Bureau of Local Government Finance Opinion

October 7, 2002 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION The Regional Director for Local Government Finance Department of Finance Region IV People's Mansion Compound Batangas City M a d a m : This refers to your letter dated April 30, 2002, requesting for opinion on the legality of the ordinances of the provinces of Rizal and Palawan that provide for a 1/2% additional levy on real property for the Special Education Fund (SEF). In the course of reviewing the Real Property Tax Collection Reports submitted by the Provincial Treasurers of Rizal and Palawan, the Regional Director for Local Government Finance Region IV (the "Regional Director") noted that the provinces of Rizal and Palawan imposed, under their respective ordinances, an additional levy of SEF at the rate of 1/2% based on the assessed value of the real property. The Regional Director believes that Section 235 of the Local Government Code (LGC) mandates the imposition of 1% additional levy for the SEF, which rate cannot be reduced by the provinces. Resolution It is our considered opinion that the provinces of Rizal and Palawan may not reduce the additional levy for SEF (the "SEF rate") from 1% to 1/2% because the SEF rate mandated under Section 235 of the LGC is 1% (and not less). AHcaDC Section 235 of the LGC states that : SEC. 235. Additional Levy on Real Property for the Special Education Fund (SEF) . A province or city, or a municipality within Metropolitan Manila Area, may levy and collect an annual tax of one percent (1%) on the assessed value of real property which shall be in addition to the basic real property tax. The proceeds thereof shall exclusively accrue to the Special Education Fund (SEF). (Emphasis ours) There is no universal rule for determining whether a statutory direction is to be considered mandatory or directory. In the determination of this question, the primary object is to ascertain legislative intent. The primary source of legislative intent is the statute itself, construed as a whole and not from an isolated part or provision thereof A thorough study of all the relevant provisions of the LGC reveals a legislative intent to impose a flat SEF rate of 1%. The language of Section 235, under which the special levy for the SEF is imposed, is unlike other provisions of the LGC, that allow the imposition of taxes at rates not exceeding a prescribed ceiling. In other words, the local government unit (LGU) concerned is given the discretion to fix the tax within the range of rates prescribed under the LGC. For example, under Section 236 of the LGC, a local government unit may impose an additional ad valorem tax on idle lands at a rate not exceeding five percent." (emphasis ours) The same language was adopted in the imposition of the following taxes: tax on the transfer of real property (Sec. 135), tax on printing and publication (Sec. 136), franchise tax (Sec. 137), tax on sand, gravel and other quarry resources (Sec. 138), professional tax (Sec. 139), amusement tax (Sec. 140), annual fixed tax on delivery trucks or vans (Sec. 141). Section 235 does not prescribe a range but rather prescribes a fixed rate of one percent. Had the intention of the Legislature been to allow flexibility in fixing the SEF rate, it could have easily done so by adopting the language used in the other provisions of the LGC. The fact that it did not clearly shows the intent to fix the rate at 1%. There are other provisions of the LGC that demonstrate the mandatory nature not only of the 1% SEF rate but the imposition of the additional levy for the SEF itself. Section 309 of the LGC categorically states that "(t)here shall be maintained in every provincial, city or municipal treasury" an SEF "which shall consist of the respective shares of (LGUs) in the proceeds of the additional tax on real property to be appropriated for purposes prescribed in Section 272." Section 272, in turn, provides that "(t)he proceeds from the additional one percent (1%) tax on real property accruing to the SEF shall be automatically released to the local school boards . . ." (Emphasis ours) Section 272 also clearly manifests the legislative intent to peg the SEF rate at 1% and not less, otherwise, the legislature could have just kept silent on the rate. aEAcHI In view of the foregoing, this Bureau fully concurs with the opinion of the Office of the Regional Director that the provinces of Rizal and Palawan may not reduce the SEF rate imposed under Section 235 of the LGC from 1% to 1/2%. We emphasize, however, that the above views are expressed in accordance with, Book IV Title II Chapter IV Section 33 paragraph 4 of the Administrative Code of 1997 and should not be construed as a declaration of the illegality or nullity of the provincial tax ordinances of Rizal and Palawan for reason that such function falls exclusively within the jurisdiction of the Department of Justice. We trust this clarifies matters. Very truly yours, (SGD.) MA. PRESENTACION R. MONTESA Executive Director