Bureau of Local Government Finance Opinion

May 7, 1998 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Mr. Artemio Pascual 19 Times Street West Triangle, Diliman Quezon City S i r : This refers to your letter dated November 12, 1997 requesting a ruling on the legality of using the zonal valuation of the BIR in determining the amount of the transfer tax on transferring real property shares of stock of the capital stock of a corporation. Representations are made that the transaction is exempt from capital gains tax under the National Internal Revenue Code. However, it is subject to the documentary stamp tax, the imposition of the BIR which is based on the consideration received on the contracted corresponding value of the shares of the transferee corporation and not on the zonal valuation. In addition, it appears that the above valuation has been approved and accepted by the Securities and Exchange Commission. It is represented further that the valuation is substantial considering that it was the latest appraised fair market value of the City Assessor that was used as transfer value in the exchange of shares of the capital stock of the transferee corporation. However, the city government still insists in imposing or collecting the transfer tax based on the BIR zonal valuation. Thus, it is argued that such imposition would be contrary to the provisions of the Local Government Code (LGC). Hence, the issue herein raised is whether the City Ordinance of a local government unit can supervene over and above a national law as implemented by national government agencies like the BIR and SEC. The governing provision of the Code is Section 135 which provides as follows: "SEC. 135. Tax on Transfer of Real Property Ownership . (a) The province may impose a tax on the sale, donation, barter, or on any other mode of transferring ownership or title of real property at the rate of not more than fifty percent (50%) of one percent (1%) of the total consideration involved in the acquisition of the property or the fair market value in case the monetary consideration involved in the transfer is not substantial, whichever is higher . The sale, transfer or other disposition of real property pursuant to RA 6657 shall be exempt from this tax." IATSHE "xxx xxx xxx." Under Section 151 of the Code, a city government may levy any tax that provinces are empowered to impose. Hence, there is no question that the city involved may levy and collect said transfer tax. However, it is clear from the foregoing provisions that the tax base should only be either the total amount of the consideration involved or fair market value of the property which shall be the market value of the subject property reflected or indicated in the prevailing Schedule of Market Values prepared by the City Assessor and duly-enacted by the Sangguniang Panlungsod. Considering that local government affairs and operations are governed by the Code, it follows that, in this case, the local tax rate should be as provided for in Section 135 aforequoted and not on any other tax base, such as the zonal values prescribed by the BIR. This Bureau, therefore, is of the view that a city ordinance which provides that the BIR zonal values should be used as basis in the collection of the transfer tax for purposes of transferring real property exchange of shares of stock of the capital stock of a corporation partakes the nature of an amendment of the LGC and, thus, beyond the authority of the Sangguniang Panlungsod which enacted the City Ordinance. Such ordinance is devoid of any legal basis and, therefore, not enforceable. We hope that this will help clarify matters. Very truly yours, (SGD.) LORINDA M. CARLOS Executive Director