Bureau of Local Government Finance Opinion

February 20, 1996 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Atty. Rolando P. Navarro Vice-President Legal Services Chemphil Specialty Chemicals Corp. Chemphil Bldg. 851 Antonio S. Arnaiz Ave. Makati City S i r: This refers to your letter dated September 7, 1995 requesting confirmation that Local Finance Circular No. 5-93 dated October 22, 1993 of the Department of Finance never became effective, binding or enforceable on the ground of lack of publication in the Official Gazette or in a newspaper of general circulation as mandated by law under Article 2 of the New Civil Code of the Philippines as amended by E.O. 200 which states: Laws shall take effect after fifteen days following the completion of their publication either in the Official Gazette or in a newspaper of General Circulation in the Philippines, unless it is otherwise provided. Said request is being made in view of the denial of the Municipal (now City) Treasurer of Makati of the application for tax credit claim of Chemphil Specialty Chemicals Corp. (CSCC). It is the contention of that Office that having been registered with the BOI since April 20, 1989 on a non-pioneer status, CSCC was entitled to the exemption from payment of local business taxes for four (4) years from the date of its registration applying Sec. 133 (g) of R. A. 7160, otherwise known as the Local Government Code of 1991 (LGC). However, CSCC, not aware of this incentive, paid the aforesaid taxes in those years it was exempted. On the other hand the aforesaid denial was based on Sections 3 and 4 of the aforesaid Circular, quoted as follows: "SEC. 3. Exemption of pioneer and non-pioneer enterprises. "(a) " . . ." "(b) Starting January 1, 1992, pioneer and non-pioneer enterprises registered with the BOI prior to the effectivity of the LGC shall be exempt from local business taxes until the end of the remaining period of their six (6) and four (4) years exemption from the date of registration. "xxx xxx xxx "SEC. 4. Availment of the exemption . (a) within sixty (60) days. "(i) from the receipt of the certificate of registration from the BOI, or (ii) from the effectivity of the tax ordinance or revenue measure imposing a tax on business, or (iii) from the effectivity of these guidelines, whichever comes later, the President or duly authorized representative of the registered enterprise, shall submit a BOI certified true copy of said certificate of Registration to the local treasurer concerned together with a request for a Certificate of Exemption for the appropriate period, as indicated in Se. 3 above. "xxx xxx xxx" In this connection, enclosed for reference is a copy of the letter dated April 24, 1995 of the Department addressed to Mr. Onofre H. Francisco, Sr., Office of the City Legal Officer of Davao bearing on a similar query, the pertinent portion of which is quoted hereunder: ". . ., it may be stated that guidelines issued by this Department relative to the levy and administration of local taxes, fees and charges pursuant to Article 287 of the IRR are only intended to, among others: "(a) guide local elective officials in the enactment of local tax ordinances or revenue codes; "(b) local treasury offices in collecting taxes and other local impositions, as well as in determining or computing tax discounts or penalties and surcharges; and "(c) the taxpaying public as to the proper interpretation and application of the law and rules governing local taxation. "Such guidelines, however, cannot, as they are not meant to, amend provisions of law, particularly the LGC of 1991. Accordingly, in reply to your query, it is the considered view of this Department that the 60-day period prescribed under LFC No. 5-93 abovementioned is only directory and not mandatory and, therefore, the failure of any business to observe the same will not render taxable what the law has expressly exempted from local taxation. Stated otherwise, said 60-day period is deemed to be not prescriptive." The question to be resolved therefore, is whether or not CSCC is entitled to a refund or tax credit from the date of its registration with the BOI, which is April 20, 1989. It may be mentioned, in this connection, that BOI registered enterprises became exempt only upon the promulgation of the LGC which took effect on January 1, 1992. PD 231, the law prevailing then, did not provide exemption for such enterprises. Accordingly, this Bureau expresses the view that, as provided for under Section 3(b) of Local Finance Circular No. 5-93, quoted above, CSCC should be exempt from the payment of business taxes for the remainder of the four (4) years from the date of its registration with BOI beginning from the effectivity of the LGC on January 1, 1992 or, up to April 19, 1993. Therefore, upon presentation by that company of its BOI certification to the Office of the City Treasurer of Makati, it may file its claim for tax credit effective January 1, 1992 up to but not beyond April 19, 1993 subject, however, to the provisions of Section 196 of the Code, as implemented under Article 286 of its Implementing Rules and Regulations (IRR). However, be reminded that the tax exemption granted to BOI-registered enterprises applies only to taxes, specifically the tax on business, but not to regulatory and proprietary fees and service charges that may have been provided for under a duly-enacted tax ordinance of the local government concerned. As regards the contention that Local Finance Circular No. 5-93 has not taken effect due to lack of publication, it is emphasized that circulars issued by the Department of Finance are guidelines prescribed in accordance with Article 287 of the IRR to ensure the proper, efficient and effective exercise by local government units of their taxing powers under the LGC. Said circulars are only directory and are not meant to amend provisions of the law, thus, such publication is not necessary for the implementation thereof. The City Treasurer of Makati is being instructed accordingly under a separate letter of even date, copy also enclosed. Very truly yours, LORINDA M. CARLOS Executive Director