Bureau of Local Government Finance Opinion

November 21, 2002 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 5th Indorsement Respectfully returned to the Unit Auditor, this Bureau, the herein preceding indorsement relative to the Appeal of Pilipinas Kyohritsu, Inc. (PKI), Lipa City, from the Notice of Charges on the deficiency business tax in the amount P1,896,890.94. The basic issue on the mie * of business tax applicable to PKI is whether it should be taxed under Section 21.02A or Section 21.02C of the 1993 Revised Revenue Code of Lipa City quoted hereunder, considering that said company is both a manufacturer and exporter of non essential commodities: "Section 21.02. Imposition of tax . There is hereby levied an annual tax on the business mentioned in this Article at rates prescribed therefore. "A. ON MANUFACTURERS, ASSEMBLERS, REPACKERS, PROCESSORS, BREWERS, DISTILLERS, RECTIFIERS AND COMPOUNDERS OF LIQUORS, DISTILLED SPIRITS AND WINES OR MANUFACTURERS OF ANY ARTICLE OF COMMERCE OF WHATEVER KIND OR NATURE, IN ACCORDANCE WITH THE FOLLOWING SCHEDULE: IcHTAa "xxx xxx xxx "6,500,000 or more forty five percent of one percent ( 45% of 1%) "C. ON EXPORTERS, MANUFACTURERS, MILLERS, REPACKERS OR PRODUCERS OF ESSENTIAL COMMODITIES ENUMERATED HEREUNDER, THE RATE OF TAX SHALL BE IN ACCORDANCE WITH THE FOLLOWING SCHEDULE: "xxx xxx xxx 6,500,000.00 or more eighteen and one-half percent of one percent (18 1/2% of 1%) "For purpose of this section, the term exporters shall refer to those who are principally engaged in the business of exporting goods and merchandise, as well as manufacturers and producers whose goods or products are both sold domestically and abroad. The amount of export sales shall be excluded from the total sales and shall be subject to the rates prescribed above." Section 143 (a) and (c) of the Local Government Code of 1991 (LGC) provide as follows: "Section 143. Tax on Business . The municipality may impose taxes on the following businesses: "(a) On manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and compounders of liquors, distilled spirits, and wines or manufacturers of any article of commerce of whatever kind or nature, in accordance with the following schedule: CaHcET "xxx xxx xxx 6,500,000.00 or more at a rate not exceeding thirty-seven and a half percent (37 1/2%) of one percent (1%) "(c) On exporters, and on manufacturers, millers, producers, wholesalers, distributors, dealers or retailers of essential commodities enumerated hereunder at a rate not exceeding one-half (1/2) of the rates prescribed under subsections (a), (b) and (d) of this Section: "xxx xxx xxx." On the basis of the aforequoted provisions of the law, this Bureau has consistently expressed the view that all exporters, regardless of whether they are exporters of essential or non-essential commodities, would be taxable under Section 143 (c) at the rate not exceeding one-half (1/2) of the rate prescribed under Subsections (a), (b) and (d). The qualifying phrase "essential commodities" should be construed to apply only to the class of businesses immediately preceding it. It could not be extended to the business of exporting for such is disassociated by the "comma" and conjunction "and" following it. TcSHaD By way of comment, it appears that Section 21.02C of the Revised Revenue Code is not consistent with Section 143 (c) of the LGC. In this connection, it is suggested that the City Treasurer of Lipa make representations with the Sangguniang Panlungsod thereat for the amendment of Section 21.02C of the Revised Revenue Code to ensure compliance with the provisions of Section 143 (c) of the LGC. As stated above, PKI is both a manufacturer and an exporter. If PKI totally exports all its products, then, only the business of exportation has gross sales upon which to base the computation of the tax at a rate not exceeding one-half (1/2) of the rate prescribed under Section 143 (a) of the LGC as implemented under Section 21.02A of the Revised Revenue Code of the City. However if PKI has domestic sales, said sales should be subject to the full rate imposed on manufacturers under said Section 21.02A. In view of the foregoing, PKI should still secure two (2) permits, one as manufacturer and another as exporter. It should also record its sales separately pursuant to the provisions of Section 146 (c), which states "In cases where a person conducts or operates two (2) or more businesses mentioned in Section 143 of this Code which are subject to different rates of tax, the gross sales or receipts of each business shall be separately reported for the purpose of computing the tax due from each business." cHITCS (SGD.) MA. PRESENTACION R. MONTESA Executive Director