Removing RE tax perks to increase power rates

The Department of Finance (DOF) proposal removing the value-added tax (VAT) incentive from renewable energy investment will potentially raise electricity rates.

"We would like to retain the incentives of the renewable energy sector ... retain our zero-rate, and not go for VAT exemption," Ernesto Pantangco, vice chairman of National Renewable Energy Board (NREB), said during the Senate committee on ways and means hearing on the proposed comprehensive tax reform program.

Removing the zeroVAT on purchases by renewable energy firms will translate to higher consumer electricity rates, Pantangco said.

"We will have to increase our pass through," Pantangco said, noting a 53-centavo per kilowatt hour (kWh) increase in power derived from biomass.

Consumers of electricity sourced from geothermal will also incur a 49-centavo per kWh, 52 centavos from solar, 55 centavos from large hydropower plants, and 46 centavos from wind generators.

"It is important to note that renewable energy accounts for 25 percent of the total energy mix," Pantangco said.

Under Section 15 (g) of Republic Act 9513 or the Renewable EnergyAct, the sale of fuel or power generated from renewable sources of energy, such as biomass, solar, wind, hydropower, geothermal, ocean energy and emerging energy resources such as fuel cells and hydrogen fuels, will be subjected to a zero-percent value-added tax, in line with provisions of the National Internal Revenue Code of 1997.

All renewable energy developers are entitled to zerorate VAT on supply purchases that include local goods, properties and services for the development, construction and installation of facilities.

However, Finance Undersecretary Karl Chua said that under the Renewable Energy Act the sector actuallybenefitsfrom10lines of exemptions or incentives.

"There is just one incentive that we wish to correct, this is the zero rate for the purchases of the renewable energy sector," he said.

In 2015, the incentives that accrued to the renewable energy sector totaled P1.7 billion, Chua noted.

"If you remove VAT, each of 22 million households will only pay an additional P77 per year ... or P6.41 a month, and that is a very small amount," he added.(GMANewsOnline)