THE Energy Regulatory Commission (ERC) said on Wednesday that it approved and issued a certificate of compliance (CoC) to two power generation companies in the Visayas, ensuring electricity supply in the area during the dry season.

The regulator also identified five power generation projects for which it issued provisional authorities (PAO) to operate. Its actions were all dated Feb. 13, 2018 or after a temporary restraining order had been issued by the Court of Appeals against the suspension of the four ERC commissioners.

In a statement, ERC Chairperson Agnes T. Devanadera said the regulator “recognizes the need for the immediate issuance” of the certificate and the provisional authority “in order to ensure a reliable and sustainable power supply especially that there is an upsurge in power demand during the summer months.”

She said it is imperative for a power generation company to secure a CoC or a PAO before it starts commercial operation.

A CoC is issued by the ERC in favor of a person or entity to operate a power plant or other facilities used in the generation of electricity as called for under Section 6 of Republic Act No. 9136 or the Electric Power Industry Reform Act of 2001 (EPIRA), and Section 4 of EPIRA’s implementing rules and regulations.

Ahead of the issuance of the CoC, the PAO may be issued to enable a generation company to operate its facility. The authority is issued through a notification to the company. It is valid for six months from issuance. The six-month period is included in the five-year term of the CoC that may be issued.

The ERC identified the two projects with newly issued CoCs as Panay Energy Development Corp. for its 150-megawatt (MW) unit three circulating fluidized bed coal-fired power plant in Barangay Ingore, La Paz, Iloilo City; and Silay Solar Power, Inc. for its 25-MW solar farm in Barangay Rizal, Silay City, Negros Occidental.

The five entities that have secured PAOs are Palm Concepcion Power Corp., Nickel Asia Corp., EDC Siklab Power Corp., Gaisano Balasan Solar Rooftop Project, and SMC Consolidated Power Corp.

Of the five, SMC Consolidated Power has the biggest capacity at 150-MW for unit two of its coal-fired power plant in Barangay Lanao, Limay, Bataan. Palm Concepcion has the second biggest at 135-MW for its plant in Sitio Puntales, Barangay Nipa, Concepcion, Iloilo; followed by Nickel Asia’s 10.944-MW diesel power plant in Quezon, Surigao City.

Separately, the ERC said the lower system loss cap to be charged by distribution utilities is to take effect starting in the May 2018 electric billing period.

“The lowering of the system loss caps is a move to bring down the power rates and help electricity consumers mitigate the impact of rising costs of commodities and services. This will encourage distribution utilities (DUs) to improve their distribution system and facilities so that they adhere to the newly prescribed system loss cap,” Ms. Devanadera said.

Resolution No. 20, Series of 2017, “A Resolution Adopting the ERC Rules for Setting the Distribution System Loss Cap and Establishing Performance Incentive Scheme for Distribution Efficiency” embodies the new distribution system loss cap that can be recovered and charged by DUs to their customers.

Under the resolution, private DUs are allowed to charge only up to 6.5% of distribution system loss, or the difference between the electricity delivered to the power distribution system and what was delivered to consumers connected to the system.

The resolution calls for a gradual reduction in the system loss cap until it reaches 5.5% by 2021.

For electric cooperatives, the ERC clustered the utilities “based on similar technical considerations.” They will have a cap of 12% for 2018, subsequently charge a cap within a range of 12% to 8.25% until 2022 onwards based on their clusters. — Victor V. Saulon

WHEN CHINESE TOURISTS choose a family travel destination, Hong Kong Disneyland would seem like a logical choice. But it’s the nearby gambling hub of Macau that has all the momentum.

Tourists are flocking to Macau, with record arrivals from China last year, and Hong Kong itself is seeing a rebound in mainland visitors, with a double-digit surge in such tourists during the Chinese New Year following a 3.9% increase last year. Meanwhile, the number of mainland visitors to Hong Kong Disneyland dropped for a third straight annual period, according to the theme park’s results released Tuesday.

Chinese families traveling to Hong Kong are finding other distractions for entertainment besides the Disney theme park, as shopping and dining options help drive the retail market for the city. Chinese travelers may be skipping Hong Kong Disneyland as they already have a Disney park in Shanghai, which attracted 11 million visitors in its first year after opening in June 2016. Macau, about a one-hour ferry ride away, also may offer a more interesting temptation.

The world’s biggest gaming hub has started to see a rebound of leisure tourists, with mass gaming revenue growth in the last quarter expanding at a faster pace than the previous three months. Macau regulators are pushing casino resorts to offer more family-friendly entertainment, posing a further challenge to Disney’s park.

MGM China Holdings Ltd.’s new $3.4-billion property, with a 2,000-seat theater, is part of that effort to transform Macau’s Cotai Strip into a family destination. The resort, which opened in time for the new year, should help drive the highest earnings gain for MGM China among its peers this year, according to a note from Morgan Stanley. MGM China on Tuesday reported stronger-than-expected earnings for its fourth quarter, as mass-segment revenue grew 22% from a year earlier.

Analysts and retailers selling everything from jewelry to cosmetics are optimistic the upward trend will continue for both Macau and Hong Kong this year. As for Disneyland, it still may get its magic back. Visitation has been improving since the second half of 2017, and October Golden Week and Lunar New Year both recorded double-digit growth, according to Apple Daily, citing Samuel Lau, chief executive officer. — Bloomberg

2018 got a jump-start with Republic Act No. 10963 (otherwise known as the Tax Reform for Acceleration and Inclusion or TRAIN), which took effect on the first day of the year.

