Bureau of Local Government Finance Opinion

March 5, 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 Street corner Lapu-lapu Street, Cebu City, the herein preceding indorsement. This refers to the letter dated February 1, 1996 of Ms. Liza D. Corro, Counsel for Mactan Shangri-la Hotel and Resort Inc. (MSHRI), seeking clarification and opinion on the definition and coverage of the term "pioneer enterprise". Said request is being made in view of the denial of the City Treasurer of Lapu-lapu City to grant MSHRI exemption form local taxes on the ground that a "Hotel" is not one of those enumerated under the definition of pioneer enterprises. dctai In this connection, enclosed for your information and guidance is a copy of the letter dated July 21, 1994 of the Board of Investments (BOI) in reply to the request of this Bureau for comment on whether or not "Pioneer Enterprise" as defined under the Omnibus Investment Code of 1987 includes New Operator of Tourist Accommodation Facilities (De Luxe Class Hotel), the pertinent portion of which states ". . . that under the Investment Priorities Plan of 1987, operations of tourist Accommodation Facilities was granted a pioneer status by the Board of Investments pursuant to its authority under Art. 7(1) and in relation to Art. 28 and Art. 29 of E.O. 226, . . ." It appears however, that MSHRI was registered with the BOI on October 2, 1990. Hence, it may be mentioned that under PD 231, the law prevailing then, BOI registered enterprises are taxable and only upon the promulgation of RA 7160, otherwise known as the Local Government Code of 1991 (LGC), which took effect on January 1, 1992, did said enterprises become exempt from the payment of local business taxes as provided for under Section 133 (g) of the said Code for a period of six (6) years from the date of their BOI registration. In view thereof, and considering that the law has no retroactive effect, this Bureau express the view that Mactan Shangri-la Hotel and Resort, Inc., as a BOI-registered pioneer enterprise shall be exempt from local taxes effective only from January 1, 1992 until the end of the remaining period of its six (6)-year exemption, which is October 2, 1996. Thereafter, it shall become liable to the business tax imposed by the city. As regards its expansion, attention is invited to Local Finance Circular No. 5-93 dated October 22, 1993, copy enclosed, issued by the Department of Finance. The pertinent portion of which is quoted hereunder: "Section 3. Exemption of pioneer and non-pioneer enterprises ." "xxx xxx xxx." "(d) In the case of registered expanding firms, the gross sales or receipts directly arising from such expansion shall be exempt from local business taxes for a period stated in (a) or (b) above." On these basis of the foregoing provision, the gross receipts of MSHRI directly arising from its expansion shall be likewise exempt from local business taxes from the date of registration of such expansion which is June 23, 1995, for a period of six (6) years. Accordingly, MSHRI should be required to submit to the Office of the City Treasurer of Lapu-lapu City a statement of the gross receipts directly arising from its business expansion. It bears emphasis that the exemption granted to pioneer and non-pioneer enterprises should apply only upon presentation of the corresponding BOI-certification. However, said enterprises shall still be liable to pay the Mayors permit and other regulatory fees or service charges that the local government unit may have imposed under a duly-enacted local tax ordinance, the exemption being applicable to local taxes only. Be guided accordingly. LORINDA M. CARLOS Executive Director