Bureau of Local Government Finance Opinion

December 28, 2000 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 3rd Indorsement Respectfully returned, thru the Regional Director for Local Government Finance, Department of Finance, Region IV, People's Mansion Compound, Batangas City, to the Provincial Assessor of Batangas, the within preceding Indorsement dated January 21, 2000, relative to the letter dated January 14, 2000 of Atty. Ingrid S. Dungca, Manager, Corporate Services Department, United Coconut Chemicals, Inc. (COCOCHEM) addressed to that Office, requesting opinion concerning the taxability of the real properties owned by COCOCHEM, Inc., located at Bauan and San Pascual, both of that province. The subject request was prompted by the Real Property Tax Order of Payment (RPTOP) sent by the Provincial Assessor and the Provincial Treasurer, both of the Province of Batangas, demanding the payment of real property tax amounting to P1,306,994.80, for the year 1999 due on their real properties located in said municipalities. The Provincial Assessor of Batangas, in his 1st Indorsement dated January 18, 2000 informed that they revised the assessment of the subject real properties of COCOCHEM, from partially exempt and partially taxable to totally taxable effective the year 2000 pursuant to Section 4 of R.A. No. 8748 dated June 20, 1999 which was officially published on August 30, 1999 in the Official Gazette. Section 4 of said R.A. No. 8748, amending Section 24 of R.A. No. 7916, provides as follows: "Section 4. Chapter III Section 24 of Republic Act No. 7916 is hereby amended to read as follows: "Sec. 24. Exemption from National and Local Taxes . Except for real property taxes on land owned by developers, no taxes, local and national, shall be imposed on business establishments operating within the ECOZONE. . . . ." Atty. Dungca, in her letter dated January 14, 2000, claims that COCOCHEM is registered with PEZA as an ecozone developer on December 4, 1997 under Registration No. EZ-97-05, and under the said registration, the PEZA Board granted COCOCHEM its real property tax exemption subject to PEZA Board Resolution No. 99-093 in a Board meeting on March 30, 1999. Under Resolution No. 00-001, the Rules and Regulations implementing Republic Act No. 7916, otherwise known as "The Special Economic Zone Act of 1995," as amended by Republic Act No. 8748, clarified, under Section 2 of Rule XIV thereof that: "SECTION 2. Incentives to Existing PEZA-registered ECOZONE Developers/Operators . ECOZONE Developers/Operators registered with PEZA before the effectivity of Republic Act No. 8748 on 20 June 1999 shall continue be entitled to incentives under the terms and conditions provided in their registration agreement." CEDHTa In the case at bar, the COCOCHEM's registration before the PEZA declaring the 12 hectare area located in Barangay Aplaya, Batangas as a Special Economic Zone, to be known as Cocochem Agro-Industrial Park Special Economic Zone is not a contract contemplated in the non-impairment clause, hence, not covered by the constitutional prohibition. The privilege or incentive granted to a registrant is but a gratuitous allowance which the corporation has no vested right. In Tolentino vs . Secretary of Finance, et al ., 235 SCRA 610 {1994}, the Supreme Court ruled that PAL's franchise (P.D. No. 1590) a special law was repealed by general law (R.A. No. 7716, the EVAT Law), because of the condition for granting franchise that they could be subject to repeal, alteration or amendment. Sec. 11, Art. 12 of the Constitution provides . . . "Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration or repeal by the Congress when the common good so requires." It is noteworthy that it was expressly provided under Sec. 12, Article XII of the Registration Agreement executed by PEZA and REGISTRANT that the provisions of R.A. 7916 are likewise incorporated therein. Thus, whatever changes or amendment that would take place on the said law will likewise bind the said registrant. On the other hand, Sec. 2, Rule XII of the amended IRR of PEZA declares that ECOZONE Developers registered with PEZA before the effectivity of R.A. No. 8748 in June 1999 shall continue to be entitled to incentives under the terms and conditions