Bureau of Local Government Finance Opinion

August 13, 2003 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 1st Indorsement Respectfully referred to the Provincial Assessor, Cabarroguis, Quirino, the within letter dated April 11, 2003 of Atty. Zenon S. Suarez of Suarez, Senar & Associates, Counsel for Quirino Electric Cooperative, Inc. (QUIRELCO), addressed to that Office, copy furnished this Bureau, relative to the real property tax exemption of said electric cooperative. The abovementioned letter of Atty. Suarez was in reply to the opinion/ruling issued by this Bureau, in our letter dated March 4, 2003, copy enclosed, which ruled, as follows: 1. That "QUIRELCO" is not included as Petitioner or a party to the Temporary Restraining Order (TRO) issued by the Supreme Court on July 25, 2000; 2. That the said electric cooperative "is liable to pay real property tax to the LGU of Quirino," considering that it is "not a duly registered cooperative with the CDA (Cooperative Development Authority) and therefore cannot enjoy the privileges granted by law (R.A. No. 6938) to cooperatives;" and 3. That "Quirino Province is not restrained from implementing the provisions of Section 234(d) of the LGC (Local Government Code of 1991)." In his rebuttal, Atty. Suarez submitted the following arguments, to wit: 1. The Petition filed by PHILRECA (Philippine Rural Electric Cooperatives Association, Inc.), et al. with the Supreme Court under G.R. No. 143076 " is class suit ." Hence, all the bona fide members are included in the said TRO issued by the Supreme Court; 2. Electric Cooperatives, like QUIRELCO, do not have to be registered with the CDA before it could avail of the exemption from the payment of real property taxes, in view of the Opinion (No. 41, s. of 1996) issued by the then Secretary of the Department of Justice; and 3. The concerned local government unit (Province of Quirino) is duty bound to observe the said TRO under the pain of contempt . A perusal of the said Opinion No. 41, s. of 1996 of the then Secretary of the Department of Justice, reveals in part, as follows: "Based on these premises, it is believed that registration with the CDA under R.A. No. 6938 is optional insofar as Ecs are concerned . Hence, some Ecs may opt not to register with the CDA, or if they do choose to register with the CDA, may fail to qualify for registration under R.A. No. 6938. In either case, the Ecs shall not lose their status as registered Ecs under P.D. No. 269, as amended, and shall continue to be governed by said P.D. No. 269 ." (Emphasis ours) In this connection, this Bureau respects the opinion of the then Secretary of the Department of Justice. Likewise, we agree that registration with the CDA is optional as far as these electric cooperatives are concerned, and non-registration with CDA will not affect their status as registered cooperatives under P.D. No. 269, as amended, and will remain governed by the said law. However, the main issue in the instant case is focused on whether said electric cooperatives not duly registered with CDA, can enjoy the same privileges granted under R.A. No. 6938 In view hereof, attention is invited to the EN BANC Decision of the Supreme Court on the subject case (G.R. No. 143076), promulgated on June 10, 2003, copy enclosed, which DENIED the instant Petition (Seeking to annul as unconstitutional Sections 193 and 234 of R.A. No. 7160, otherwise known as the Local Government Code of 1991), and thereby LIFTED the temporary restraining order heretofore issued, the pertinent portions of which read, as follows: "xxx xxx xxx. "Petitioners argue that the above provisions of the Local Government Code are unconstitutional for violating the equal protection clause. Allegedly, said provisions duly discriminate against petitioners who are duly registered cooperatives under P.D. No. 269, as amended, and not under R.A. No. 6938 or the Cooperative Code of the Philippines. They stress that cooperatives registered under R.A. No. 6938 are singled out for tax exemption privileges under the Local Government Code. They maintain that electric cooperatives registered with the NEA under P.D. No. 269, as amended, and electric cooperatives registered with the Cooperative Development Authority (CDA) under R.A. No. 6938 are similarly situated for the following reasons: a) petitioners are registered with the NEA which is a government agency like the CDA; b) petitioners, like CDA-registered cooperatives, operate for service to their member-consumers; and c) prior to the enactment of the Local Government Code, petitioners, like CDA-registered cooperatives, were already tax-exempt. Thus, petitioners contend that to grant tax exemptions from local government taxes, including real property tax under Sections 193 and 234 of the Local Government Code only to registered cooperatives under R.A. No. 6938 is a violation of the equal protection