Bureau of Local Government Finance Opinion

February 3, 2010 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 1st Indorsement Respectfully referred to the City Treasurer of Butuan City, for comment and/or appropriate action, the herein letter of Mr. EDGARDITO LOZADA of Ampayon Petron Gasoline Stations & Enterprise located at Purok-1, Ampayon, that City, dated January 19, 2010, addressed to the Secretary of the Department of Finance (DOF), forwarded to this Bureau for appropriate action. Mr. Lozada is requesting the DOF to instruct the Sangguniang Panlungsod and that Office to implement Local Finance Circular No. 1-05 dated December 8, 2005, more particularly the provision exempting petroleum products from local taxes, fees and charges, pursuant to Section 133 (g) of Republic Act No. 7160, otherwise known as the Local Government Code (LGC) of 1991. For reference, Section 133 of the LGC quoted is hereunder: "Section 133. Common Limitations on the Taxing Powers of Local Government Units . Unless otherwise provided herein , the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following : "xxx xxx xxx "(h) Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and taxes, fees or charges on petroleum products ; (Emphasis supplied) TIDaCE "xxx xxx xxx." As can be construed from the abovequoted Section 133 of the LGC, the law prescribes the limitations on the power of local government units to exercise their taxing powers granted to them under the Code. Evident is the fact that paragraph (h) of the Section 133 mentions two kinds of taxes which local government units cannot impose, viz. : "excise taxes on articles enumerated under the NIRC, as amended (Sec. 148 of the NIRC) ;" and " taxes, fees or charges on petroleum products ." In relation thereto, Local Finance Circular No. 1-05 dated December 8, 2005, provides as follow: "SEC. 3. Exemption from Local Taxation . (a) Pursuant to Section 133 (h) of the LGC and Article 22 (h) of the IRR, local government units are prohibited from imposing taxes, fees and charges on petroleum products, which include the sale of petroleum products by gasoline stations, dealers, resellers or retailers . However, the sale of tires, batteries and other accessories (TBA) as well as services rendered by them are subject to business taxes. (b) Haulers of petroleum products who operate as transportation contractors or independent common carriers shall be exempt from local taxes pursuant to Section 133 (j) of the LGC. (c) Taxes, fees, charges and other impositions shall not be levied on petroleum products carried into or out of or passing through the territorial jurisdictions of local government units pursuant to Section 133 (e) of the Code." Section 1 (a) of SP Ordinance 2424-2003, imposes tax at the rate of 11% of 1% on the gross receipts of dealers or distributors of gasoline, diesel or kerosene products operating within the territorial jurisdiction of that city. Further, Paragraph 3 thereof provides that "Producers, Manufacturers, and Refineries of oil, gasoline and other products are subject to one percent (1%) of the gross or (sic) receipts. Section 2 of LFC 1-05 defines "Petroleum Products" as follows: "Petroleum Products" shall refer to products formed in the course of refining crude petroleum through distillation, cracking, solvent refining and chemical treatment coming out as primary stocks from the refinery such as, but not limited to, LPG, naphtha, gasoline , solvent, kerosene , aviation fuels, fuel oils, waxes and petroleum fractions which have not undergone any process or treatment as to produce chemically-defined compounds in a pure or commercially pure state and to which various substances may have been added to render them suitable for particular uses: Provided, That the resultant product contains not less than fifty percent (50%) by weight of such petroleum products." llcd In this connection, and in order that appropriate action can be made on the issue, his comment or appropriate action on the matter, together with a copy of SP Ordinance No. 894-02 or excerpt thereof, is requested within five (5) days upon receipt hereof. (SGD.) MA. PRESENTACION R. MONTESA Executive Director