Bureau of Local Government Finance Opinion

December 2, 2010 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 1st Indorsement Respectfully returned to the ICO-Municipal Treasurer, Subic, Zambales, his letter dated October 14, 2010 requesting opinion regarding the effectiveness of Section 24 of Revenue Ordinance No. 2004-01 enacted by the Sangguniang Bayan ng Subic, Zambales, on the delayed remittances of Two Percent (2%) of the Five Percent (5%) from the Gross Income of PEZA Registered Entities located in the Subic Ecozone. Section 24 of Republic Act No. 7916, otherwise known as the Special Economic Zone Act of 1995 provides as follows: "Section 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. In lieu thereof, five percent (5%) of the gross income earned by all business enterprises within the ECOZONE shall be paid and remitted as follows: (a) Three percent (3%) to the National Government; (b) Two percent (2%) which shall be directly remitted by the business establishments to the treasurer's office of the municipality or city where the enterprise is located. On the basis of the aforequoted provisions, the BIR issued Revenue Regulations No. 1-2000 for the quarterly due-dates and deadlines of remittances of the three percent (3%) of gross income of PEZA Registered Entities to said Bureau. However, that Office claims that the Municipality has no authority to impose the Revenue Regulations issued by BIR on the surcharges and penalties over the delayed two percent (2%) remittances. Thus, in view of the delayed remittances of the PEZA Registered Entities, the Sangguniang Bayan of that Municipality included Section 24 in its Revenue Ordinance No. 2004-01 which reads as follows: Section 24. Remittances of PEZA-registered business enterprises. Tax payments shall be remitted to the Treasurer's Office, in case of quarterly payments, the scheduled dates shall be on or before April 20 for the 1st quarter, on or before July 20 for the 2nd quarter, on or before October 20 for the 3rd quarter, and on or before January 20 of the succeeding year for the 4th quarter. Failure to remit tax payments on the due dates by a business enterprise shall incur a surcharge of 25% and a monthly penalty of 2% for reckon from the first month of the quarter. ( sic )" It has been clarified by that Office that the contemplation of Section 24 of the Revenue Ordinance is to discourage, curb and penalize the practice of PEZA Registered Entities in remitting according to their whims and beyond the due dates, the Two Percent (2%) municipal share, at the disadvantage of the Municipality. That Office likewise cited the case of DLA Naturals, Inc., a PEZA Registered Entity of Subic Ecozone that failed to remit the municipal share for CY 2008 and for the 3 quarters of the current year for reason that Section 24 of said Ordinance has no jurisdiction over PEZA Registered Companies. In addition, that Office informed that it had been advised by the State Auditor to collect in full the surcharges and penalties on delayed remittances of DLA Naturals, Inc. based on said Section. By way of comment, it may be stated that local government units like Subic, Zambales exercise police power through their respective legislative bodies, in this case, the Sangguniang Bayan, or the municipal council. Specifically, the Sanggunian can enact ordinances for the general welfare of the municipality pursuant to Section 447 (a) of the LGC, quoted as follows: "Section 447. Powers, Duties, functions and compensation. (a) The sangguniang bayan, as the legislative body of the municipality, shall enact ordinances, approve resolutions and appropriate funds for the general welfare of the municipality and its inhabitants pursuant to Section 16 of this Code and in the exercise of the corporate powers of the municipality as provided for under Section 22 of this Code, and shall:" In this connection and in reply to your request for opinion regarding the effectiveness of Section 24 of Revenue Ordinance No. 2004-01, it is worth mentioning that in a Resolution issued by the Supreme Court in the case of Social Justice, et al. vs. Hon. Jose L. Atienza, Jr. (G.R. 156052, February 13, 2008) , it was cited that: "Statutes and ordinances are presumed valid unless and until the courts declare the contrary in clear and unequivocal terms. The mere fact that the ordinance is alleged to be unconstitutional or invalid will not entitle a party to have its enforcement enjoined. The presumption is all in favor of validity." In view of the foregoing, that Office has no alternative but to enforce Section 24 of Revenue Ordinance No. 2004-01 as long as it has not been repealed by the Sanggunian or annulled by the courts. Be guided accordingly. cHaDIA (SGD.) MA. PRESENTACION R. MONTESA, CESO III Executive Director