.

Watersheds, rivers

Specifically, the primary mossy forests to be protected include, the Pantaron, Katinglad, Kalatungun, Matigsalug, and Wao and Bumbaran mountain ranges. These watersheds feed six major river systems, namely, Cagayan, Tagoloan, Pulangi, Maridugao, Davao-Salug and Gingoog. (See maps.)

Saving the mossy forest would ensure adequate supply of water, food and energy, and help improve the livelihood of people, thereby increasing the prospects for peace and equitable development in Mindanao.

Alongside, we must also develop the large available fertile agricultural lands downstream of the large river systems, with extensive water-supply and rural-irrigation networks, post-harvest facilities and farm-to-market roads.

To do this, we must encourage private investment and public-private partnerships, and build a coalition with like-minded people from the academe and nongovernment organizations to enable a strong bottom-up consultative approach to community-driven development.

Agriculture development

The main areas for agriculture development include South and North Cotabato, Sultan Kudarat, Southern Bukidnon—and most especially, the two largest undeveloped areas—Maguindanao and Lanao del Sur, which are an integral part of the Autonomous Region in Muslim Mindanao (ARMM).

Similarly, closer attention is required for the three island provinces in the ARMM, Basilan, Sulu and Tawi-Tawi (or Basulta) for their unique but complex development circumstances.

The people of Mindanao are fed up with long years of conflict. They want to live in peace and dignity, earning a decent livelihood. They want their children to be educated and have a healthy, productive life. The best weapon against poverty, social disharmony and despair are peace and sustainable development.

Indeed, the role being played by the government of Malaysia in the peace process together with other sincere partners such as the United States Agency for International Development and The Asia Foundation, is commendable and appreciated, and should be accelerated to help find a solution acceptable to most, if not all.

Territorial issues

However, we cannot get bogged down by the territorial issues forever. While the negotiations between the past Philippine administrations and the Moro Islamic Liberation Front and other parties must continue, we cannot simply be waiting for the solution to emerge which could take longer than we may wish.

Given the enormous tragedies of the past, the mood in the debilitated population of Mindanao is now ripe for bringing about peace through economic growth and progress.

We must seize the moment and forge ahead with the country’s development agenda, which should be one in which Mindanao is given the appropriate resources to develop. This should be done in close concert with the many development partners who are so eager to help the people of the island. We need Mindanao just as much as it needs us.

Peace talks

The Aquino administration has a duty to address the Mindanao factor and help turn the challenge into an opportunity for inclusiveness, equity and social justice for all Filipinos.

The good news is that the President has recognized the importance of peace on the island and promised to restart talks in earnest soon after Ramadan.

The Filipinos and the people of the region and the world will be closely watching with much interest how the situation evolves and how, in a meaningful way, the new administration, its partners and the Mindanao leadership engage in the dialogue.

(Urooj S. Malik is chair of Hineleban Foundation, a nonprofit organization working for peace and sustainable development in Mindanao. He worked for the Asian Development Bank for over 25 year and, during the past 10 years at ADB, he served in the senior management stream, first as country director in Cambodia, then as director for Mekong Infrastructure, and finally as director of agriculture, environment and natural resources, Southeast Asia Department.)

Fast Facts

* 135,626 sq km – land area

* 21.6 million – population (2007)

* P3,572 (ARMM) – P17,050 (Region 10) – range of per capita gross regional domestic product (2008)

* $2.99 billion – total value of exports (2008)

* 26 percent – incidence of hunger among households, equivalent to about 1.1 million families (SWS, June 2010)

* 120,000 – estimated number of deaths as a result of the conflict between Moro secessionists and government forces since 1970 (2008)

7/2010