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The natural gas industry is a rapidly growing sector across all countries, and such industry has the potential to be a major source of energy in the near future. In an effort to promote the industry, Congress has long been proposing bills that also include incentives for investors who are interested in the sector. These legislative initiatives are also expected to benefit the economy as well as create jobs in the process.

During its plenary session on 02 August 2023, the House of Representatives approved the third and final reading of House Bill (HB) No. 8456 also known as the “Philippine Downstream Natural Gas Industry Development Act” wherein 215 legislators voted “Yay” (yes) and three “Nays” (no).

The Bill seeks to promote natural gas as a safe, environmentally friendly, efficient, and cost-effective source of energy and adopts the conversion of existing fossil fuel-operated equipment and facilities to natural gas use.

In addition to advocating environment-friendly fuels which are geared towards fighting climate change, the proposed legislation seeks to promote the Philippine Downstream Natural Gas (PDNG) industry by pressing for the passage of the said bill to boost investments initiating great economic reward. With the push to pass the bill into law, it would seem like the legislators see a potential positive impact on the natural gas industry both in the environment and in the economy. Primarily, HB No. 8456 provides that it shall apply to permitting commercial activities in the PDNG industry value chain, including the purchase, supply, aggregation, blending, storage, trading, transshipment, sale, import and/or export of natural gas and/or liquefied natural gas (LNG), and any other activities related to the PDNG industry.

Moreover, the bill provides that it shall refer to all downstream natural gas industry participants and their affiliates involved in activities pertaining to natural gas supply for bunkering or domestic storage and regasification, transmission, distribution and use, among others.

Noteworthily, Chapter VIII of HB No. 8456 enumerates the incentives that PDNG industry projects shall be entitled to. Among these are the following:

  1. Zero percent (%) VAT on the sale of natural gas;
  2. Zero-rated VAT for LNG terminals, PDNG Transmission Systems, and PDNG Distribution Systems on their purchases of local supply of goods, properties and services needed for development, construction, and installation of their facilities; and
  3. Investments to convert facilities from oil and coal to natural gas shall be considered as qualified capital expenditures under Section 294 (C) of the National Internal Revenue Code, as amended.

Our lawmakers have already taken steps to formulate policies with the end goal of evolving from using coal and fossil fuels to natural gas as well as achieving economic growth by way of liberalizing entry of investors, local or foreign, in order to maintain a favorable investment climate. Incentives are to be given away to attract investors to participate and increase competition among the players in the industry.

But the question is, when the bill becomes a law, would the provisions indicated therein be sufficient to attract local or foreign investors? Or should there be more programs and incentives that the proponents of the bill can consider adding? For instance, there are special laws promoting the development of different industries which offer other incentives including tax- and duty-free importation of raw materials, capital equipment, machinery, and spare parts, as well as exemption from local government taxes, and a lower corporate income tax rate. There are also those which propose non-monetary incentives such as simplified business registration procedures, clear-cut requirements for the issuance of permits, and employment of expert foreign nationals. Furthermore, some laws propose a more defined and transparent entitlement to incentives for manufacturers, importers, exporters, and users enumerating a specific set of incentives available to each one.

Similar to how the proponents of the previously approved laws crafted the incentives provisions, perhaps the authors of HB No. 8456 can still reevaluate how to incentivize participation in the PDNG industry if they are aiming to advance economic recovery and development with the help of such sector.

On account of the strategic use of incentive schemes by offering more incentives similar to those in the special laws mentioned, the proposed bill may attract a large number of potential investors to secure their spot in the industry, which in turn will contribute to the country’s industrial growth and economic development.

Through well-defined policies and regulations detailing the objectives and proposals of the PDNG industry, the government, together with its concerned agencies are all set to be guided with a framework for their consistent judgment and action.

Ultimately, through the collective effort of the legislators, the designated government agencies, and the private sector to campaign the benefits and advantages of natural gas, the desire to reach the success of passing this proposed PDNG Industry into law is perhaps achievable.

For now, we are all looking forward to when the bill will officially be signed into law and for the designated government agency to come up with its implementing rules and regulations upon the birth of this new law.

Christelle Ann T. Torio
KPMG in the Philippines

Christelle Ann T. Torio is a Supervisor from the Tax Group of KPMG in the Philippines (R.G. Manabat & Co.), a Philippine partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. The firm has been recognized as a Tier 1 in Transfer Pricing Practice and in General Corporate Tax Practice by the International Tax Review. For more information, you may reach out to Tax Supervisor Christelle Ann T. Torio or Tax Principal Kathleen L. Saga through ph-kpmgmla@kpmg.com, social media or visit www.home.kpmg/ph.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity. The views and opinions expressed herein are those of the author and do not necessarily represent KPMG International or KPMG in the Philippines.