Bureau of Local Government Finance Opinion

January 5, 2015 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 1st Indorsement Respectfully returned to the ICO-Regional Director for Local Government Finance, Region III, San Fernando, Pampanga, the herein copy of the letter dated October 14, 2014 of Hon. Jose Enrique S. Garcia III, City Mayor, Balanga City, Bataan, requesting for an opinion on the proper application of Local Finance Circular (LFC) No. 1-07 dated June 28, 2007, which prescribes the guidelines governing the powers of local government units to impose taxes, fees and charges on Electric Cooperatives (ECs) registered, supervised and controlled by the National Electrification Administration. In the said letter, it appears that the City Government of Balanga has assessed local business taxes against Peninsula Electric Cooperative, Inc. (PENELCO) for the years 2012 to 2014 which the latter has protested. PENELCO submitted documents which showed its alleged gross receipts generated in Bataan for 2011 to 2013 wherein the City computed PENELCO's business tax in accordance with LFC 1-07 based on the Gross Receipts less NPC charges, TransCo Charges, Reinvestment Fund & Universal Charges. The City also relied on the Bureau's earlier opinion dated August 12, 2008 addressed to Hon. Edward P. Domingo, Acting City Mayor of Laoag City which provides that transmission, generation and systems loss charges are not deductions from ECs' gross receipts. However, PENELCO contended that Generation Charges & Transmission Charges should also be excluded, citing ERC Resolution No. 20, series of 2006. PENELCO also contended that Generation & Transmission Charges refer to NPC & TransCo charges, respectively. As a result, the City is concerned that if PENELCO's claim is sustained the latter's business tax liability will be substantially reduced. Hence, this present query from Mayor Garcia III. In this connection, enclosed for your information and ready reference is a copy of the letter dated November 28, 2014 addressed to Mr. Wendell B. Ballesteros, General Manager, Philippine Rural Electric Cooperative Association, Inc. (PHILRECA) modifying any other rulings or opinions previously issued interpreting Section 3 (b) (2) of LFC 1-07. Be guided accordingly. (SGD.) SALVADOR M. DEL CASTILLO OIC-Executive Director