Law and Jurisprudence

Sale by PSALM of the Power Plants of NPC Not Subject to Value-Added Tax

The Power Sector Assets and Liabilities Management Corporation (PSALM) is a government-owned and controlled corporation whose principal purpose is to manage the orderly sale, disposition, and privatization of the National Power Corporation (NPC) generation assets, real estate and other disposable assets, and Independent Power Producer (IPP) contracts with the objective of liquidating all NPC financial obligations and stranded contract costs in an optimal manner.

Is the sale by PSALM of the power plants of NPC subject to value-added tax?

The Supreme Court held in PSALM v. CIR (G.R. No. 198146, 08 August 2017) and in PSALM v. CIR (G.R. No. 226556, 03 July 2019) that the sale is not subject to value-added tax. The Court declared:

The sale of the power plants is not “in the course of trade or business” as contemplated under Section 105 of the NIRC, and thus, not subject to VAT. The sale of the power plants is not in pursuit of a commercial or economic activity but a governmental function mandated by law to privatize NPC generation assets.