Bureau of Local Government Finance Opinion

May 4, 2000 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 1st Indorsement Respectfully returned to the Municipal Treasurer, Carmona Cavite, the herein sub-joined letters dated March 20, 2000 and May 2, 2000 of Mr. Roberto D. Sison, General Manager, Metalcast Corporation (Metalcast for brevity) Governor's Drive, Bo. Bancal, that municipality, requesting clarification regarding the tax liability of the said company as well as the bass in the computation of fire inspection fee. Representations are made that Metalcast, a BOI-registered non-pioneer enterprise, is an exporter of aluminum parts with precision machining and its products are exported to Japan, Germany and the USA although some are sold domestically. For CY 1999 Metalcast declared a total sales of P64,889,932 of which P44,102,114.34 was for export sales and the remaining P20,787,817.87 represents the total domestic sales. It appears that Metalcast was assessed by that Office at the rate of 41.25 of 1% as provided for in Section 2A.02 (A) (rates applied to domestic sales) of the tax ordinance/code of that municipality. However, Mr. Sison contends that only the amount of domestic sales of P20,787,817.87 should be taxed at the rate aforementioned and the remaining P44,102,114.00 representing its export sales should be exempt from such assessment as it does not fall under the provisions of Section 2A.02 (C) of said ordinance, exporters of essential commodities whose products are subject to a lower assessment schedule. Section 5 of Local Finance Circular No. 5-93, copy enclosed, provides as follows: cECaHA " SEC. 5. Business Tax on BOI-registered Enterprises . For business enterprises registered with the BOI not covered or no longer exempt under Sec. 3 above and whose goods or products are sold abroad and/or domestically, the said enterprises shall be subject to the business tax as follows: (underscoring supplied) "(a) the gross sales receipts on goods or products sold domestically shall be subject to the business tax at rates prescribed under paragraphs (a), (b) and (d) of Sec. 143 of the Local Government Code of 1991; "(b) the amount of export sales as defined in Sec. 2 (b) shall be subject to the business tax at rates not exceeding one-half (1/2) of the rates stated in paragraph (a) of this Section. "xxx xxx xxx." The aforequoted section should be read in relation with Section 143 (a) and (c) of the Local Government Code of 1991 (LGC) as implemented by Article 232 (a) and (c) of the Implementing Rules and Regulations (IRR) of the LGC, quoted as follows: "ART. 232. Tax on Business. The municipality may impose on the following businesses: "(a) On manufacturers, . . . in accordance with the following schedule: Gross Sales/Receipts for the Amount of Tax per Annum Preceding Calendar Year "xxx xxx xxx "P6,500,000.00 or more at a rate not exceeding thirty- seven and a half percent (37 1/2% of one percent (1%) xxx xxx xxx. "(c) On exporters, and on manufacturers, 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: ScaEIT "xxx xxx xxx. "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 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." In addition, this Bureau has consistently expressed the view on similar cases that all exporters, regardless of whether they are exporters of essential or non-essential commodities, would be taxable at the rate provided under Section 143, par. (c) of the LGC. The qualifying phrase of "essential commodities" is construed to apply to the class of business immediately preceding it. It could not be extended to the business of "exporting" for such is dissociated by the "comma" and conjunction "and" following it. Accordingly, the declared total sales of Metalcast for CY 1999 should be assessed and taxed as follows: 1. Export sales should be assessed separately with that of the domestic sales; 2. Business taxes should be computed accordingly, using tile rates provided for in the revenue code of that municipality specifically Section 2A.02 (A), for domestic sales, and (C), for export sales. As regards the base used in the computation of Fire Inspection Fee, enclosed for your information and guidance is a copy of the letter dated March 8, 1994 addressed to Ms. Carmelita L. Pamuspusan, Sangguniang Bayan Secretary, Calamba, Laguna, the dispositive portion of which states: "Considering therefore that a municipal tax is not a fee in its strict sense nor a fee within the context of the abovestated provision, a municipal tax should not be included as part of the base of the 10% Fire Inspection Fee". cSIHCA In view of the foregoing, that Office is hereby instructed to re-assess and recompute the business taxes of Metalcast in accordance herewith and advise said Corporation accordingly. Furthermore, that Office is likewise instructed to recompute the Fire Inspection Fee charged against Metalcast, which would exclude Municipal Tax as part of the base, and communicate with the General Manager thereof for the purpose of refunding the excess amount paid thereto by way of tax credits to be applied to future obligations of the Company. Be guided accordingly. (SGD.) ANGELINA M. MAGSINO Deputy Executive Director Officer-in-Charge <http://www.blgf.gov.ph/downloads/opinion/localtax/2000/a2000-0402.pdf> last visited on October 2, 2013.