SC Ruling Boosts Confidence in Malampaya Contractors
Energy Secretary Sharon Garin expressed strong optimism about attracting more investors to the Philippines’ petroleum and gas exploration sector following the Supreme Court’s decision clearing Malampaya contractors of a P53-billion income tax liability. This ruling offers renewed stability and confidence for the industry.
“We’re happy that the issue has been resolved because it gives stability and security to the exploration of our investors. So it will encourage more,” Garin said during an event in Sorsogon City. “I’m happy that they already know because before, they didn’t know what it was. Now, they know. And I think that will bring more investors to the Philippines for exploration.”
Background on Malampaya Income Tax Dispute
The Supreme Court upheld last week that the government’s share of profits from the Malampaya natural gas project already includes the contractors’ income taxes. The dispute began after the Commission on Audit (COA) claimed that P53 billion was wrongly deducted from the government’s share. COA argued that no law explicitly requires contractors’ income taxes to be part of the government’s portion.
The government and the three Malampaya contractors—Shell Exploration B.V., PNOC Exploration Corp., and Chevron Malampaya LLC—signed a service contract in 1990. It stipulated that contractors remit 60 percent of the project’s net proceeds to the government. While contractors enjoy various tax incentives, they are not exempt from paying income taxes.
SC Clarifies Tax Assumption vs. Tax Exemption
The Court highlighted a contract clause stating that profit-sharing covers the contractors’ income taxes from 2002 to 2009. It clarified that “tax assumption is not tax exemption,” meaning contractors remain liable for income tax, but the government pays it on their behalf as part of its share.
While the Supreme Court supports COA’s role in safeguarding public funds, it emphasized that the government must honor its contractual obligations, especially when terms are clearly outlined in agreements it willingly entered into.
Importance of Malampaya Project
Malampaya supplies about 20 percent of Luzon’s power needs. Situated 80 kilometers offshore from Northwest Palawan within the country’s exclusive economic zone, it has been producing natural gas for over 20 years. The project has contributed more than $13.8 billion to the Philippine government, local leaders noted.
This Supreme Court decision is expected to create a more secure and attractive environment for exploration investments in the country’s energy sector.
For more news and updates on Malampaya income tax dispute, visit Filipinokami.com.
