Bureau of Local Government Finance Opinion

February 28, 2000 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION The Vice President-Finance/Controller Philex Mining Corporation (PHILEX) Philex Building, 27 Brixton Street Pasig City S i r : This refers to your letter seeking the opinion of this Bureau on the applicability of the following. "1. Section 225 (Depreciation Allowance for Machinery) of the Local government Code of 1991 which states that: 'for purposes of (real property tax) assessment, a depreciation allowance shall be made for machinery and equipment at a rate not exceeding five percent (5%) of its original cost or its replacement or reproduction cost, as the case may be, for each year of use,' and "2. Section 2.1 of Joint Local Treasury/Assessment Regulations (JLT/AR) No. 2-88 which states that 'in cases where the subject property shall undergo only a change in market or assessed values, the Notice of Assessment (part A of the RPTOP form) issued by the local Assessor shall suffice to update the existing Tax Declaration therefor.'" In this connection; enclosed is a copy of our 4th Indorsement of the same date addressed thru the Provincial Assessor, to the Provincial Treasurer, both of Benguet, the dispositive portion of which states as follows: "Clearly, a depreciation allowance should be applied in the assessment of machinery for each year of its use, and, evidently, no listing is required therefor, specially if the property to be valued already had an existing assessment. It is under the same consideration that Section 2.1 of JLT/AR No. 2-88 acknowledged that "in cases where the subject real property shall undergo only a change in market or assessed values, the . . . part A of the, RPTOP form . . . shall suffice to update existing Tax Declaration." It is worthwhile to note that the entire Section 3 of Joint Local Treasury and Assessment Regulations No. 2-88, dated December 1, 1988 prescribed the preparation and the use of the Real Property Tax Order of Payment (RPTOP) which was developed purposely "to improve tax collection performance of the local governments." DcITHE "It is worthwhile to note that, among the features of the RPTOP Form marked as Annex "B" in the said Regulations, are the columns intended for purposes of applying, not only yearly depreciation for machinery and equipment, but also for buildings and other structures." "Accordingly, this Bureau finds the abovementioned reason (that no listings were submitted and no ocular inspection was conducted) which was made as basis for the denial of the application of the yearly depreciation, unfounded. "The plain and unambiguous provision of Section 225 of the Code and the purpose for which the RPTOP Form was prescribed under JLT/AR No. 2-88, warrants the favorable consideration of the contention of PHILEX that its machineries and equipment should be applied a depreciation allowance for each year of use." We trust that this will clarify matters. Very truly yours, (SGD.) ANGELINA M. MAGSINO Deputy Executive Director Officer-in-Charge 4th Indorsement February 28, 2000 Respectfully returned, thru the Provincial Assessor, to the Provincial Treasurer, La Trinidad, Benguet. This refers to the subjoined letters dated October 29, 1999 and January 26, 2000 of the Vice President for Operations of Philex Mining Corporation, Padcal, Tuba, that province, in effect seeking the opinion of this Bureau on the applicability of the following: "1. Section 225 (Depreciation Allowance for Machinery) of the Local Government Code of 1991 which states that: 'for purposes of (real property tax) assessment, a depreciation allowance shall be made for machinery and equipment at a rate not exceeding five percent (5%) of its original cost or its replacement or reproduction cost, as the case may be, for each year of use,' and EASCDH "2. Section 2.1 of Joint Local Treasury/Assessment Regulations (JLT/AR) No. 2-88 which states that 'in cases where the subject property shall undergo only a change in market or assessed values, the Notice of Assessment (part A of the RPTOP form) issued by the local Assessor shall suffice to update the existing Tax Declaration therefor.'" Apparently, the said company paid its real property taxes for CYs 1990 to 1999 "under protest" based on the computation that applied an annual depreciation of 5%, which was jointly denied by the Local Treasury Office of the Municipality of Itogon, Benguet, the Provincial Assessor and the Provincial Treasurer of said province, primarily for "reason that no listings (of machinery and equipment) were submitted and no ocular inspection was conducted" and hence, the "request for (the application of) depreciation allowance was denied." (November 18, 1999 letter of Benguet Provincial Governor Raul M. Molintas to PHILEX) The issue to be resolved hereon redounds to whether or not the alleged non-submission of the said "listings" warrants the non-application of the yearly depreciation allowance as provided for under Section 225 of the said Code despite the fact that there is an existing assessment covering the subject machinery and equipment of the said company. The abovementioned Section 225 of R.A. No. 7160 provides that: "SEC. 225. Depreciation Allowance for Machinery . For purposes of assessment, a depreciation allowance shall be made for machinery at a rate not exceeding five percent (5%) of its original cost or its replacement or reproduction cost, as the case may be, for each year of use: Provided,. however, That the remaining value for all kinds of machinery shall be fixed at not less than twenty percent (20%) of such original, replacement, or reproduction cost for so long as the machinery is useful and in operation." AIDSTE Clearly, a depreciation allowance should be applied in the assessment of machinery for each year of its use, and, evidently, no listing is required therefor, specially if the property to be valued already had an existing assessment. It is under the same consideration that Section 2. 1 of JLT/AR No. 2-88 acknowledged that "in cases where the subject real property shall undergo only; a change in market or assessed values, the . . . part A of the RPTOP form . . . shall suffice to update existing Tax Declaration." It is worthwhile to note that the entire Section 3 of Joint Local Treasury and Assessment Regulations No. 2-88, dated December 1, 1988 prescribed the preparation and the use of the Real Property Tax Order of Payment (RPTOP) which was developed purposely "to improve tax collection performance of the local governments." It is worthwhile to note that, among the features of the RPTOP Form, marked as Annex "B" in the said Regulations, are the columns intended for purposes of applying, not only yearly depreciation for machinery and equipment, but also for buildings and other structures. Accordingly, this Bureau finds the abovementioned reason (that no listings were Submitted and no ocular inspection was conducted) which was made as basis for the denial of the application of the yearly depreciation, unfounded. The plain and unambiguous provision of Section 225 of the Code and the purpose of which the RPTOP Form was prescribed under JLT/JAR No. 2-88, warrants the favorable consideration of the contention of PHILEX that its machineries and equipment should be applied a depreciation allowance for each year of use. In view thereof, the said Provincial Assessor is hereby instructed to rectify the assessment records of the subject machinery and equipment of PHILEX in accordance herewith, particularly the accomplishment of the RPTOP form for the purpose of applying the yearly depreciation for the same. CcAESI The Provincial Treasurer, for his part is hereby instructed to make the necessary corrections on the collection records of PHILEX on the basis of the action taken by the Provincial Assessor thereat. Report of actions taken hereon is requested within ten (10) days from receipt hereof. (SGD.) ANGELINA M. MAGSINO Deputy Executive Director Officer-in-Charge