Today’s topic is about an LGU’s authority to give “tax incentives or tax holidays” for its PPP project or a project by another government agency. The build-operate-transfer law (BOT law) also allows this form of direct government subsidy. This can be a form of support or contribution to a joint venture, lease or concession PPP.

• Local taxes. Under the 1991 LGC, Congress allocated the taxes provinces, cities, municipalities and barangays can levy. Provinces and cities can, among others, impose real property, franchise, and sand and gravel taxes, while cities and municipalities can impose business taxes.
• Tax privileges. Under Section 192 of the same law, there are three forms of local tax privileges. LGUs may grant tax exemptions, incentives or reliefs. Local tax imposed can be withdrawn. The private sector proponent for a water distribution, septage, monorail, expressway, reclamation or fiber optic PPP project can enjoy these contractually and by virtue of an ordinance.

• Discretion. LGUs cannot be forced to grant these privileges. The law is permissive and gives the LGU the discretion not only to extend the type of privilege but also to set the terms and conditions thereof. Because of local autonomy and the proscription against executive control, the national government or the higher LGU cannot impose the terms and conditions and limit this power.
• Executive and legislative requirements. The law requires that the grant of a tax privilege must be embodied in an ordinance, not just a resolution. An ordinance enacted by a local legislative council is public in character and is more or less permanent. An ordinance must be approved, and may be vetoed, by the governor or mayor. The ordinance may either be the ordinance approving the terms of the PPP contract enacted prior to signing thereof or an ordinance passed after the PPP contract is signed, which then becomes a condition precedent for the PPP project.
• Breadth of privilege. The legislative measure must be specific for a project, must set out the type of tax or taxes withheld and the duration of the tax exemption, incentive or relief. It is advised that the privilege should not be perpetual or for the whole life of the PPP contract, and that what the LGU will “lose” from the tax withheld will be recovered from the revenues it will earn from the PPP project, among other economic and social benefits.

It can be done.