provided in their registration agreement. We doubt if the said IRR could validly grant the said incentives not found in the law, much less of its apparent contrariety to Sec. 24 of R.A. 8748. "It is settled that rules and regulations being subordinate legislation cannot amend or expand the coverage of the law ( U.S. vs . Tupasi Molina , 29 Phil. 119; UST vs . Board of Tax Appeals , 93 Phil 376; People vs . Macaren , 795 SCRA 450). The prohibition against ex post facto laws applies only to criminal and not to laws which concern civil matters. Our tax laws are civil in nature ( Republic vs . Oasan Vda . De Fernandez , L. 1991, September 25, 1955). Moreover, in Mactan Cebu vs . Marcos , 261 SCRA 667, the Supreme Court ruled as follows: "Since taxation is the rule and exemption therefrom the exception, the exemption may be withdrawn at the pleasure of the taxing authority, the only exception being where the exemption was granted to private parties based on material consideration of a mutual nature which then becomes contractual and thus covered by the non-impairment clause of the constitution." In view of the foregoing, it is the considered view of this Bureau that lands owned by ECOZONE developers, like COCOCHEM, are subject to the payment of real property taxes beginning the year 2000. Be guided accordingly. (SGD.) BENJAMIN A. GERONIMO Executive Director MEMORANDUM FOR : Dir. E. R. PARDO Policy Enforcement Service FROM : Legal Division, IAO DATE : October 18, 2000 The opinion of this Division is sought as to whether or not the exemption/incentive previously enjoyed by COCOCHEM was withdrawn or revoked by Sec. 24 of R.A. 8747. We opined in the affirmative. "Since taxation is the rule and exemption therefrom the exception, the exemption may be withdrawn at the pleasure of the taxing authority, the only exception being where the exemption was granted to private parties based on material consideration of a mutual nature which then becomes contractual and thus covered by the non-impairment clause of the constitution." ( Mactan Cebu vs. Marcos , 261 SCRA 667). In the case at bar, the COCOCHEM's registration before the PEZA declaring the 42 hectare area located in Barangay Aplaya, Batangas as a Special Economic Zone, to be known as Cocochem Agro-Industrial Park Special Economic Zone is not a contract contemplated in the impairment clauses, hence, not covered by the constitutional prohibition. The privilege or incentive granted to a registrant is but a gratuitous allowance which the corporation has no vested right. In Tolentino vs . Secretary of Finance, et al ., 235 SCRA 610 [1994], the Supreme Court ruled that PAL's franchise (P.D. No. 1590) a special law was repealed by general law (R.A. No. 7716, the EVAT Law), because of the condition for granting franchise that they could be subject to repeal, alteration or amendment. Sec. 11, Art. 12 of the Constitution provides . . . "Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration or repeal by the Congress when the common good so requires". It is noteworthy that it was expressly provided under Sec. 12, Article XII of the Registration Agreement executed by PEZA and REGISTRANT that the provisions of R.A. 7916 are likewise incorporated therein. Thus, whatever changes or amendment that would take place on the said law will likewise bind the said registrant. On the other hand, Sec. 2, Rule XII of the amended IRR of PEZA declares that ECOZONE Developers registered with PEZA before the effectivity of R.A. 8748 on June 1999 shall continue to be entitled to incentives under the terms and conditions provided in their registration agreement. We doubt if the said IRR could validly grant the said incentives not found in the law, much less of its apparent contrariety to Sec. 24 of R.A. 8747. "It is settled that rules and regulations being subordinate legislation cannot amend or expand the coverage of the law ( U.S. vs . Tupasi Molina , 29 Phil. 119; UST vs . Board of Tax Appeals , 93 Phil 376; People vs . Macaren , 795 SCRA 450). The prohibition against ex post facto laws applies only to criminal and not to laws which concern civil matters. Our tax laws are civil in nature ( Republic v . Oasan Vda . De Fernandez , L. 1991, September 25, 1955). (SGD.) J. I. INAMAC Legal Officer IV