Bureau of Local Government Finance Opinion

July 23, 2004 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 1st Indorsement Respectfully referred to the Provincial Assessor and the Provincial Treasurer of Misamis Occidental, Oroquieta City. This refers to the letter dated January 28, 2004 of Mr. Eugene L. Lim, President & Chief Executive Officer, Philippine Compak Boards, Inc. (PCBI), Daily Foods, Cor. Cebedo-Zamora Sts., Ozamis City, addressed to Her Excellency, the President of the Philippines, which was forwarded to the Department of Finance for appropriate action, appealing for executive exemption/condonation of real property taxes and the penalties due thereon for the years 1996-2002, covering their real properties (land, buildings and machineries/equipment) located in Lapasan, Clarin, same province. In this connection, enclosed is a copy of our letter of same date, addressed to Mr. Lim, which opined, to wit: "In this regard, attention is invited to Sections 276 and 277 of R.A. No. 7160, also known as the Local Government Code of 1991, which are quoted below: 'SEC. 276. Condonation or Reduction of Real Property Tax and Interest . In case of a general failure of crops or substantial decrease in the price of agricultural or agribased products, or calamity in any province, city or municipality, the sanggunian concerned, by ordinance passed prior to the first (1st) day of January of any year and upon recommendation of the Local Disaster Coordinating Council, may condone or reduce, wholly or partially, the taxes and interest thereon for the succeeding year or years in the city or municipality affected by the calamity.' 'SEC. 277. Condonation or Reduction of Tax by the President of the Philippines . The President of the Philippines may, when public interest so requires, condone or reduce the real property tax and interest for any year in any province or city or a municipality within Metropolitan Manila Area.' "Evidently, condonation under Section 276 of the Code is within the discretion of the Sanggunian in cases of calamitous events; and the substantial decrease in agribased products in a given province, city or municipality for the succeeding year/years. On the other hand, condonation under Section 277 thereof shall be, with the approval of the President of the Philippines affecting not just one individual or entity but all persons, businesses and transactions similarly situated. "It is also clear that condonation or reduction of real property taxes and interests due thereon is not applicable to a single or a particular person or enterprise only, like the PCBI. Hence, your abovementioned basis for the subject appeal covering a 7-year period (1996-2002) would not qualify for considerations under the aforequoted provisions of the said Code. "Likewise, the exemption proviso (Section 234) of R.A. No. 7160 is very specific as to what real properties are exempt from the payment of real property taxes. Therefore, the principle " inclusio unius est exclusio alterius " (what is not included is deemed excluded) applies. "In view hereof, we regret that your abovementioned appeal cannot be given due course for lack of legal basis." On the other hand, attention is invited to the letter dated July 30, 2003, copy also enclosed, of this Bureau, concerning machineries that are not in use for reason of closure or cessation of operations, the dispositive portion of which provides, as follows: "Beyond doubt, the provision of Section 199(o), clearly provides that machinery, (such as those of NSC's) should be actually, directly and exclusively used to meet the needs of a particular industry, business, or activity. When these machineries are no longer actually, directly and exclusively used for its intended purpose, the same should no longer be subject to real property tax. However, it is emphasized that upon resumption of its activity/operations, the machineries owned by NSC should then be assessed as taxable real properties, effective on the first day of January of the year immediately following the resumption of its business activity/operations. "Viewed in this light, this Bureau believes that for so long as the machineries owned by the NSC are not in use for reason of closure or cessation of production, the same are not subject to real property tax." Similarly, therefore, and considering that as submitted, among others, by Mr. Lim, the subject appeal of PCBI appears basically due to the company's (a) heavy losses suffered; (b) destruction of its machineries/equipment caused by typhoon; and (c) temporary cessation/shutdown of operations, the Office of the said Provincial Assessor is hereby instructed to: 1. To conduct an investigation/ocular inspection on the subject real properties (machineries) of PCBI in order to determine the following: a) the veracity of the allegation that the said company was in operation for only a year and 3 months after its inauguration on August 24, 1996; and/or the actual period of its closure; and/or when it actually re-started anew its operations; and the machineries that actually stopped from operations in the duration of the said period; b) the machineries that were destroyed by the typhoon on November 28-29, 1999; c) the veracity of the shut-down of the plant's operations from November 29, 1999 up to February 5, 2002 and the affected machineries thereon; and d) the machineries that remain in operation. 2. Thereafter, if findings warrant: a) Cancel the assessment of machineries already destroyed; b) Drop the particular machineries of PCBI from the "Taxable Roll" of real properties for the year/s of closure/cessation of its production. The same should then be assessed as taxable real properties effective on the first day of January of the year immediately following the resumption of its operations. It is advised that that Office could verify the financial statements of the said company, particularly the Statement of Income/Loss and Retained Earnings in order to establish the year/s the company had no actual production to justify the stoppage of its operations. It may be worth noting, however, that regardless of whether the said company ceased its operations: (a) the appraisal and assessment of the subject land of PCBI is not affected; and (b) building/s which was/were not demolished shall remain subject to real property tax. Accordingly, the Office of the said Provincial Treasurer is likewise hereby instructed to: 1. To hold in abeyance the further demand for payment of real property taxes including the penalties due the subject real properties of PCBI pending the result of the said investigation/ocular inspection to be conducted by the Office of the said Provincial Assessor; 2. To recompute the real property taxes due the PCBI including the penalties due thereon based on the outcome of the said investigation/ocular inspection; and 3. To consider, if necessary and/or appropriate, a compromise agreement as provided under Assessment Regulations No. 2-83 dated January 19, 1983, copy also enclosed, of the Department of Finance, between PCBI and the local government unit, the staggered payment of the real property taxes due including penalties of the said company. HICSTa Report of the action taken hereon will be appreciated. (SGD.) MA. PRESENTACION R. MONTESA Executive Director