Bureau of Local Government Finance Opinion

August 25, 1999 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Mr. Manuel E. Leycano, Jr. Provincial Treasurer Sta. Cruz, Laguna S i r : This refers to your letter of March 4, 1999, requesting reconsideration of the ruling of then Usec. Ma. Cecilia G. Soriano of this Department who opined that incentives granted to ECOZONES under Section 24 of R.A. 7916 include the exemption from the payment of real property taxes. The said opinion was anchored primarily on Revenue Regulations No. 12-97 which interpreted that the term local tax in the subject law included real property taxes. HCTaAS This Department upholds the validity of such interpretation. The said Revenue Regulations was issued pursuant to, and in accordance with the subject law (R.A. No. 7916). The well-established rule is that rules and regulations issued by executive agencies deserves great weight and in the absence of abuse of power, shall not be disturbed by the courts. To amend the revenue regulations in the absence of patent irregularity thereof upon which the opinion was based, would run counter to the principle that no laws (including IRRs) shall be given retroactive effect. Be informed, however, that on June 1, 1999, Republic Act No. 8748 was approved amending Republic Act No. 7916, otherwise known as the "Special Economic Zone Act of 1995." Section 24 thereof now provides as follows: "SEC. 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 ECOZONES. In lieu thereof, five percent (5%) of the gross income earned by all business enterprises within the ECOZONES 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." As it stands now, the aforestated provisions of the law has very little room for interpretation. The rule established is quite clear and explicit: that only lands owned by developers within the ECOZONE are subject to real property taxes. In light of this latest amendment to Section 24 of R.A. 7916, it is apt to conclude that it is the intent of Congress not to exclude totally the power of LGUs to collect real property taxes within the ECOZONE. Otherwise, it would not have amended the law and expressly granted therein that aside from the tax on gross receipts of business establishments within the ECOZONE, the concerned LGU has express authority to impose realty taxes on land owned by developers. In the above agreement, the province where an ECOZONE is located shall not be deprived of benefit because the province shall continue to impose real property tax on lands owned by developers and accordingly share in the proceeds of said tax. However, the 2% allocation to the municipality or city mentioned above shall still accrue exclusively to the municipal or city funds as the case may be. Very truly yours, (SGD.) EDGARDO B. ESPIRITU Secretary