House Bill No. 6506 "An Act Creating the Davao Gulf Development Authority, Defining its Powers, Functions and Duties, Providing Funds Therefor and for Other Purposes"

July 25, 2000 BIR RULING [DA-291-00] MEMORANDUM FOR : Hon. Antonio F. Corrado Assistant Secretary for Legislation FROM : Lilian B. Hefti Deputy Commissioner Legal & Inspection Group SUBJECT : HOUSE BILL NO. 6506 "An Act Creating the Davao Gulf Development Authority, Defining its Powers, Functions and Duties, Providing Funds Therefor and for Other Purposes." FEATURES OF THE HOUSE BILL "Section 9. Tax Exemption . The Authority shall be exempt from payment of all income taxes, franchise tax, realty taxes, and all kinds of taxes and licenses to the National Government, its provinces, cities, municipalities and other government agencies and instrumentalities: Provided, That its subsidiary corporations shall be subject to all said taxes five (5) years after their establishment under a graduated scale. Such exemption shall include any tax or fee imposed by the government on the sale, purchase or transfer of foreign exchange and all notes, bonds, and debentures, and other obligations issued by the Authority, both as to the principal and interest." COMMENTS: The proposed bill seeks to provide for an indefinite exemption to Davao Gulf Development Authority. The proposal to exempt the said Authority from income taxes, franchise tax, realty taxes and all kinds of taxes, whether national or local, is unconscionable, considering that taxes are the lifeblood of the nation (CIR vs. Pineda No. L-22734, Sept. 15, 1967 21 SCRA 105) Their primary purpose is to generate funds for the State to finance the needs of the citizens and to advance the common weal. (NPC vs. The Province of Albay, et al. G.R. No. 87499, June 4, 1990) Likewise, the proposed bill which does not prescribe the duration of the tax exemption privilege is unfair to other taxpayers which are required to shoulder the burden of taxation. Thus, giving the said Authority undue preference over the ECOZONE enterprises registered with the said Philippine Economic Zone Authority (PEZA) under R.A. No. 7916 as amended by R.A. 8748 and the Subic Bay Special Economic Zone under R.A. No. 7227, considering that in the latter case, they may be enjoying an income tax holiday for a specific period of time and/or subject to the preferential tax rate of 5% based on the gross income earned, as the case may be. In the same manner, exempting the-Authority from passive income not related to its economic activity would create a negative result in the revenue collection of the BIR. Finally, the proposed bill will be an amendment to Section 27(C) of the Tax Code of 1997 which exempts only the GSIS, SSS, PHIC, PCSO and PAGCOR from paying income taxes. This would open the floodgates for others to seek similar exemption, thereby leading to the discrimination of taxes which otherwise would go to the National Government. In view of the foregoing, this Office does not endorse the proposed incentive to grant Davao Gulf Development Authority unlimited exemption from the payment of all kinds of taxes to the National Government, its provinces, cities, municipalities and other government agencies and instrumentalities. (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal & Inspection Group