Bureau of Local Government Finance Opinion

November 12, 2004 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 2nd Indorsement Respectfully returned to the OIC-Regional Director for Local Government Finance, Department of Finance, Region XII, No. 157 Sinsuat Avenue corner Gonzalo, Javier Streets, Cotabato City, his within 1st Indorsement dated September 20, 2004, requesting for a ruling on the actual use or classification applicable to real properties owned by Rural Electric Cooperatives not registered under R.A. No. 6938. At the outset, it is informed that the exemption from real property tax of Rural Electric Cooperative is distinct and separate from the exemption of Government-Owned or Controlled Corporations (GOCCs). The provision of law, specifically for machineries and equipment actually, directly and exclusively for GOCCs engaged in the generation and transmission of electric power is found under Sec. 234(c) of the Local Government Code of 1991 (RA. No. 7160); while Electric Cooperatives are governed by Section 234(d) of the same code. Sections 234(c) and (d) are quoted below: "SEC. 234. Exemptions from Real Property Tax . The following are exempted from payment of real property tax: "xxx xxx xxx. "(c) All machineries and equipment that are actually, directly and exclusively used by local water districts and government-owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power; cADaIH "(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; "xxx xxx xxx." The said property falls under the classification of "commercial" and therefore the assessment level to be applied should be that which was fixed by ordinance of the sangguniang panlalawigan of the province for "commercial" properties but not exceeding the assessment levels provided for under Section 218 of the code. Likewise, enclosed is a copy of the 1st Indorsement dated September 14, 2004 of this Bureau, treating on a similar subject matter, which provides as follows: "However, Section 216 of the said Code is equally clear that 'lands, buildings and other improvements thereon . . . owned and used by . . . government-owned or controlled corporations rendering essential public services in the . . . generation and transmission of power shall be considered as special .' Succinctly, the conditions that must concur in properly classifying these real properties as 'special class' are (1) the ownership (the owner should be a GOCC rendering public services); and (2) the use thereof, meaning that the said real properties should be actually, directly and exclusively utilized in the generation and transmission of electric power . (Emphasis ours) "Considering, therefore, that the subject parcel of land is still titled in the name of Maria Quesada, the same may not be classified as 'special class' although actually, directly and exclusively used by NPC in the generation and transmission of electric power. Under circumstances, said property falls under the classification of 'industrial land' and, therefore, the assessment level to be applied should be that which was fixed by ordinance of the sanggunian panlalawigan of that province on 'industrial lands.'" Moreover, attention is also invited to our opinion based on the Case of PHILRECA, et al. vs. The Secretary, Department of the Interior and Local Government, and The Secretary, Department of Finance (G.R. No. 143076 dated June 10, 2003) as embodied under a letter dated July 23, 2004, which reads in part, as follows: "In view hereof, it is now clear 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." cSITDa "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." Be guided accordingly. (SGD.) MA. PRESENTACION R. MONTESA Executive Director