Bureau of Local Government Finance Opinion

January 31, 2003 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 1st Indorsement Respectfully returned to the ICO-Regional Director for Local Government Finance, Region VII, 3rd Floor, BF Building, N. Escario Street, Cebu City. This refers to Ordinance No. IIC-002 enacted by the Sangguniang Panlungsod of Tagbilaran City entitled "AN ORDINANCE PROVIDING FOR TAX INCENTIVE AND TAX RELIEF OF BUSINESSES AND REAL PROPERTIES WITHIN THE PERIPHERY OF THE TAGBILARAN CITY UPTOWN COMMERCIAL COMPLEX IN DAMPASDAO DISTRICTS, CITY OF TAGBILARAN," which was forwarded for legal opinion particularly Section 3 thereof, quoted as follows: "Section 3. Any investor who constructs a building for commercial, entertainment, or tourism-related purposes cost at least P100,000,000.00 within the preferred area of investment at the Tagbilaran City Uptown Commercial Complex in Dao-Dampas Districts, this city, shall be entitled to the following incentives: ScCDET "(a) A 5-year business tax full exemption from the issuance of the business permit; "(b) A 5-year property tax full exemption for the newly constructed business building and its machineries or equipment used in connection with the business from the issuance of the business permit; "(c) A 3-year amusement tax full exemption from the issuance of the business permit of the movie house and other related entertainment activities therein; "(d) In no case shall a lessee or tenant of the said building shall enjoy the foregoing exemptions; "(e) The foregoing incentive shall be enjoyed by any investor within 2 years from the effectivity of the ordinance." Article 282 (b) (2) of the Implementing Rules and Regulations (IRR) implementing Sec. 192 of the Local Government Code (LGC) of 1991 provides the guidelines in the grant of tax incentives. "Art. 282. Authority to Grant Tax Exemption Privileges . (a) . . . "(b) Local sanggunians granting tax exemptions, tax incentives and tax reliefs may be guided by the following: CTaSEI "(1) . . . "(2) On the grant of tax incentives: "(i) The tax incentive shall be granted only to new investments in the locality and the ordinance shall prescribe the terms and conditions that must be complied with for such grant of tax incentive; "(ii) The grant of the tax incentive shall be for a definite period not exceeding one (1) calendar year; "(iii) The grant of tax incentives shall be by ordinance passed prior to the first (1st) day of January of any year; and "(iv) Any tax incentive granted to a type or kind of business shall apply to all businesses similarly situated." ADSIaT Upon perusal of the subject ordinance and on the basis of the aforequoted provisions, it may be stated that the grant of a 5-year business tax full exemption and a 3-year amusement tax full exemption is clearly not in conformity with the Code and therefore not enforceable. Thus, the Sangguniang Panlungsod should amend said ordinance by reducing the period of exemption to not more than one (1) year from the actual date the business started operations. More importantly, however, exemption from real property taxes are enumerated in Section 234 of the Code. LGUs do not have the authority to grant exemption from real property taxes to those which are not expressly exempted by the governing laws, otherwise they will be exercising the power of amending laws or acts enacted by Congress. On the basis of the foregoing, that Office should inform the Sangguniang Panlungsod that said Ordinance No. IIC-002 should be amended accordingly. It bears emphasis, however, that the foregoing views are expressed in line with the provisions of Article 287 of the IRR implementing the LGC and not a declaration of the illegality of the ordinance for reason that such function falls exclusively within the jurisdiction of the Department of Justice. Be guided accordingly. CacTIE (SGD.) MA. PRESENTACION R. MONTESA Executive Director