Taxes Collected by Local Government Unit Cannot be Held to Cover Their Revenue Allotment Share

November 24, 2003 BIR RULING NO. 016-03 283, 251, 272 000-00 Hon. Jose L. Atienza, Jr. City Mayor Manila S i r : This refers to your letter dated November 25, 2002, the contents of which is quoted as follows: "By law, the City of Manila is entitled to a proportionate percentage share from the 25% Franchise Taxes paid by the Manila Jockey Club, Inc. on its gross earnings generated from horse races [Sec. 6, R.A. 6631, as amended by R.A. No. 8407] "In this connection, the Bureau has issued certifications on the amounts collected from the franchise taxes. Based thereon, this Office has computed a total of P101,027,343.20 as the acknowledged corresponding share of the city that has remained unpaid. "Despite numerous documented claims for such monies due, our corresponding shares have never been released by the National Government. This unjustified refusal has critically affected our provision and delivery of basic services to our constituencies. "Accordingly, we shall undertake a commensurate settlement of respective accounts (payable and receivables) between our agencies. We shall hold remittance of withholding taxes until such time as the same has fully covered the amount of our corresponding certified shares. " In reply, please be informed that this Office takes due notice of your plight and sympathizes with your predicament. However, our government is one of laws and not of men. Thus, while this Office raises and collects taxes for the government, the National Treasury immediately takes control over the funds that shall be disposed of and allocated to the various branches of government in consultation, with the Department of Budget and Management. In this regard, Section 283 of the Tax Code of 1997 provides: "SEC. 283. Disposition of National Internal Revenue . National internal revenue collected and not applied as hereinabove provided or otherwise specially disposed of by law shall accrue to the National Treasury and shall be available for the general purposes of the Government, with the exception of the amounts set apart by way of allotment as provided for under Republic Act No. 7160, otherwise known as the Local Government Code of 1991. xxx xxx xxx" With due regard to your situation, we, nevertheless, find no legal basis to authorize the City Government of Manila not to remit the withholding taxes collected by it and to fully apply the same to the extent possible to the City Government's corresponding certified revenue allotment share. Taxes can not be the subject of set-off and compensation. For the City Government to insist on its intended course of action would violate certain provisions of the Tax Code of 1997 as follows: "SEC. 251. Failure of a Withholding Agent to Collect and Remit Tax . Any person required to withhold, account for, and remit any tax imposed by this Code or who willfully fails to withhold such tax, or account for and remit such tax, or aids or abets in any manner to evade any such tax or the payment thereof, shall, in addition to other penalties provided for under this Chapter, be liable upon conviction to a penalty equal to the total amount of the tax not withheld, or not accounted for and remitted." "SEC. 272. Violation of Withholding Tax Provision . Every officer or employee of the Government of the Republic of the Philippines or any of its agencies and instrumentalities, its political subdivisions, as well as government-owned or controlled corporations, including the Bangko Sentral ng Pilipinas (BSP), who, under the provisions of this Code or rules and regulations promulgated thereunder, is charged with the duty to deduct and withhold any internal revenue tax and to remit the same in accordance with the provisions of this Code and other laws is guilty of any offense hereinbelow specified shall, upon conviction for each act or omission be punished by a fine of not less than Five thousand pesos (P5,000) but not more than Fifty thousand pesos (P50,000) or suffer imprisonment of not less than six (6) months and one (1) day but not more than two (2) years, or both: (a) Failing or causing the failure to deduct and withhold any internal revenue tax under any of the withholding tax laws and implementing rules and regulations; (b) Failing or causing the failure to remit taxes deducted and withheld within the time prescribed by law, and implementing rules and regulations; and (c) Failing or causing the failure to file return or statement within the time prescribed, or rendering or furnishing a false or fraudulent return or statement required under the withholding tax laws and rules and regulations." Please be assured, however, that the Bureau of Internal Revenue will be glad to provide the necessary assistance, within the limits of the law, to enable the City Government of Manila to satisfactorily obtain its rightful share in the internal revenues collected by the Bureau. CHcETA Very truly yours, (SGD.) GUILLERMO L. PARAYNO, JR. Commissioner of Internal Revenue