Whether PAGCOR is Exempt from Paying Customs Duties on Its Importations as Well as Income and Other Taxes under Its Franchise

September 22, 1995 BIR RULING NO. 147-95 24 000-00 147-95 Philippine Amusement & Gaming Corporation PAGCOR House, 1330 Roxas Boulevard Ermita, Metro Manila Attention: Ms . Alicia Ll . Reyes Chairman and Chief Executive Officer Gentlemen : This refers to your letters dated July 25 and September 5, 1995 stating that under Presidential Decree No. 1869, as amended, reorganizing the Philippine Amusement and Gaming Corporation (PAGCOR), PAGCOR was granted a renewable 25 year exclusive franchise to operate gambling casinos and conduct other games of chance; that one of the conditions of the franchise relates to PAGCOR's liability for, and exemption from payment of taxes and other exactions; that another statutory condition is prescribed in Section 12 of P.D. No. 1869 which provides that after deducting five (5%) percent as franchise tax, the fifty (50%) percent share of the Government in the aggregate gross earnings of PAGCOR from the franchise, or 60% if the aggregate gross earnings is less than P150,000,000.00 shall immediately be set aside and shall accrue to the General Fund to finance the priority infrastructure development projects and to finance the restoration of damaged or destroyed facilities due to calamities, as may be directed and authorized by the Office of the President of the Philippines; that with the issuance of Executive Order No. 72, Series of 1986 providing that all grantees of franchise shall be subject to income tax at the rate levied under Title II of the Tax Code, as amended, and withdrawing income tax exemptions and Executive Order No. 93, likewise Series of 1986, withdrawing all tax and duty incentives subject to certain exceptions granted to government and private entities, PAGCOR was constrained to pay all kinds of customs duties, taxes and other imposts, either to the BIR or to the Bureau of Customs; that PAGCOR restudied its charter and it has come to a conclusion that it is exempted from paying customs duties on its importations and income and other taxes, E.O. Nos. 72 and 93 notwithstanding, since it is already paying the government 52.5% of its gross earnings which covers the 5% franchise tax being paid to the BIR and the mandated government share of 50% computed based on 95% of PAGCOR's gross earnings; that PAGCOR is required under other various laws to provide, as a matter of statutory duty, a subsidy to the National Power Corporation, the Philippine Sports commission, the Board of Claims and the National Commission on Culture and the Arts; that the local governments of host cities and the President's Social Fund are also PAGCOR's beneficiaries; that the Office of the Government Corporate Counsel in its Opinion No. 058, Series of 1995, the Office of the Solicitor General (OSG) in its letter dated April 10, 1995 and the Office of the President in its letter dated August 23, 1995 confirmed your opinion that PAGCOR is exempt from paying customs duties on its importations as well as income and other taxes under its franchise, P.D. No. 1869; and that you are informing this Office that starting July 1995, PAGCOR will discontinue paying its income and other taxes except its franchise tax of five percent (5%) of its gross revenue or earnings derived from its operation under the franchise, and the mandated 50% of the remaining 95% of its gross receipts being paid to the National Treasury as the National Government share in PAGCOR's gross revenue. In reply thereto, please be informed that Section 13 of P.D. No. 1869 otherwise known as the Charter of PAGCOR provides, viz.: SEC. 13. Exemptions "(1) . . . "(2) Income and other taxes . (a) Franchise Holder: No tax of any kind or form, income or otherwise, as well as fees, charges or levies of whatever nature, whether National or Local, shall be assessed and collected under this Franchise from the Corporation, nor shall any form of tax or charge attach in any way to the earnings of the Corporation, except a Franchise Tax of five (5%) percent of the gross revenue or earnings derived by the Corporation from its operation under this Franchise. Such tax shall be due and payable quarterly to the National Government and shall be in lieu of all kinds of taxes, levies, fees or assessments of any kind, nature or description, levied, established or collected by any municipal, provincial or national government authority . (Emphasis supplied) Section 2 of Executive Order No. 72 provides, viz.: "SEC. 2. Any provision of general or special law to the contrary notwithstanding , all grantees of franchises shall be subject to income tax levied under Title II of the National Internal Revenue Code, as amended." Section 1 of Executive Order No. 93, provides, viz.: "SEC. 1. The provisions of any general or special law to the contrary notwithstanding , all tax and duty incentives granted to government and private entities are hereby withdrawn, except; xxx xxx xxx Contrary to your opinion that PAGCOR is exempt from income and other taxes by virtue of Section 13 of its Charter, P.D. No. 1869, PAGCOR is subject to income tax in addition to franchise tax after the issuance of Executive Order Nos. 72 and 93 effective February 10, 1987 and March 19, 1987, respectively, repealing and withdrawing the income tax exemption, among others, of franchise grantees, like PAGCOR. With respect to the effectivity of E.O. No. 72, the Supreme Court, in the case of Taada, et al. vs. Tuvera, et al. , G.R. No. 63915 dated December 29, 1986 held that all statutes, including those of local application and private laws, presidential decrees and executive orders promulgated by the President shall be published as a condition for their effectivity; and that while newspapers of general circulation could better perform the functions of communicating the laws to the people as such periodicals are more easily available, have a wider readership and come out regularly, that kind of publication is not the one required or authorized by existing law but publication in the Official Gazette despite its erratic releases and limited readership, as provided for in Article 2 of the new Civil Code . Accordingly, notwithstanding its publication in full on December 1, 1986 in newspapers of general circulation, Executive Order No. 72 became effective only upon its publication in the Official Gazette dated December 15, 1986. However, since the Official Gazette which published said Executive Order was released for circulation only on January 26, 1987 as evidenced by a Certification issued by the Copy Editor of the Official Gazette Section, its effectivity should be reckoned from that date. Such being the case, pursuant to Article 2 of the new Civil Code reading: "ART. 2. Laws shall take effect after fifteen days following the completion of their publication in the Official Gazette, unless it is otherwise provided. . . ." and in line with the Supreme Court decision in the case of Lara vs. del Rosario, 94 Phil. 778, PAGCOR will start paying in addition to the franchise tax of 5% of the gross revenue or earnings derived by it from its operation under the franchise, the corporate income tax on income accrued after fifteen days reckoned from January 26, 1987, the date when the Official Gazette publishing Executive Order No. 72 was released for circulation or on February 10, 1987. (BIR Rulings Nos. 061-87, 063-87 dated March 2, 1987). Executive Order No. 72 subjecting beginning February 10, 1987 all grantees of franchises to income tax and Executive Order No. 93 withdrawing all tax and duty incentives granted to government and private entities had the effect of withdrawing the franchise grantee's exemption from income tax (Cagayan Electric Power & Light Co., Inc. vs. Commissioner of Internal Revenue and Court of Appeals G.R. No. 60126, prom. September 25, 1985). It is a cardinal rule in taxation that exemptions should be construed strictissimi juris because it is highly disfavored in law; and he who claims an exemption must be able to justify his claim by the clearest grant of organic or statute law. An exemption from the common burden cannot be permitted to exist upon vague implications (Asiatic Petroleum Co. vs. Llanes, 49 Phil. 466). cdtech Be that as it may, we are not bound by the opinions of other government agencies, including the Government Corporate Counsel or the Office of the Solicitor General which are contrary to the position taken by this Office that upon the effectivity of E.O. No. 72 on February 10, 1987, all franchise holders like PAGCOR are subject to income tax levied under Title II of the National Internal Revenue Code (NIRC), notwithstanding the particular provisions in the franchise granting exemption from income tax (BIR Ruling Nos. 061-87, 063-87, supra ). As the government agency charged with the enforcement of the law, the opinion of the Commissioner of Internal Revenue (CIR), in the absence of any showing that it is plainly wrong, is entitled to great weight. Indeed, the ruling was made by the CIR in the exercise of his power under Section 245 of the NIRC to "make rulings or opinions in connection with the implementation of the provisions of internal revenue laws, including rulings on the income tax liability of franchise holders in addition to their liability to franchise tax in accordance with their Charter or franchise" (see Misamis Oriental Associations of Coco Traders, Inc. vs. Department of Finance Secretary, Commissioner of the Bureau of Internal Revenue (BIR) Revenue District Officer, BIR Misamis Oriental, G.R. No. 108524, November 6, 1994). Moreover, Art. XIV of the then 1935 Philippine Constitution as well as Section 10, Art. XII of the 1987 Philippine Constitution expressly provide that no franchise or right shall be granted except under the condition that it shall be subject to amendment, alteration or repeal by Congress when the common good so requires. In view of the foregoing, this Office is of the opinion and so holds, that PAGCOR is liable to the payment of the 35% corporate income tax in addition to a franchise tax of 5%. You are, therefore, requested to pay your corporate income tax liability beginning July 1995 in addition to the franchise tax of 5%; otherwise, this Office will be constrained to enforce collection thereof through the summary remedies prescribed by law. LLjur Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue