Real Property Tax on IPP Power Facilities: EO 173 Condonation and Valid Assessments

The Supreme Court recently clarified the rules on real property tax (RPT) assessments against independent power producers (IPPs) operating under build-operate-transfer (BOT) contracts with government-owned and/or -controlled corporations (GOCCs). In Province of Nueva Vizcaya v. CE Casecnan Water and Energy Company, Inc. (G.R. No. 241302, February 1, 2021), the Court ruled that local governments may validly assess RPT even without a newly enacted tax ordinance, but that Executive Order (EO) No. 173 may reduce or condone the tax liability of qualified IPPs. The case clarifies the interplay between local taxation powers and national condonation measures.

The Dispute: A Hydroelectric Project and Its Tax Bill

CE Casecnan Water and Energy Company, Inc. (CE Casecnan) entered into a BOT contract with the National Irrigation Administration (NIA) in 1994 to build and operate a combined irrigation and hydroelectric power facility. Under the agreement, CE Casecnan would finance, design, construct, and operate the project, delivering water and generating electricity for NIA.

In 2002, the Provincial Assessor of Nueva Vizcaya requested cost estimates from CE Casecnan to determine its RPT liability. The province later issued demands for payment of RPT for the years 2003 to 2005, totaling over P250 million. CE Casecnan paid the amount under protest and sought a refund, arguing that it was exempt from RPT and that no valid tax ordinance supported the assessment.

The Legal Issues

The case raised three main questions:

1. Whether the RPT assessment against CE Casecnan was valid despite the absence of a newly enacted tax ordinance for the years 2003 to 2005.
2. Whether EO No. 173, which reduces and condones RPT on power generation facilities of IPPs under BOT contracts with GOCCs, applies to CE Casecnan.
3. Whether EO No. 173 is constitutional.

The Supreme Court's Ruling

On the validity of the assessment. The Court ruled that the assessment was 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), these ordinances were not updated for later years. The Court held that the failure to update the schedule of fair market values and assessment levels does not prevent a local government from levying RPT using the existing schedule.

The Court explained that the requirement under Section 219 of the Local Government Code (Republic Act No. 7160) for general revision of assessments every three years is meant to ensure that valuations reflect economic realities—it is not a condition for the validity of the tax itself. To rule otherwise, the Court warned, would cripple the power of local governments to levy RPT.

On the application of EO No. 173. The Court found EO No. 173 applicable to CE Casecnan. The executive order reduces RPT liabilities on property, machinery, and equipment actually and directly used by IPPs for electricity production under BOT contracts with GOCCs. The reduction applies to assessments for all years up to 2014, computed based on an assessment level of 15% of the fair market value, depreciated at 2% per annum, less any amounts already paid. All fines, penalties, and interests on deficiency liabilities are condoned.

The Court rejected the province's argument that EO No. 173 applies only to unpaid taxes. The executive order does not distinguish between outstanding and already-paid liabilities. It expressly provides that the reduced amount should be deducted from whatever the IPP has paid, which means a refund may be due.

On constitutionality. The Court declined to rule on the constitutionality of EO No. 173 because the province raised the issue only for the first time on appeal before the Supreme Court. Under settled doctrine, constitutional questions must be raised at the earliest opportunity—in the pleadings before the competent court. Having failed to do so before the Court of Tax Appeals, the province could not raise the issue at this late stage.

Practical Takeaways

• Local governments can assess RPT using existing ordinances even if the schedule of fair market values or assessment levels has not been updated for several years. The statutory deadline for general revision does not invalidate the tax.
• IPPs under BOT contracts with GOCCs may qualify for EO No. 173 relief. The condonation covers RPT on property, machinery, and equipment used for electricity production, for all years up to 2014.
• EO No. 173 applies even to taxes already paid. The executive order contemplates a reduction of liability and a corresponding refund of any excess payment.
• Constitutional challenges must be raised early. A party that fails to question the validity of a statute or executive order before the trial court cannot raise it for the first time on appeal.

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