Bureau of Local Government Finance Opinion

December 2, 2014 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Hon. Benglen B. Ecleo, MBA Vice Governor & Presiding Officer Office of the Sangguniang Panlalawigan Provincial Capitol, Cuarinta San Jose, Dinagat Islands Gentlemen : This refers to Resolution No. BBE-364, 3rd SP Series (2014), enacted by the Sangguniang Panlalawigan of the Province of Dinagat Islands, entitled "REQUESTING THE ASSISTANCE OF SEC. RAMON J. PAJE OF THE DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES (DENR) FOR THE PROVINCE TO FACILITATE THE COLLECTION OF THE ACCRUED SOIL DEPLETION TAX FROM CAGDIANAO MINING CORPORATION/NICKEL ASIA CORPORATION IN FAVOR OF THE PROVINCE OF DINAGAT ISLANDS", copy furnished the Department of Finance (DOF), and forwarded to this Bureau for comment and/or appropriate action. It is represented in the "WHEREAS" clause of said Resolution that in the exercise of its taxing power and to supplement the province's share from the IRA, the Sangguniang Panlalawigan enacted Ordinance No. 08-58, otherwise known as "An Ordinance Imposing Soil Depletion Tax of One Percent (1%) based on gross sales of mineral ores extracted and/or shipped out by the mining companies from the territorial jurisdiction of the Province of Dinagat Islands". It is claimed however that based on the available records provided by the Provincial Treasurer's Office, said company has ignored the payment of soil depletion tax liability to the province for the period from 2009 to 2014, the amount of which has now reached more than One Hundred Million Pesos (P100M), representing millions of metric tons of ores extracted and shipped out to foreign countries by the said mining company. At the outset, it may be worth mentioning that mining is primarily the concern of the National Government. Section 2 (Declaration of Policy) states that "All mineral resources in public and private lands within the territory and exclusive economic zone of the Republic of the Philippines are owned by the State" . For this purpose, the regulation and management of such activity is within the jurisdiction of the National Government, the implementation of which is with the Department of Environment and Natural Resources (DENR) through its staff bureau, the Mines and Geosciences Bureau (MGB). 1 And unless such power is delegated to a sub-national government through a legislative act of Congress, mining operation remains within the realm of the State. In this regard, Ordinance No. 08-58, otherwise known as "An Ordinance Imposing Soil Depletion Tax of One Percent (1%) based on gross sales of mineral ores extracted and/or shipped out by the mining companies from the territorial jurisdiction of the Province of Dinagat Islands" needs further study. By way of comment, such levy is more appropriate for a municipal government more particularly Section 143 (h) of R.A. No. 7160, otherwise known as the Local Government Code (LGC) of 1991, which provides: "Section 143. Tax on Business . The municipality may impose taxes on the following businesses: xxx xxx xxx (h) On any business, not otherwise specified in the preceding paragraphs, which the sanggunian concerned may deem proper to tax: Provided, That on any business subject to the excise, value-added or percentage tax under the National Internal Revenue Code, as amended, the rate of tax shall not exceed two percent (2%) of gross sales or receipts of the preceding calendar year. The sanggunian concerned may prescribe a schedule of graduated tax rates but in no case to exceed the rates prescribed herein. To support the above observation, Section 134 of R.A. No. 7160, otherwise known as the Local Government Code (LGC) of 1991 specifically provides: " Section 134 . Scope of Taxing Powers . Except as otherwise provided in this Code, the province may levy only the taxes, fees, and charges as provided in this Article ." (Underscoring for emphasis) In relation to the preceding provision of law, provinces are authorized to levy tax on sand, gravel and other quarry resources provided under Section 138, quoted as follows: "Section 138. Tax on Sand, Gravel and Other Quarry Resources . The province may levy and collect not more than ten percent (10%) of fair market value in the locality per cubic meter of ordinary stones, sand, gravel, earth, and other quarry resources, as defined under the National Internal Revenue Code, as amended, extracted from public lands or from the beds of seas, lakes, rivers, streams, creeks, and other public waters within its territorial jurisdiction. The permit to extract sand, gravel and other quarry resources shall be issued exclusively by the provincial governor, pursuant to the ordinance of the sangguniang panlalawigan . xxx xxx xxx." Clearly, the aforecited provisions of Section 134 of the LGC limits the taxing and regulatory powers of a provincial government to the extraction of sand, gravel and other quarry resources within its territorial jurisdiction. Viewed from this perspective, mining companies operating in Dinagat Islands are of the view (perhaps) that those assessments made by the Office of the Provincial Treasurer thereat levying the "Soil Depletion Tax" are ultra vires thus, as it seems, being ignored by the mining companies. In this connection, that local government may have to seek the legal opinion of the Secretary of Justice on the validity of Ordinance No. 08-58 for the proper guidance of the Office. We hope that this will help clarify matters. Very truly yours, (SGD.) SALVADOR M. DEL CASTILLO OIC-Executive Director Footnotes 1. Section 5, R.A. No. 7942, as amended.