Real Property Tax on Independent Power Producers: Key Lessons from the Nueva Vizcaya Case

The Supreme Court's ruling in Province of Nueva Vizcaya v. CE Casecnan Water and Energy Company, Inc. (G.R. No. 241302, February 1, 2021) settles important questions on real property tax (RPT) assessments against independent power producers (IPPs) operating under build-operate-transfer (BOT) contracts with government-owned and -controlled corporations (GOCCs). The decision clarifies that local governments may still collect RPT even without updated tax ordinances, and that Executive Order No. 173 provides relief to IPPs by reducing their tax liability. This article explains the ruling and its practical implications.

The Case: A Hydroelectric Project in Nueva Vizcaya

CE Casecnan Water and Energy Company, Inc. (CE Casecnan) entered into a BOT contract with the National Irrigation Administration (NIA) in 1994 to construct and operate a combined irrigation and hydroelectric power generation facility. The project diverted water from the Casecnan Watershed to the Pantabangan Reservoir and generated electricity for the Luzon grid.

In 2002, the Provincial Assessor of Nueva Vizcaya requested cost estimates from CE Casecnan to determine its RPT liability. After assessments were issued, CE Casecnan received demands for payment covering the years 2003 to 2005, eventually paying over ₱250 million under protest. CE Casecnan argued that its properties were exempt from RPT under Section 234(c) of the Local Government Code (R.A. 7160), which exempts machineries and equipment actually, directly, and exclusively used by local water districts and GOCCs engaged in water supply and electric power generation.

The Issue Before the Supreme Court

The central questions were: (1) whether the RPT assessments against CE Casecnan were valid despite the absence of updated tax ordinances; (2) whether Executive Order No. 173, which reduces and condones RPT on IPP power generation facilities, applies to taxes already paid; and (3) whether EO No. 173 is constitutional.

The Ruling: Assessments Valid, But EO No. 173 Applies

Valid assessments despite outdated ordinances. The Supreme Court held that the assessments were valid. While the Province of Nueva Vizcaya had enacted Tax Ordinance No. 99-002 (adopting the 1999 Schedule of Fair Market Values) and Tax Ordinance No. 2000-003 (fixing assessment levels for 2000 to 2002), the failure to update these ordinances did not prevent the Province from levying RPT. The Court explained that the requirement under the Local Government Code to conduct general revision of assessments every three years is meant to ensure that schedules reflect economic realities—not to strip local governments of their power to tax. Invalidating assessments for lack of updated ordinances would unduly cripple local governments' revenue-raising authority under Article X, Section 5 of the 1987 Constitution.

EO No. 173 applies to paid taxes. The Court rejected the Province's argument that EO No. 173 only covers unpaid tax liabilities. The executive order provides that the reduced amount of RPT should be deducted from whatever is paid by the IPP. It does not distinguish between outstanding and already-paid liabilities. Since CE Casecnan is an IPP under a BOT contract with NIA, a GOCC, it was entitled to the benefits of EO No. 173.

Constitutionality not considered. The Province raised the constitutionality of EO No. 173 for the first time in its petition before the Supreme Court. The Court declined to rule on this issue, noting that constitutional questions must be raised at the earliest opportunity before a competent court—here, the Court of Tax Appeals.

Practical Takeaways

• Local governments can assess RPT using existing schedules even if outdated. Taxpayers cannot avoid RPT liability simply because a province or city has not updated its fair market value schedule or assessment levels.
• IPPs under BOT contracts with GOCCs should review EO No. 173. The executive order reduces RPT liability to an amount computed at a 15% assessment level on depreciated fair market value, with all fines, penalties, and interests condoned.
• Payments made under protest may still be refunded. EO No. 173 applies even to taxes already paid, allowing IPPs to claim refunds for the difference between what was paid and the reduced amount.
• Raise constitutional issues early. Parties challenging the validity of a statute or executive order must do so in their initial pleadings before the proper court, or the issue will be deemed waived on appeal.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.