Bureau of Local Government Finance Opinion

March 6, 1996 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 2nd Indorsement Respectfully returned to the Regional Director for Local Government Finance, Region VII, 3rd Floor MSK Building, Juan Luna corner Lapu-Lapu Street, Cebu City. This refers to the letter dated January 29, 1996 of the Municipal Treasurer, Minglanilla, Cebu regarding the request of Marcia-Hikosen Garments Co., Inc. (MGCI) for the correct interpretation of Section 143 (c) of the Local Government Code of 1991 (LGC). Representations are made that MGCI, an exporter of garments, has its factory located in Tungkop, Minglanilla. On January 16, 1996, MGCI applied for Mayor's permit and paid its business taxes to the said municipality. MGCI claimed that being an exporter, it is subject to the tax rates provided under Sec. 143 (c) of the LGC which is 1/2 of the rates prescribed under Sec. 143 (a) of the same Code. However, the Municipal Treasurer of Minglanilla, imposed the full rates in subsection (a) on the ground that MGCI is not exporting essential commodities. Article 232 (c) of the Implementing Rules and Regulations (IRR)implementing Sec. 143 (c) of the LGC provides as follows: "ART. 232. Tax on Business . The municipality may impose taxes on the following businesses: "xxx xxx xxx "(c) On exporters ,and on manufactures, millers, producers, wholesalers, distributors dealers, or retailers of essential commodities enumerated hereunder at a rate not exceeding one-half (1/2) of the rates prescribed under subsections (a),(b) and (d) of this Article" "(1) Rice and corn; "(2) Wheat or cassava flour, meat, dairy products, locally manufactured, processed or preserved food, sugar, salt and other agricultural, marine, and fresh water products whether in their original state or not; "(3) Cooking oil and cooking gas;" "(4) Laundry soap, detergents, and medicine: "(5) Agricultural implements, equipment and post-harvest facilities, fertilizers, pesticides, insecticides, herbacides, and other farm inputs: "(6) Poultry feeds and other animals feeds; "(7) School supplies; and "(8) Cement. "For purposes of this provision, the term exporters shall refer to those who are principally engaged in the business of exporting goods and merchandise, as well as manufacturers and producers whose goods or products are both sold domestically and abroad. The amount of export sales shall be excluded from the total sales and shall be subject to the rates not exceeding one half (1/2) of the rates prescribed under pars. (a),(b) and (d) of this Article." On the basis of the foregoing, this Bureau expresses the view that exporters of garments and/or other non-essential commodities are liable to pay the business tax only at the rate of not exceeding one-half (1/2) of the rates prescribed under subsections (a),(b) and (d) of the aforequoted Article 232. This is so for reason that the qualifying phrase "essential commodities" should be construed to apply only business other than exporting considering that the term "exporter" is dissociated by the "comma" and the conjunction "and" following it. It is only when "exporters" sell non-essential goods domestically that shall be subject to the full rate imposed in the ordinance pursuant to paragraphs (a), (b) and (d) of Art. 232 aforecited. Hence, the export sales and domestic sales of such exporters should be declared separately. For clarification, enclosed is a copy of Local Finance Circular No. 4-93 dated July 30, 1993, prescribing the guidelines on the imposition by LGU of the business tax on exporters pursuant to Sec. 143 (c) of the LGC. LLjur Be guided accordingly. LORINDA M. CARLOS Executive Director