Bureau of Local Government Finance Opinion

February 17, 2010 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 2nd Indorsement Respectfully returned to the Regional Director for Local Government Finance, CARAGA Region, Baladad Compound, J.C. Aquino Avenue, Libertad, Butuan City, the herein preceding indorsement relative to City Ordinance No. 2009-06, dated October 29, 2009 of the City of Cabadbaran entitled "An Ordinance Establishing the Local Investment Incentive Code of the City of Cabadbaran". Section 17 (A) of the Ordinance provides the fiscal incentives to registered enterprises as follows: Amount of 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th Investment year year year year year year year year year year Small-Scale 60% of 40% of 20% of Enterprises Business Business Business Tax due Tax due Tax due (Based (Based (Based on on on Gross Gross Gross More than Exempt Exempt Exempt Sales), Sales), Sales), None None None None Php3 M Mayor's Mayor's Mayor's but not more Permit, Permit, Permit, than & Basic & Basic & Basic Php10 M Real Real Real Property Property Property Tax due Tax due Tax due excluding excluding Excluding SEF SEF SEF Medium- 60% of 40% of 20% of Scale Enterprises Business Business Business Tax due Tax due Tax due (Based (Based (Based on on on Gross Gross Gross More than Exempt Exempt Exempt Exempt Sales), Sales), sales), None None None Php10 M Mayor's Mayor's Mayor's but not more Permit, Permit, Permit, than Php50 M & Basic & Basic & Basic Real Real Real Property Property Property Tax due Tax due Tax due excluding excluding Excluding SEF SEF SEF Large-Scale Exempt Exempt Exempt Exempt Exempt 60% of 40% of 20% of 20% of 20% of Enterprises Business Business Business Business Business Over Php50 Tax due Tax due Tax due Tax due Tax due M (Based (Based (Based (Based (Based on on on on on Gross Gross Gross Gross Gross Sales), Sales), Sales), Sales), Sales), Mayor's Mayor's Mayor's Mayor's Mayor's Permit, Permit, Permit, Permit, Permit, & Basic & Basic & Basic & Basic & Basic Real Real Real Real Real Property Property Property Property Property Tax due Tax due Tax due Tax due Tax due excluding excluding Excluding Excluding Excluding SEF SEF SEF SEF SEF In this connection, hereunder are the comments/recommendations of this Bureau on the subject ordinance: ISCTcH The proposed grant of tax incentives for a period of three (3) years is not in conformity with Article 282 of the Implementing Rules and Regulations (IRR) implementing Section 192 of the Local Government Code (LGC) of 1991, quoted hereunder, therefore not enforceable: "Article 282. Authority to Grant Tax Exemption Privileges . (a) While local sanggunian may grant tax exemption, incentive or tax relief, such grant shall not apply to regulatory fees which are levied under the police power of the LGUs. Such tax exemption shall be conferred through the issuance of a tax exemption certificate, which shall be non-transferable." "(b) . . . "(2) On the grant of tax incentives: "(i) The tax incentive shall be granted only to new investments in the locality and the ordinance shall prescribe the terms and conditions that must be complied with for such grant or tax incentive; "(ii) The grant of the tax incentive shall be for a definite period not exceeding one (1) calendar year; "(iii) The grant of the tax incentive shall be by ordinance passed prior to the first (1st) day of January of any year; and "(iv) Any tax incentive granted to a type or kind of business shall apply to all businesses similarly situated." Thus, the Sangguniang Panlungsod should amend said ordinance by reducing the period of exemption to not more than one (1) year from the actual date the business started operations. It may be mentioned at this point that the grant of incentive shall not apply to regulatory fees which are levied under the police power of the city. Moreover, Section 234, Title Two of the said Code, provides as follows: "Sec. 234. Exemptions from Real Property Tax. The following are exempted from payment of the real property tax: "(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person; aSACED "(b) All charitable institutions, churches, parsonages or convents appurtenant thereto including mosques, nonprofit or religious cemeteries and all lands, buildings, and improvements which are actually, directly and exclusively used for religious, charitable or educational purposes; "(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; "(d) All real property owned by duly registered cooperatives as provided under R.A. 6938; and "(e) Machinery and equipment exclusively used for pollution control and environmental protection. "Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by, all persons, whether natural or juridical, including all government-owned or -controlled corporations are hereby withdrawn upon the effectivity of this Code." Apparently, the Code already enumerated categorically the real properties that should be granted exemption from real property taxes. Thus, the basic principle of "what is not included is deemed excluded" should apply. LGUs do not have the authority to grant exemption from real property taxes, those which are not expressly exempted by the governing law, otherwise they will be exercising the power of amending laws or Acts enacted by Congress. In view thereof, this Bureau believes and so holds that the grant of real property tax exemption under the aforesaid Section 17 (A) of the Local Investment Incentive Code of the City of Cabadbaran is without legal basis. In must be pointed out that the above comments are expressed in line with the provision of Article 287 of the IRR and not a declaration of the nullity or illegality of the Local Investment Incentive Code of the City of Cabadbaran, for reason that such function falls exclusively within the jurisdiction of the Department of Justice. Hence, unless said Ordinance is declared by competent authority as illegal or unconstitutional, the City Treasurer of Cabadbaran has no alternative but to implement the provisions thereunder. In view hereof, it is deemed necessary that recommendations be made before the Sangguniang Panlungsod thereat in order that the same incentives could be amended to ensure compliance with Article 282 of the IRR implementing Section 192 of the LGC. EHTADa Be guided accordingly. (SGD.) MA. PRESENTACION R. MONTESA Executive Director ATTACHMENT Republic of the Philippines Department of Finance Bureau of Local Government Finance CARAGA Administrative Region Butuan City 1st Indorsement January 5, 2010 Respectfully forwarded to the Executive Director, Bureau of Local Government Finance, Department of Finance, Manila, the herein City Ordinance No. 2009-06, dated October 29, 2009, from the City of Cabadbaran this province entitled "An Ordinance Establishing the Local Investment Incentive Code of the City of Cabadbaran", for comments and opinions particularly on the Real Property Tax. (SGD.) ADULFO A. LLAGAS Regional Director