Bureau of Local Government Finance Opinion

January 7, 1993 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Ms. Violeta S. Villanueva VP Controller National Power Corporation cor. Quezon Avenue & Agham Road Diliman, Quezon City M a d a m : This refers to your subjoined letters dated October 20, 1992 and October 27, 1992, respectively, requesting confirmation of the following issues: "1. That based on the intent of the pre-ambulatory statement of Section 39 of P.D. 464, there is supposed to be a third provision in the section which gives the municipality the right to levy up to 1/2% on the assessed values of real properties located in the municipality; "2. That based on the Supreme Court decision of G.R. No. 87479, NPC vs. Albay, and the Memorandum of Agreement between NPC and Albay, the amount of P 214,845,184.76 is deemed inclusive already of the total liability of NPC to Albay to include surcharges, interests, penalties and other costs relative to the case; "3.a. That the assessment level to be assigned to NPC in the new Local Government Code pending enactment of the new schedule of values and revised assessment levels which shall become implementable in 1994, shall be 15% in view of the fact that under the new Code NPC is under Special Class, and the Special Class in P.D. 464 is under the 15% assessment level; cd i b. When the new schedule of values are available, the assessment level of NPC will be reduced to 10%, the assessment under Special Class in the new Code; "4. Whether the dams, reservoirs, penstocks, powerhouse and similar structures used for the operation of NPC's hydroelectric plants are "equipment in contemplation of law, and are therefore exempt from real estate taxes;" citing the case of Lu Do & Lu Ym Corp. vs. Central Bank of the Phils., 108 Phil. 566." Anent Item No. 1, it appears that the said issue has been raised in view of the reason that the authority of the municipality to levy real property tax is not reflected in the official copy of the Real Property Tax Code (PD 464), that is, as published in the Official Gazette (70 Official Gazette 26), which reads in full, as follows: "Sec. 39. Rates of Levy . The provincial, city or municipal board or council shall fix a uniform rate of real property tax applicable to their respective localities as follows: "(1) In the case of a province, the tax shall be fixed by ordinance of the provincial board at the rate of not less than one fourth of one percent but not more than one-half of one percent of the assessed value of real property; "(2) In the case of a city, the tax shall be fixed by ordinance of the municipal board or city council at the rate of not less than one half of one percent but not more than two percent of the assessed value of real property. "The ordinance fixing the rate of real property tax shall be enacted by the local board of council not later than the fifteenth day of September of the year next preceding the year the tax shall begin to accrue. Within five days after enactment, the board or council secretary shall forward the ordinance to the local chief executive for his approval and signature. If he considers any such ordinance prejudicial to the public welfare, he may veto it by signifying to the local board or council concerned his disapproval thereof in writing. The local board or council may, by a two-thirds ( 2 /3) vote of all its members and within fifteen days from the date of receipt of a copy of the vetoed ordinance, repass the same over the veto, in which case it shall be deemed approved without the local chief executive's approval or signature. If the local chief executive fails to approve or veto the ordinance within ten days after receipt of a copy thereof, it shall likewise be deemed approved. "The ordinance fixing the rate of real property tax shall remain in full force and effect unless amended on or before September fifteenth of the year next preceding the one in which the amendment is to take effect. Any ordinances reducing the existing rates of real property tax shall be subject to review by the Secretary of Finance who shall act thereon within sixty days upon receipt of a copy thereof; otherwise, the reduced rates shall be deemed effective on the first day of January of the succeeding year." It may be observed that the intention of the law is really to include the right of the municipalities to levy the said tax when it mentioned that "provincial, city or municipal board or council shall fix a uniform rate of real property tax." Moreover, a perusal of the copy of the Real Property Tax Code distributed to local treasurers/assessors, revealed that the 3rd paragraph of Section 39 thereof is reflected, to wit: "Sec. 39. Rates of Levy . . . . "xxx xxx xxx "(3) In the case of a municipality, the tax shall be fixed by ordinance of the municipal council subject to the approval of the provincial board at the rate of not less than one fourth of one percent of the assessed value of real property." xxx xxx xxx Granting, that the said third paragraph was inadvertently omitted in the publication of PD 464 in the Official Gazette, attention is invited to Section 111 of the aforementioned Real Property Tax Code, which provides: "Sec. 111. Repealing Clause . Commonwealth Act