Bureau of Local Government Finance Opinion

May 10, 2006 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Engr. Lorenzo S. Canlas, Jr. General Manager Camarines Norte Electric Cooperative, Inc. (CANORECO) Daet, Camarines Norte S i r : This is with reference to your letter dated March 17, 2006, requesting opinion on the manner of assessment of real property owned by electric cooperatives (ECs). It is contended that CANORECO is a government-controlled corporation and is therefore entitled to an assessment level of 10% only, for the following reasons: "1. CANORECO is registered with the National Electrification Administration pursuant to the provisions of P.D. No. 269 and not with the Securities and Exchange Commission (ANNEX 'A'); "2. We are a non profit, non-stock entity operating under the supervision and control of the NEA pursuant to P.D. No. 269 (ANNEX 'B'); and "3. Local Tax Advisory dated June 2, 2004 of the NEA (ANNEX 'C')." CaAcSE At the outset, it is important to cite pertinent laws relative to the herein request, specifically on the issues involving the exemption of electric cooperatives (ECs) under P.D. No. 464, the law then prevailing; the subsequent withdrawal of their exemption under R.A. No. 7160; and the Supreme Court Decision promulgated thereafter, to wit: P.D. No. 464, as amended: "SEC. 40. Exemption from Real Property Tax. The exemption shall be as follows: "xxx xxx xxx. "(g) Real Property exempt under other laws." Prior to R.A. No. 7160, Electric Cooperatives, therefore, being registered under P.D. No. 269 are exempt from the payment of real property tax. The benefits and incentives granted to ECs under P.D. No. 269, as amended are those tax and duty exemption privileges mentioned under Section 39 of P.D. No. 269, which was withdrawn by P.D. No. 1955 issued on October 10, 1984 and later on restored by the Fiscal Incentives Review Board (FIRB) under its Resolution No. 24-87 dated July 14, 1987 pursuant to Executive Order No. 93. R.A. No. 7160 "Section 234. Exemptions from Real Property Tax. The following are exempted from payment of the real property tax: "xxx xxx xxx. "(g) All real property owned by duly registered cooperatives as provided under R.A. No. 6938; "xxx xxx xxx. "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by, all persons, whether natural or juridical, including all government-owned or-controlled corporations are hereby withdrawn upon the effectivity of this code." "xxx xxx xxx. "Section 534. Repealing Clause . . . . . "(f) All general and special laws, acts, city charters, decrees, executive orders, proclamations and administrative regulations, or part or parts thereof which are inconsistent with any of the provisions of this Code are hereby repealed or modified accordingly." With the enactment of the Local Government Code in 1991 (R.A. 7160), which took effect in January 1992 and the subsequent withdrawal of real property tax exemptions previously granted to, or presently enjoyed by all persons or entities thru laws, rules or regulations, charter and decrees, the exemption of ECs under P.D. No. 269 was consequently withdrawn, repealed or modified accordingly. On June 23, 2000, a petition/class suit seeking to declare the unconstitutionality of Sections 193 and 234 of R.A. No. 7160, was filed by the Philippine Rural Electric Cooperatives Association, Inc. (PHILRECA), an association composed of 119 electric cooperatives throughout the country, organized and existing under P.D. No. 269. On July 25, 2000, the Supreme Court issued a Temporary Restraining Order (TRO) on the Petition filed by PHILRECA. On June 10, 2003, the Supreme Court denied the Petition of PHILRECA, and lifted the TRO previously issued. The above-cited Supreme Court Decision discussed exhaustively the substantial distinctions between cooperatives registered under P.D. No. 269, as amended, and those covered by R.A. No. 6938. PHILRECA assailed the provisions under Section 234 (d) of the Local Government Code as discriminatory against those cooperatives registered under P.D. No. 269, as amended. Further, the highest court recognized the existence of capital contributions made by members of cooperatives registered under R.A. No. 6938 as differentiated from ECs under P.D. No. 269, the latter not requiring cooperatives to make equitable contributions to capital. SCaTAc In the instant case, the National Electrification Authority (NEA) is given the power of supervision and control over ECs and pursuant to such powers, NEA may issue orders, rules and regulations motu proprio or upon petition of third parties to conduct referenda and other similar actions in all matters affecting electric cooperatives. (Sec. 10, P.D. No. 269, as amended by P.D. No. 1645) Under Opinion 101 S. 1996 of the Department of Justice (DOJ) (copy attached), it was opined that inasmuch as "electric cooperatives are not registered cooperatives under R.A. No. 6938, they shall not be entitled to the other benefits granted to CDA-registered electric cooperatives under R.A. No. 6938." Relatedly, the BLGF, under its Memorandum Circular No. 14-2005 dated September 9, 2005 made the following clarification: "xxx xxx xxx. ". . . it may be worth emphasizing that electric cooperatives are not GOCCs but Cooperatives which are governed by R.A. No. 6938. Hence, although NEA, a GOCC, is covered by the exemption proviso of Section 234(c) of the Code, the exemption on its machineries and equipment cannot be extended to NEA-registered electric cooperatives, like CASURECO II. Likewise, the land, buildings and other improvements owned by them are not considered "Special Classes" real properties covered under Section 216 of the same Code." (Emphasis ours) In conclusion, and in reply to the Local Tax Advisory of the Deputy Administrator for Legal Services of NEA that CANORECO is only entitled to a 10% Assessment Level on its machinery and equipment, we believe that CANORECO, although its machinery and equipment are actually, directly and exclusively used in the generation and transmission of electric power and having been registered with NEA in October 1975, by virtue of P.D. No. 269, is NOT a GOCC which is entitled to a 10% assessment level, as provided under Sec. 218 (d) of the Code. Therefore, the properties of CANORECO fall under the classification of commercial, hence, the assessment level to be applied should be that which was fixed by the Ordinance of the Sanggunian Panlalawigan of the province for commercial properties but not exceeding the Assessment Level provided for under Section 218 (c) of the same Code. AcSIDE Very truly yours, (SGD.) MA. PRESENTACION R. MONTESA Executive Director