Bureau of Local Government Finance Opinion

January 18, 2011 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Mr. Antonio D. Jorolan President Refratrade Industrial Resources, Inc. Rm. A, 3rd Floor, FCC Building 7494 Santillan St., Pio del Pilar Makati City Sir : This refers to your letter dated 14 December 2010 addressed to ATTY. EDWARD JUSTINE R. ORDEN, Chief, Law Division, Department of the Interior and Local Government (DILG), forwarded to this Bureau under a 1st Indorsement dated 22 December 2010 for information and appropriate action, requesting confirmation on the following issues: 1) The preferential rate of business tax applicable to the gross receipts of Refratrade Industrial Resources, Inc. (RTIRI) is Sec. 3A.02 (d) (8) of the Makati Revised Revenue Code (MRRC); and 2) RTIRI falls under the classification of an importer and trader of an essential commodity (refractory bricks). Representations are made that RTIRI is engaged in the importation and distribution of refractory bricks, ceramic materials used in lining furnaces, kilns, fireboxes, and fireplaces. A refractory brick is built primarily to withstand high temperature. It contains 30%-40% aluminum oxide or Alumna and 50% silicon dioxide or silica. In comparison, it is alleged that cement is made up primarily of silica and alumina. In view hereof, it is your position that a refractory brick is a type of cement. The product being referred to as refractory "brick" actually does not alter the fact that the same is a kind of cement. The use of the word "brick" is merely descriptive of the manner of its construction when it is built as a furnace as one unit is piled up on top of another resulting in a brick-like structure. Based on the above representations, it may be said that refractory brick, though comparable to cement in terms of composition, will have to pass the test to be likened to cement, an essential commodity and one of the products enumerated under Section 143 (e) of R.A. No. 7160, otherwise known as the Local Government Code (LGC) of 1991. SDHacT Section 143 (e) of the LGC, provides as follows: SEC. 143. Tax on Business. The municipality may impose taxes on the following businesses: (a) . . . (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: (1) Rice and corn; (2) Wheat or cassava flour, meat, dairy products, locally manufactured, processed or preserved food, sugar, salt and other agricultural, marine, and fresh water products, whether in their original state or not; (3) Cooking oil and cooking gas; (4) Laundry soap, detergents, and medicine; (5) Agricultural implements, equipment and post-harvest facilities, fertilizers, pesticides, insecticides, herbicides and other farm inputs; (6) Poultry feeds and other animal feeds; (7) School supplies; and (8) Cement. ( Emphasis ours ) Based on the abovequoted provision of the LGC, and as can be deduced from the intent of the legislature, it may stated that "refractory brick" does not fall within the purview of the term "essential commodity". Although the LGC does not provide the definition of the term, it can easily be ascertained from the enumeration above that the legislative intent is to limit the numbers of products considered as essential commodities. Otherwise, the legislature could have easily inserted a "catch all" proviso in the law that will include products that are of similar kinds, class, category or type, as in the case of Presidential Decree No. 231, the predecessor of the LGC, when Section 9 thereof provides, after the enumeration, the phrase "[O] ther commodities covered by the Price Control Law . . . ." For purposes of clarification, this Bureau, on several occasions ruled that certain products though not included in the enumeration under Section 143 (c), supra , are classified as "essential commodities", as in the case of coffee, pasta and/or noodles to name a few. Such products are considered "essential commodities" in accordance and in consideration of the main ingredients which are traceable from the yield of the soil, and as defined under Section 131 (a) of the LGC. SCETHa In the case at hand, refractory brick can neither be considered as prime nor basic commodity much more essential as its usefulness does not entail a necessity among the majority of the consumers unlike in the case of cement where even the poor members of the society more particularly residential owners have a huge demand of supply for the construction of their dwelling structures. Stated otherwise, the use of refractory brick is very limited and therefore does not fall within the context of the term "essential commodity". The foregoing views considered, this Bureau regrets that it cannot accede to your request for confirmation that "refractory brick" falls within the purview of "essential commodity", subject to the preferential rate of business tax applicable to the gross receipts of exporters, manufacturers, millers, producers, wholesalers, distributors, dealers or retailers of essential commodities as provided in the aforequoted Section 143 (c) of the LGC. In the same vein, RTIRI may not be considered as an importer and trader of "essential commodity" for the same reason. We hope that this will help clarify matters. Very truly yours, (SGD.) MA. PRESENTACION R. MONTESA, CESO III Executive Director