clause. "xxx xxx xxx. "We hold that there is reasonable classification under the Local Government Code to justify the different tax treatment between electric cooperatives covered by PD. No. 269, as amended, and electric cooperatives under R.A. No. 6938. " First , substantial distinctions exist between cooperatives under P.D. No. 269, amended, and cooperatives under R.A. No. 6938. These distinctions are manifest in at least two material respects which go into the nature of cooperatives envisioned by R.A. N. 6938 and which characteristics are not present in the type of cooperative associations created under P.D. No. 269, as amended. "xxx xxx xxx. " Second , the classification of tax-exempt entities in the Local Government Code is germane to the purpose of the law. The Constitutional mandate that every local government unit shall enjoy local autonomy, does not mean that the exercise of power by local governments is beyond regulation by Congress. Thus, while each government unit is granted the power to create its own sources of revenue, Congress, in light of its broad power to tax, has the discretion to determine the extent of the taxing powers of local government units consistent with the policy of local autonomy. "Section 193 of the Local Government Code is indicative of the legislative intent to vest broad taxing powers upon local government units and to limit exemptions from local taxation to entities specifically provided therein. Section 193 provides: "xxx xxx xxx. "The above provision effectively withdraws exemptions from local taxation enjoyed by various entities and organizations upon effectivity of the Local Government Code except for a) local water districts; b) cooperatives duly registered under R.A. No. 6938; and c) non-stock and non-profit hospitals and educational institutions . Further, with respect to real property taxes, the Local Government Code again specifically enumerates entities which are exempt therefrom and withdraws exemptions enjoyed by all other entities upon the effectivity of the code. Thus, Section 234 provides: "xxx xxx xxx. "While we understand petitioners predicament brought about by the withdrawal of their local tax exemption privileges under the Local Government Code, it is not the province of this Court to go into the wisdom of legislative enactments. Courts can only interpret laws. The principle of separation of powers prevents them from re-inventing the laws. " Finally , Sections 193 and 234 of the Local Government Code permit reasonable classification as these exemptions are not limited to existing conditions and apply equally to all members of the same class. Exemptions from local taxation, including real property tax, are granted to all cooperatives covered by R.A. No. 6938 and such exemptions exist for as long as the Local Government Code and the provisions therein on local taxation remain good law ." (Emphasis ours) It is now clear, therefore, that only electric cooperatives duly registered with the Cooperative Development Authority (CDA) with an accumulated reserves and undivided net savings of not more than Ten Million Pesos (P10,000,000.00), are exempt from the payment of real property tax pursuant to Section 62(1) of R.A. No. 6938, also known as the Cooperative Code of the Philippines, as implemented under DOF-CDA Joint Circular No. 1-90 dated November 7, 1990, copy also enclosed, and the provisions of Section 234(d) of the LGC, which provides as follows: "Art. 62. Tax and Other Exemptions . Cooperatives transacting business with both members and non-members shall not be subject to tax on their transactions to members. Notwithstanding the provisions of any law or regulation to the contrary, such cooperatives dealing with non-members shall enjoy the following exemption: "(1) Cooperatives with accumulated reserves and undivided net savings of not more than Ten Million Pesos (P10,000,000.00) shall be exempt from national, city, provincial, municipal or barangay tax of whatever name and nature." It may be worth noting further that, in addition to the exemption from the payment of real property taxes, the said cooperatives are exempt from the payment of local taxes, fees or charges as provided under Section 133(n) of the same Code (R.A. No. 7160). However, subject cooperatives are still liable to the payment of service charges or rentals for the use of property and equipment or public utilities by local governments such as charges for actual consumption of water, electric power, toll fees for the use of public roads and bridges and the like in line with BLGF Memorandum Circular No. 02-97 dated March 18, 1997, copy also enclosed. In view of the foregoing, and considering that QUIRELCO is not a duly registered cooperative with CDA, the said electric cooperative is liable to pay real property tax to the LGU of Quirino. Be guided accordingly. (SGD.) MA. PRESENTACION R. MONTESA Executive Director