Tax Refund Of Renewable Energy Developers

The Renewable Energy Law has been passed in the Philippines which encourages stakeholders to develop and build facilities that will produce renewable energy

Many people are now aware of the catastrophic effects of climate change, and proactive steps are being taken by many states to steer the future away from disaster. One such step is the revolution against non-renewable sources of energy, like coal, that contributes to the destruction of the environment. This has paved the way for nations to tap the unlimited resources of renewable energy (“RE”) – sun, wind, and water.

The Philippines, being located in the ring of fire is predicted to be adversely affected by climate change and has recognized the need to give priority to renewable energy. Thus, the Renewable Energy Law (“RE Law”) was passed. It aims to encourage stakeholders to develop and build facilities that will produce renewable energy by giving them fiscal and tax incentives.

When a RE developer sells fuel or power generated from renewable sources of energy, zero percent VAT is imposed on the sale. Also, zero percent VAT is imposed on purchases of local supply of goods, properties and services related to development construction and installation of power facilities.

But the import of equipment is not given the same incentive because only local purchases that will be used for the construction and development of RE facilities are given that privilege. But the input VAT arising from import can be refunded.

Since sale of RE is zero-rated, it follows that all input VAT derived from import is attributable to such zero-rated sale. There is no output VAT from which the input VAT derived from import can be offset. It must follow that the input VAT is refundable, including all input VAT derived from import.