Bureau of Local Government Finance Opinion

December 1, 2011 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Honorable Jose L. Montelibano City Mayor Silay City, Negros Occidental Dear Mayor Montelibano : This refers to your letter of March 1, 2011, addressed to His Excellency, President Simeon Benigno C. Aquino III, with the endorsement letter of March 14, 2011, of Congressman Alfredo B. Benitez, 3rd District of the Province of Negros Occidental, which were both referred for appropriate action to the Department of Finance through this Bureau. Your letter seeks for the condonation of all penalties, fines, surcharges and interests on the real property taxes due that city from June 1, 2011 to May 31, 2012, pursuant to the President's power to condone under R.A. No. 7160, or the Local Government Code of 1991. We take note of Sangguniang Panlungsod Resolution Nos. 11-1769 and 11-1816, declaring Silay City under a state of calamity owing to "heavy rains that triggered massive flooding" in most areas on January 11, 2011, causing damage to infrastructures and crops, and destroyed houses, affecting thousands of families in sixteen component barangays as contained in the Resolution No. 001, series of 2011, of the City Disaster and Risk Reduction Management Council. In this regard, may we invite your attention to the following excerpts from the letter of this Bureau dated January 5, 2009, to the City Mayor of Naga City, Cebu on condonation of real property taxes: ESDcIA "Tax amnesty, which can be applied to any tax, is defined as a special provision offered by the government to give taxpayers the opportunity to pay previously unpaid taxes usually with a guarantee of freedom from penalties and prosecution. It gives the tax evader a chance to start anew and may be considered as synonymous with the condonation of taxes. The Local Government Code of 1991, authorizes the condonation or reduction of real property taxes and interests either through the local sanggunian or the President of the Philippines, viz. : 'SEC. 276. Condonation or Reduction of Real Property Tax and Interest. In case of general failure of crops or substantial decrease in the price of agriculture or agri-based products, or calamity in any province, city, or municipality, the sanggunian concerned, by ordinance passed prior to the first (1st) day of January of any year and upon recommendation of the Local Disaster Coordinating Council, may condone or reduce, wholly or partially, the taxes and interest thereon for the succeeding year or years in the city or municipality affected by the calamity. 'SEC. 277. Condonation or Reduction of Tax by the President of the Philippines. The President of the Philippines may, when public interest so requires, condone or reduce the real property tax and interest for any year in any province or city or a municipality within the Metropolitan Manila Area." Section 276 allows condonation or reduction of real property tax and interest, wholly or partially, in the event of: 1) general failure of crops; 2) substantial decrease in the price of agriculture or agri-based products; or 3) calamity, for the succeeding year or years after occurrence of any of the events mentioned, through an ordinance passed before the 1st day of January of any year, on recommendation of the Local Disaster Coordinating Council. It must be noted that the presence of an economic crisis is not one of the conditions by which condonation or reduction of real property tax or interest may be granted by the sanggunian. The condonation or reduction contemplated under Section 276, is prospective in application, meaning, only real property taxes or interests due the succeeding year or years, after any of the abovementioned incidents happened which adversely affected the taxpayer's ability to pay, may be condoned or reduced, and not unpaid real property taxes or interests of the past year or years. Further, as such applicability or nature of the condonation or reduction is prospective, what are covered therefore are real property taxes and interests, not penalties or surcharges." On the other hand, the power granted to the President to condone real property tax under Section 277 of the Local Government Code of 1991, is seldom exercised for the reason that such power to condone is founded on the requirement of public interest affecting economic stability a responsibility of the national government. ECHSDc Verily, condonation of real property taxes on account of the calamity that befell that city is within the authority of the Sangguniang Panlungsod by virtue of the aforequoted provisions of Section 276. We hasten to add, though, that condonation or reduction of real property taxes should not undermine confidence in tax collection and enforcement, as well as discourage diligent taxpayers. Very truly yours, (SGD.) SALVADOR M. DEL CASTILLO OIC-Executive Director