As most readers may be aware, the TRAIN amended several provisions of the National Internal Revenue Code of 1997 (Tax Code), which include individual income taxation, individual and corporate passive income taxation, estate tax, donor’s tax, value-added tax (VAT), excise tax and documentary stamp taxes.

A number of employees enjoyed higher take home pay due to the adjusted personal income tax rates. On the downside, however, the inflation rate appears to have risen, driven by the increase in prices of gasoline, sweetened beverages, and other commodities affected by the increased/new taxes. This has resulted in worries about the possible insufficiency in the take-home pay of ordinary Filipinos to cover actual and foreseeable surges in commodity prices.

There are also some interpretations of the TRAIN provisions which are highly debated, such as the preferential rate of employees of certain entities, and the correct tax treatment of registered enterprises within a separate customs territory, especially when an effective VAT refund system is implemented.

But there are also some “less noticeable” items under the TRAIN that are hardly mentioned in news reports or public forums that may require attention due to some features which may create confusion or stir controversy. Based on my observation, examples of these are below:

• Selective application of increase in certain passive income tax rates

TRAIN increased certain passive income tax rates but these changes were not equally applied to all types of taxpayers. Examples of these are as follows:

a. Philippine Charity Sweepstakes and lotto winnings exceeding P10,000 by citizens and resident aliens are now subject to 20% final income tax but winners who are nonresident aliens engaged in trade or business remain tax exempt regardless of amount.

b. While the interest income from a depository bank under the expanded foreign currency deposit system earned by domestic corporations is now subject to 15% final income tax, the same interest income earned by resident foreign corporations remains subject to 7.5% final income tax.

c. Capital gains on the sale of shares not traded in the Philippine Stock Exchange realized by domestic corporations are currently taxed at 15% final income tax. But these gains will still be taxed at 10% final tax (5% on the first P100,000 net capital gains) if realized by foreign corporations.

One may wonder whether the partiality in the imposition of increased income tax rates on certain types of taxpayers was really intended by Congress. Even assuming that the distinction in the imposition of taxes is based on reasonable grounds, taxpayers should nonetheless exercise caution in applying the correct income tax rates as an underpayment can unexpectedly result in penalties, or to a refund/tax credit claim in case of overpayment.

• Non-recognition of certain income tax exclusions

Prior to the TRAIN, Section 32(B)(7)(f), (g) and (h) of the Tax Code specifically mention the following items as income tax exclusions:

a. GSIS, SSS, Medicare and Pag-IBIG contributions, and union dues of individuals;

b. Gains realized from the sale or exchange or retirement of bonds, debentures or other certificate of indebtedness with a maturity of more than 5 years; and

c. Gains realized by the investor upon redemption of shares of stock in a mutual fund company.

However, it appears that the foregoing exclusions were not replicated under the TRAIN. The symbol “xxx,” normally used to indicate the adoption of existing provisions of the Tax Code being amended, was not reflected.

The absence of the items may be interpreted in two ways, i.e., either the Congress intended to repeal these provisions or the omission was a mere oversight. If the intention was to repeal, then this should have been highlighted during the tax reform hearings for purposes of transparency; moreover, the enrolled bill of the TRAIN should have expressly indicated the intended deletion of these provisions to dispel ambiguous interpretation of the law. Thus, more likely than not, this appears to be an oversight.

• Reversion to old VAT threshold exemptions for real estate

In 2005, the sale of residential lots not exceeding P1.5 million and house and lots and other residential dwellings not exceeding P2.5 million were considered VAT-exempt. Thereafter on Jan. 1, 2012, the VAT thresholds were increased to P1,919,500 and P3,199,200 respectively pursuant to Revenue Regulations No. 16-2011. However, upon effectivity of the TRAIN, the VAT thresholds have been reset to their original values prior to 2012 (i.e., P1.5 million and P2.5 million respectively).

It is not likely that Congress had overlooked the increase in real estate values due to upward adjustments caused by inflation in the past. Musing over the reversion, one can speculate that this was also likely a mere oversight. Even with the increased thresholds in 2012, some may have doubts whether the indicated values in the law are still reflective of present market situations.

Given the amendments, taxpayers should be careful to take note of the reversal in threshold exemption while engaging in the sale of residential real property.

The items above are merely some of my observations. Perhaps, if others carefully examine the TRAIN provisions, they can further pinpoint other provisions that may be considered confusing, equivocal, or misplaced as to require amendatory or corrective actions by the legislators.

While the TRAIN has brought on mixed feelings from the public, which I likewise share, taxpayers should remain optimistic that the tax law can be further improved as the drafting of the next phase of tax packages are ongoing.

When a train goes through a tunnel and it gets dark, you don’t throw away the ticket and jump off. You sit still and trust the engineer. While it is scary to not see the big picture when it comes to the ultimate direction of the tax reforms, we should still look forward to the government’s promise that it has every intention to improve the quality of life of Filipinos. Riding along with the government for better tax reform is what we should aim for.

The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co.   The content is for general information purposes only, and should not be used as a substitute for specific advice.

Benedict Villalon is a Manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.

(02) 845-27 28 local 2035

benedict.villalon@ph.pwc.com