May 31st, 2023
House Ways and Means Chair Joey Sarte Salceda (Albay, 2nd district) championed key provisions in the Philippine Downstream Natural Gas Industry Development Act (House Bill No. 8456) which the House of Representatives approved on 2nd reading today. Salceda, a principal author of the measure, wrote the tax provisions and key economic portions of the bill, including tax incentives that would encourage immediate infrastructure investments in the liquefied natural gas (LNG) sector.
“I congratulate Speaker Romualdez, Energy Committee Chair Velasco, and my colleagues on this measure, which we expect has many supporters in the Senate. It is a priority bill of the President, and we expect enactment this year,” Salceda said.
Salceda pushed for the following incentives which were adopted in the final version which the House approved:
First, the sale of LNG and the local purchases of the sector are VAT zero-rated, akin to the VAT privileges of the local renewable energy sector. Salceda said that, “until 2038, when coal shall have been displaced significantly, LNG is a carbon avoidance scheme. It produces less than half the emissions of coal power.”
Expenses for converting a power plan from coal to LNG are also chargeable as a capital expenditure, and are therefore subject to a 150% deduction, pursuant to the CREATE Law.
Salceda also pushed for a longer income tax holiday for LNG projects by pushing for their inclusion under Tier III of the CREATE Law.
“LNG should just be Tier I, if you look at the definition in CREATE. It will benefit from Tier III incentives as long as you register within the next four years. After that, you are subject to just whatever incentives the Fiscal Incentives Review Board gives you,” Salceda explained.
“The reason for the four year period is so that they begin registering and building the infrastructure now. We need it for carbon avoidance and for energy security,” Salceda added.
Salceda also successfully pushed for provisions allowing cross-ownership of various segments of the LNG value-chain, to encourage investors to integrate their operations and lower costs.
Salceda also pushed for a provision limiting the definition of public utility to only those parts of the LNG value-chain that are specifically classified as such under the Public Service Act. This would allow more foreign investments into the LNG sector, since equity restrictions on public utilities would not apply to those sectors.
Salceda also pushed for a provision that prioritizes indigenous natural gas for dispatch, in anticipation of new discoveries of LNG in the country’s West Philippine Sea. The provision is subject to exceptions set by the Energy Department “due to significant price differences or the level of adequacy of supply.”
“You want to create some degree of certainty of demand for our indigenous natural gas. That reduces the risk investors take in exploring and extracting LNG from our seas, making it more attractive to invest in exploration and service contracting,” Salceda added.