Bureau of Local Government Finance Opinion

September 28, 2015 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Atty. Francisco I. Naputo Counsel for Philippine Publishing House of the Seventh-Day Adventists Church, Inc. 73 Apacible St., Philamlife Village Las Pias City Sir : This refers to your letter dated July 20, 2015 in behalf of your client, Philippine Publishing House of the Seventh-Day Adventists Church, Inc. (PPH for brevity), alleged to have been subjected to tax by Caloocan City Treasurer's Office. It is represented that PPH is a non-stock, non-profit religious institution with address at No. 632 Baesa, Caloocan City. It is the publishing arm of the Seventh-Day Adventist (SDA) Church in the Philippines, circulating religious materials and health literature to its members and would be converts. The Articles of Incorporation of PPH provide the following purposes: "The Corporation shall assist the Seventh-Day Adventist (SDA) Church to advance in the Philippines its religious mission of proclaiming the Everlasting Gospel of Jesus Christ and in the pursuance thereof: to disseminate religious and moral instruction by printing, publishing and circulating religious, educational and health literature; to serve the printing needs of the various organizations and institutions of the Church; to secure and hold copyrights of books, works of art, periodicals, tracts, pamphlets and audio visual materials; to make use of any and all of its resources donations and appropriations for the purpose of carrying out and furthering the foregoing purposes." PPH has been paying tax on printing and publication for religious materials for circulation and evangelization in the aggregate amount of P540,210.68 covering the years 2009-2015. Being a religious organization, you cited the following legal basis for tax exemption: Section 5, Article III of the Constitutions reads that " No law shall be made respecting an establishment of religion, or prohibiting the free exercise thereof. The free exercise and enjoyment of religious profession and worship, without discrimination or preference, shall forever be allowed. No religion test shall be required for the exercise of civil or political rights ." This Section clearly upholds religious liberty by allowing the "exercise of religion without hindrance, to create without state involvement an atmosphere in which voluntary religious exercise may flourish." In the case American Bible Society vs. City of Manila, 101 Phil. 386 , a religious corporation engaged in the sale of Bibles and other religious articles was required to obtain a license and pay the corresponding fee for being engaged in the sale of merchandise. The Supreme Court barred the City of Manila from collecting the fees, holding that: "The enjoyment of the freedom of religion is always coupled with the freedom of expression. For the profession of faith inevitably carries with it, as a necessary appendage, the prerogative of propagation. The constitutional guaranty of free exercise and enjoyment of religious profession and worship thus denotes the right to disseminate religious information." Applying the instant case, subjecting to tax the publication and printing activities of religious articles for circulation including health literature is an affront to religious freedom and worship and a restriction of free exercise thereof. Clearly, PPH was mistaken in paying the tax thereon. It was further explained in the American Bible Society that: "The constitutional guarantee of free exercise and enjoyment of religious profession and worship carries with it the right to disseminate religious information. Any restraint of such right can be justified like other restraints of freedom of expression on the ground that there is a clear and present danger of any substantive evil which the State has the right to prevent. In the case at bar, it is true that the price asked for religious articles was in some instances a little higher than the actual cost of the same, but this does not mean that plaintiff was engaged in the business or occupation of selling said 'merchandise' for profit. For this reason, the provision of the City Ordinance No. 2529, as amended, which requires the payment of license fee for conducting the business of general merchandise cannot be applied to plaintiff society, for in doing so, it would impair its free exercise and enjoyment of its religious profession and worship, as well as it right of disseminating of religious beliefs." Likewise Section 28 (3), Article VI of the Constitution provides that: "Charitable institutions, churches and personages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for religious charitable, or educational purposes shall be exempt from taxation." Further, Section 30 (E) of the National Internal Revenue Code of 1997 grants tax exemptions to religious institutions, thus: "Sec. 30. Exemptions from Tax on Corporations. The following organizations shall not be taxed under this Title in respect to income received by them as such: "(E) Non-stock corporation or association organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, no part of its net income or asset shall belong to or inures to the benefit of any member, organizer, officer or any specific person; . . ." Pursuant to Section 30 (E) of the NIRC, PPH was issued a tax-exemption ruling dated May 11, 2007, finding the same to be " a non-stock organization operating exclusively for religious purposes and that it is exempt from payment of income tax ." Moreover, Section 315 of City Ordinance No. 0386, series of 2004, otherwise known as Caloocan City Revenue Code of 2004 provides that: "Section 315. Applicability Clause . The provisions of R.A. 7160 and its implementing rules and regulations applicable to the City government, and other laws, ordinances and issuances are hereby adopted in so far as to any circumstances not covered by this Code." The above explicitly adopts existing laws including of course the fundamental law of the land simply because all laws and decrees enacted by both local and national governments take their bearing from the Constitution. Any law or decree which offends the Constitutional provisions is null and void. Accordingly, PPH believes that it is exempted from the payment of tax on printing and publication under Section 85 of Caloocan City Revenue Code as the BIR also considers PPH as tax-exempt. By way of comments, we however express different views on the following citations: 1) The American Bible Society We have reservation as to the applicability of said SC Decision considering that the same was promulgated in 1957 governed by laws then existing, the Constitution of 1935 included which may have repealed or modified according. In this sense, such Decision may no longer find application under the present dispensation more particularly concerning local government affairs primarily govern by the Local Government Code of 1991. The point in particular is the police powers of LGUs under Section 147 of the LGC which specifically authorizes LGUs to impose regulatory fees before an entity may engage in business activity or calling. Such powers are in consonance with the tenets of Section 16 ( General Welfare Clause ) of the LGC. 2) Section 28 (3), Article VI of the Constitution As regards Section 28 (3), Article VI of the Constitution (1987) the provision specifically speaks of real property tax and therefore not applicable in the herein case which deals with local business taxes. The foregoing considered, this Bureau, consistent with its previous rulings on similar issue, expresses the view that non-stock and non-profit religious institutions are exempted from the payment of local business tax. By the same token, PPH being a non-stock and non-profit religious institution is therefore exempt from the payment of tax on printing and publication of religious materials and health materials used in its evangelization program. However, PPH shall be liable to pay the Mayor's permit fee and other regulatory fees and charges that the City of Caloocan may impose under its duly enacted tax ordinance. The imposition of such fees is based upon the exercise by LGUs of their regulatory powers to promote the general welfare pursuant to Sections 147 and 16, all of the LGC. It bears emphasis, however, that the assessment and collection of said imposition shall be justified by the service actually rendered to the taxpayer, which commensurate to the cost of regulation. In the absence of such service, there is no basis for the assessment and collection thereof. We hope this will help clarify matters. Very truly yours, (SGD.) SALVADOR M. DEL CASTILLO OIC-Executive Director