Numbered Four Hundred Seventy, as amended, the pertinent provisions of the charter of all cities; Section two thousand ninety-two of the Revised Administrative Code; and all acts, laws, decrees inconsistent with the provisions of this Code; and all acts, laws, decrees inconsistent with the provisions of this Code are hereby repealed or modified accordingly." It may be worth mentioning that the provisions of Section 5 of Commonwealth Act No. 470, otherwise known as the Assessment Law, provides, in part, as follows: "Sec. 5. Division of proceeds of real property tax between provinces and municipalities or municipal districts . . . . . "The share of a municipality or municipal district shall in the same manner be levied by ordinance of the municipal or municipal district council and it shall be not less than 'two-eights nor more than four-eights of one per centum . cd xxx xxx xxx It bears emphasis, therefore, that the above cited provision of C.A. 470 was not amended nor repealed by any of the provisions of PD 464, as amended, it being not inconsistent with the provisions of the said PD. Accordingly, this Department confirms that municipalities have the right to levy real property tax up to one-half of one percent of the assessed value of real properties located within their territorial jurisdictions based on their municipal tax ordinances enacted for the purpose. In relation hereto, the said PD 464 also provides specifically for the distribution of the real property tax that will be levied and collected by municipalities apart from that of the provinces, under Section 86 (b) (1) stating that: "Sec. 86. Distribution of proceeds . xxx xxx xxx (b) Barrio shares in real property tax collections. The annual shares of the barrios in real property tax collections shall be as follows: "(1) Five per cent of the real property tax collections of the province and another five percent of the collections of the municipality shall accrue to the barrio where the property subject to the taxi is situated. xxx xxx xxx As regards Item No. 2, it is the view of this Department that upon the execution of the Memorandum of Agreement entered into by NPC and the Province of Albay, the accrual of the 2% penalty and/or surcharges, interests and other costs had ceased, subject, however, to the validation/reconciliation of the realty tax as stated in the "WHEREAS (es)" clause and Item No. 2 of the said Agreement, dated July 29, 1992, which state: "WHEREAS, there is a need to further validate/reconcile the computation of the realty tax in the total amount of P214,845,184.76. xxx xxx xxx 2. The balance of the validated/reconciled amount of the real estate taxes will be paid in 24 equal monthly installments payable within the first five (5) working days of the month. The first monthly installment will commence in September 1992." With respect to the third issue, since the NPC's properties, which are actually, directly and exclusively used in the generation and transmission of electric power, now classified as "special" under Section 216 of R.A. 7160, and that the assessment levels enumerated in the said Code (R.A. 7160) " shall be applied initially during the first general revision of real property assessments to be undertaken" by local assessors, the 15% assessment level presently applied to special class of the provisions of Article 309 (b) and (c) of the Implementing Rules and regulations of R.A. 7160, which reads: cd "Art. 309. Assessment Levels . . . . . "(b) Assessment levels in paragraph (a) hereof shall be applied initially during the first general revision of real property assessments to be undertaken pursuant to Article 310 of this Rule. "(c) Pending the enactment of a schedule of fair market values under Articles 303 and 310 of this Rule and the effectivity of the revised new assessment levels, the prevailing schedules of market values and the levels currently used by the provincial, city, and municipal assessors shall continue to be applied. Additionally, the 10% assessment level for special classes of real properties, like that of the above mentioned NPC properties, shall be initially applied during the first general revision of real property assessments, which shall become effective not later than January 1, 1994. Finally, machineries, as defined under Section 199 (o) of the said Code, "includes physical facilities for production, the installations and appurtenant service facilities, . . . which are actually, directly and exclusively used to meet the needs of the particular industry, . . ." Accordingly, this Department holds the view that the dams, reservoirs, penstocks and powerhouse owned by NPC, which are actually, directly and exclusively used in the operation of its hydroelectric plants for the generation of electricity, are among the properties that may be considered as exempted from the payment of real property taxes, in view of the provisions of Section 234 (c) of R.A. 7160, which states: "Sec. 234. Exemptions from Real Property Tax . The following are exempted from payment of the real property tax: "xxx xxx xxx "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;" We trust that this clarifies matters Very truly yours, By Authority of the Secretary: JUANITA A. AMATONG Undersecretary