News & Events

April 23, 2015

Group Moves Back to Exempt Power from VAT

ADVOCACY group Citizen Watch has backed the proposal of Sen. Sergio Osmeña III, chair of the committee on energy, to exempt the sale of electricity and other power-generation deals from the 12-percent value-added tax (VAT), saying it was the first and fastest step in lowering the high cost of electricity in the country.
“As it is, power rates in the country, which is one of the highest in the region, are oppressing the poorest consumers all the way to the biggest businesses,” said CitizenWatch convenor Tim Abejo.
“The economic gains across sectors will far exceed any lost tax revenues,” he added.
The proposal is also timely in light of the Asean integration, which is seen to bolster competition among industries from member nations, CitizenWatch said. The high cost of power in the Philippines is seen to put the country’s industries at a disadvantage.
“The ultimate goal is to make our industries more competitive in terms of doing business and attracting investments, and power is one of the major factors in those two,” said Wilford Wong, CitizenWatch secretary general.
“As a tax measure, this proposal should be certified urgent by the Aquino administration,” he added.
Osmeña has filed a bill that seeks to amend the National Internal Revenue Code by adding power-related transactions to those exempted from the VAT. The proposed exemption would apply to the sales of electricity by generation, transmission and distribution companies and electric cooperatives, among others.
He also allayed fears about foregone government collections and said that it would raise the spending power of consumers. “The resulting cheaper production costs will then parlay to a more robust and equitable economy for the country,” he said.
CitizenWatch represented consumer interests in the Department of Energy task force to lower the cost of electricity and has launched Power Plant Watch to deter electric price manipulation during the critical months of summer.
Meantime, House Deputy Minority Leader Arnel Ty said electricity rates nationwide should stay depressed amid the general decline in the cost of primary energy sources.
“It is not just the cost of oil that is down. Coal prices are also deflated,” said Ty, who represents the LPG Marketers’ Association (LPG-MA) in Congress.
“In fact, geothermal power producers are already slashing their tariffs so that they can compete more aggressively with coal-based suppliers of electricity,” Ty pointed out.
The lawmaker cited the case of Lopez-owned Energy Development Co. (EDC), which recently reduced the average tariff of its Palinpinon-Tongonan geothermal plants by 7.5 percent. EDC said it had to lower the usual tariff “to extend the life of its supply contracts with most of its customers amid historic low coal prices.”
Ty said that 41.4 percent of the country’s power supply was derived from geothermal resources, 28 percent from coal, 15 percent from natural gas, 11.4 percent from hydro, 3.9 percent from diesel and fuel oil and the rest from biomass, biodiesel, solar and wind energy.
“Power rates should be going down on account of the overall decline in energy costs. If producers are cutting their tariffs, electricity distributors should be rolling back, and not jacking up their rates,” Ty said.
Manila Electric Co. earlier announced that its customers would see their bills go up by P0.46 a kilowatt-hour this April and by P0.72 a kWh in May due to the 30-day shutdown of the Malampaya natural gas field that drives three large power plants in Luzon.
But even if the power generators dependent on Malampaya have to run on alternative fuel, the costs of those substitutes were also down, so the higher electricity rates might not be justified, according to Ty.
“Power producers and distributors should allow consumers to benefit from cheaper electricity owing to the drop in energy prices,” he said.
Ty said he expected the prices of leading energy sources to stay deflated in sympathy with oil.
The price of the global benchmark Brent crude oil has plunged below $55 a barrel from a high of $115 in June last year due to a global glut in supply amid falling demand.
Oil prices will likely fall some more once the United States and Europe reach a nuclear deal with Tehran. The subsequent easing of sanctions could mean a flood of Iranian oil exports, according to energy market analysts.
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