Denial of Request for Amendment of the Term "Local Taxes" under Sec. 2(i) of RR 12-97

April 13, 1999 BIR RULING NO. 049-99 R.A. 7916-000-00-049-99 Mayor Ernest H. Weigel, Jr. City of Lapu-Lapu S i r : This refers to your letter dated January 13, 1998 which was referred to this Office by Special Assistant Ma. Corazon R. Gamallo of the Office of the Secretary of Finance, relative to your request for the amendment of the term "local taxes" as defined in Section 2(i) of Revenue Regulations No. 12-97, viz: " Local Taxes " shall refer to all taxes, business taxes, real estate taxes , fees and charges imposed by the Local Government Code of 1991, as amended". (Emphasis supplied) You state as a consequence of the aforesaid definition of local taxes, business establishments operating at the Mactan Export Processing Zone no longer pay realty taxes to the city of Lapu-Lapu by virtue of Section 3.2 of said Revenue Regulations No. 12-97 which provides that "PEZA-registered enterprises, except persons and service enterprises referred to under Section 25 of said Act shall, in lieu of paying national and local taxes, pay five percent (5%) of their gross earnings . . .". Hence, you request to amend the definition of the term "local taxes" by excluding therefrom "real estate taxes" because "the exemption from taxes under Sec. 24 of R.A. 7916 specifically refers to taxes imposed under the National Internal Revenue Code, i.e.. business taxes, fees and charges imposed by the Local Government Units means of local ordinances excluding therefrom real estate taxes." dctai In reply, please be informed that your contention is not meritorious. Although the heading of Section 24 of R.A. No. 7916 states "Exemption from taxes under the National Internal Revenue Code", the body of the provisions in question also mentions "local taxes". Obviously, the local taxes referred to therein pertain not only to the business taxes, fees and charges imposed by LGUs by means of local ordinances but also to local taxes authorized to be levied by them pursuant to R.A. No. 7160, otherwise known as the "Local Government Code of 1991". This can be inferred from the clause "Any provision of existing laws . . . to the contrary notwithstanding" which indubitably refers to the provisions of the National Revenue Code and the Local Government Code. In short, businesses operating within the ECOZONE are no longer subject to the internal revenue taxes imposed under the National Internal Revenue Code and to the Local taxes imposed under the Local Government Code but only to the preferential tax rate of 5% based on the gross income earned. The 5% in lieu of all taxes is a commutation tax which effectively accords the grantee exemption from all other taxes (Philippine Airlines vs. CIR, CTA Case No. 5, dated February 8, 1956; PNRC vs. CIR G.R. 10045, 34 Phil. 401). Accordingly, we find no cogent reason to amend Revenue Regulations No. 12-97 since the same is not an erroneous interpretation of R.A. No. 7916 or in contravention thereof. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue