Clarification on the Taxability of ECs registered under the NEA, in Line with the Supreme Court Decision re PHILRECA Case (G.R. No. 143076)

September 9, 2005 BLGF MEMORANDUM CIRCULAR NO. 014-05 TO : All Regional Directors for Local Government Finance; Provincial, City and Municipal Assessors and Treasurers; and Others Concerned SUBJECT : Clarification on the Taxability of Electric Cooperatives (ECs) registered under the National Electrification Authority (NEA), in Line with the Supreme Court Decision re PHILRECA Case (G.R. No. 143076) For the information and guidance of all concerned, quoted hereunder, in part, is the opinion/ruling rendered by this Bureau as embodied in its 1st Indorsement dated April 6, 2005, copy attached, addressed to the City Assessor and the City Treasurer, both of Naga City, re: request of the President, Camarines Sur II Electric Cooperative (CASURECO) for a ruling on the validity of the real property tax imposition of the City Government of Naga on the real properties of the said electric cooperative, to wit: ". . . The real property tax exemption of electric cooperatives under Presidential Decree (P.D.) No. 269 or the National Electrification Administration Decree , as amended by P.D. No. 1645, was then specifically provided for under Section 40(g) of P.D. No. 464, the Real Property Tax Code , as amended (the applicable law then prevailing), which provides, as follows: 'SEC. 40. Exemption from Real Property Tax . The exemption shall be as follows: 'xxx xxx xxx. '(g) Real property exempt under other laws.' "Evidently, CASURECO is exempt from the payment of real property tax for the years 1985-1991. Consequently, the cooperative should not have been subject to any penalties/interest for the corresponding period. "Likewise, we agree on the second issue raised that CASURECO II is also exempt for the period starting March 19, 1993 up to May 4, 1997, in line with the clarification made by Atty. Niel A. Santillan, Executive Director, CDA, as embodied under his letter dated January 28, 2005, copy enclosed, which reads, as follows: 'In the light of the foregoing and to set the record straight, this Authority hereby states that CASURECO II including other electric cooperatives which failed to permanently register with CDA are only exempted from paying the taxes imposed under the LGC from the time they were issued a Certificate of Provisional Registration by CDA (1993-1994) up to the time their provisional registration expired in May 4, 1997.' "In view hereof, and in line with the abovementioned Supreme Court Decision on PHILRECA Case, CASURECO II, with its provisional registration with the CDA is exempt from the payment of real property tax from 1993 up to 1997. "With regard to the third and fourth issues, it may be worth emphasizing that electric cooperatives are not GOCCs but Cooperatives which are governed by R.A. No. 6938. Hence, although NEA, a GOCC, is covered by the exemption proviso of Section 234 (c) of the Code, the exemption on its machineries and equipment cannot be extended to NEA-registered electric cooperatives, like CASURECO II. Likewise, the land, buildings and other improvements owned by them are not considered "Special Classes" of real properties covered under Section 216 of the same Code. "In this connection, attention is invited to the 2nd Indorsement dated November 12, 2004, copy also enclosed, of this Bureau, treating on a similar subject matter, which ruled in part, as follows: 'At the outset, it is informed that the exemption from real property tax of Rural Electric Cooperative is distinct and separate from the exemption of Government-Owned or Controlled Corporations (GOCCs). The provision of law, specifically for machineries and equipment actually, directly and exclusively for GOCCs engaged in the generation and transmission of electric power is found under Sec. 234(c) of the Local Government Code of 1991 (R.A. No. 7160); while Electric Cooperatives are governed by Section 234(d) of the same code. Sections 234(c) and (d) are quoted below: 'SEC. 234. Exemptions from Real Property Tax . The following are exempted from payment of real property tax: 'xxx xxx xxx. '(c) All machineries and equipment that are actually, directly and exclusively used by local water districts and government-owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power; '(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; 'xxx xxx xxx.' 'The said property falls under the classification of 'commercial' and therefore the assessment level to be applied should be that which was fixed by ordinance of the sangguniang panlalawigan of the province for "commercial" properties but not exceeding the assessment levels provided for under Section 218 of the code.' "In the same vein, therefore, although CASURECO II is a NEA-registered electric cooperative, all its real properties are subject to real property tax beginning 1998. It follows further that, the applicable assessment level for the subject real properties of CASURECO II would now be that which was fixed by an Ordinance of the Sangguniang Panlalawigan of Camarines Sur for "Commercial" properties but not exceeding the assessment level provided for under the abovementioned Section 218 of R.A. No. 7160. DISEaC "However, other equipment/machines, including air conditioning units (window and package type), small generating sets and other mechanical devices of the same nature which are considered falling under the category of machinery of general purpose use should not be considered real properties in line with the clarification under Article 290(o) of the Implementing Rules and Regulations of R.A. No. 7160. (2nd Indorsement dated January 30, 2001 of this Bureau) (copy also enclosed) "On the other hand, attention is also invited to Section 255 of the same Code (R.A No. 7160) which provides, as follows: 'SEC. 255. Interests on Unpaid Real Property Tax . In case of failure to pay the basic real property tax . . ., shall subject the taxpayer to the payment of interest at the rate of two percent (2%) per month on the unpaid amount or a fraction thereof, until the delinquent tax shall have been fully paid: Provided, however, That in no case shall the total interest on the unpaid tax or portion thereof exceed thirty-six (36) months .' (Underscoring ours) "As to issue no. 5, this Bureau agrees . . . that the Code specifies a maximum limitation on interests on real property tax delinquencies of up to 36 months or not exceeding 72 % of the taxes. "With regard to the application of the SMV for the appraisal of real properties of CASURECO (issue no. 6), we also find it logical and fair that that Office should have applied the applicable SMV in force during the corresponding period. "Lastly, considering the TRO issued on July 25, 2000 by the Supreme Court in relation to the PHILRECA Case (G.R. No. 143076) and considering further the Resolution of the said Court En Banc dated August 5, 2003 (Denying with Finality the Motion for Reconsideration), no interests for the real property taxes due for the said period shall be imposed on electric cooperatives, including CASURECO." This Bureau would like to emphasize, however, that Cooperatives created under P.D. No. 269, as amended by P.D. No. 1645, are given three (3) years within which to qualify and register with the CDA, after which, the provisions of P.D. No. 1645, which expand the powers of the NEA over electric cooperatives, would no longer apply. Accordingly, the real properties of ECs registered and controlled by the NEA are: 1. Exempt from the payment of real property tax prior to the effectivity of R.A. No. 7160, also known as the Local Government Code of 1991; 2. Exempt from the payment of real property tax for the period of its Provisional Registration with the Cooperative Development Authority (CDA); 3. Not covered by the exemption proviso provided under Section 234(c) of the Code, granting exemption to NEA's machineries and equipment in view of the fact that ECs are not GOCCs but Cooperatives which are governed by R.A. No. 6938; 4. Not considered falling under "Special Classes" of real properties provided under Section 216 of the same Code; 5. Subject to the applicable assessment level fixed by the local sanggunian concerned for "Commercial" properties but not exceeding the assessment level provided for under Section 218 of the Code; 6. Subject to a maximum interest of up to 36 months or 72% of the taxes on its real property tax delinquencies; 7. Subject to the applicable SMV in force during the period of its delinquency; and 8. Not subject to interest and penalties during the period covered by the subject TRO issued by the Supreme Court in connection with the said PHILRECA Case. The Provincial Assessors and Treasurers are hereby instructed to disseminate the contents of this Circular, including the attachments, to the Municipal Assessors and Treasurers within their respective jurisdiction. (SGD.) MA. PRESENTACION R. MONTESA Executive Director