BIR Ruling

August 17, 1976 MEMORANDUM FOR: The Revenue Service Chief (Assessment) This refers to the proposed LOI which directs that all expenses of the Central Bank of the Philippines in connection with its tax collection activities in assistance to the National Government in accordance with existing laws, shall be booked as Central Bank accounts receivable from the National Government; and that such accounts shall be liquidated from time to time by offsetting an equivalent amount against sums that may become due the National Government from the Central Bank occasioned by the distribution of the net profits of the latter pursuant to Section 41 of the Central Bank Act. Section 41(d) of Republic Act No. 265, states as follows: "(d) If any net profits remain after fulfilling the conditions of subsections (a), (b) and (c) of this section, the balance or any part thereof may be transferred to surplus, or may be used to liquidate Government obligations to the Central Bank, or may be paid into the General Fund of the Government. The Monetary Board shall determine this distribution." Under the proposed LOI, the Central Bank will offset its expenses incurred in connection with its tax collection activities in assistance to the National Government against sums that may become due the National Government from the Central Bank arising from the distribution of its net profits pursuant to the aforequoted provision of Section 41(d). The share of the National Government in the net profit of the Central Bank forms part of the General Fund available for expenditure by the Government pursuant to an appropriation measure. Under Article VIII, Section 18(1) of the New Constitution, "No money shall be paid out of the Treasury except in pursuance of an appropriation made by law". The elements for the validity of an appropriation are: (1) The law must fix the amount to be paid out of the treasury (People vs. Brooks, 16 Cat. 11); (2) The law must designate the fund out which the money should be paid out; (3) The appropriation must be for a public purpose. (Pascual vs. Secretary of Public Works, G.R. No. L-10405, Dec. 29, 1960), (See the New Constitution of the Philippines p. 336, Martin). While the proposed LOI may take the form of an appropriation measure [for the reason that under the Transitory Provisions of the New Constitution, Art. XVII, Sec. 3(2), all proclamations, orders, decrees, instructions, and acts promulgated, issued, or done by the incumbent President shall be part of the law of the land, and shall remain valid, legal, binding, and effective even after lifting of martial law or the ratification of this Constitution, unless modified, revoked, or superseded by subsequent proclamations, orders, decrees, instructions, or other acts of the incumbent President, or unless expressly and explicitly modified or repealed by the regular National Assembly], nevertheless, it does not fix the amount to be paid out of the treasury, hence, defective in substance. "In one case, an Act provides payment due out of the state treasury to any person, firm or corporation engaged in the manufacture of sugar the sum of five-eights of one percent per pound upon every pound of sugar manufactured under conditions and restrictions of the Act. The Court held that the provisions of the Act do not make a valid appropriation for the reason that the legislature failed to fix a certain amount to be appropriated." (State of Nebraska vs. Moore, 50 Neb. 88). Unless, therefore, the Central Bank fixes the amount reimbursable to it for performing collection activities which amount should be stated in the proposed LOI, the legality of the proposal may be assailed on Constitutional grounds. PRISCILLA R. GONZALES Revenue Service Chief (Legal) TAN-1258-814-1