TRAIN-2 to scrap tax incentives for biofuels

In what is being spelled as the ‘death trigger’ for the industry, the second package of the Tax Reform for Acceleration and Inclusion Act (TRAIN-2) is proposing to junk the zero-rating tax privilege as well as value-added tax (VAT) exemption of the biofuels sector.

Under TRAIN-2, the proposition is to repeal Sections 6A and B of the Biofuels Act, which in essence, will result in scrapping of its major investment incentives.

With these tax perks getting discarded, the outcome will either be higher pump prices for consumers or the demise of the sector, primarily ethanol which is still fledgling until this time.

Section 6 of Republic Act 9367 or the Biofuels Law provides for the tax perks “to encourage investments in the production, distribution and use of locally-produced biofuels at and above the minimum mandated blends.”

In particular, Section 6A of the law prescribes that “the specific tax on local or imported biofuels component per liter of volume shall be zero.”

Further under Section 6B, it was set forth that “the sale of raw material used in the production of biofuels, such as but not limited to coconut, jatropha, sugar cane, cassava, corn and sweet sorghum shall be exempt from the value added tax.”

The current biodiesel blend in the country is still at 2.0-percent; while ethanol to gasoline is at mandatory 10percent by volume.

The value-added proposition then for the development of the local biofuels industry had been to create new opportunities for Filipino farmers, but this is an experiment that had not attained as much success vis-à-vis targets.

For Senate Committee on Energy Chairman Sherwin T. Gatchalian, there is economic wisdom in broadening the country’s biofuels industry – primarily in attaining higher level of independence and energy security aspects.

“Moving forward, a sustainable solution is to harness our inherent blessings, renewable energy and biofuels,” he said.

These two sources of energy, he added, “are abundant in our own soil,” hence, he noted that “the government should provide a conducive environment to allow the private sector to invest in indigenous energy sources that will lead to our independence from foreign sources.”