Bureau of Local Government Finance Opinion

June 28, 1993 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Mr. Tomas I. Alcantara Managing Head & Vice-Chairman Board of Investments (BOI) Industry & Investment Bldg. 385 Gil J. Puyat Ave. Makati, Metro Manila S i r : This refers to your letter regarding the request of Asian Finance and Investment Corporation, Ltd. (AFICL) and Philippine Association of Multinational Companies & Regional Headquarters, Inc. (PAMURI) for opinion on the applicability of Article 65 of Executive Order No. 226 otherwise known as the Omnibus Investment Code of 1987. It is represented that AFICL is authorized under SEC. Reg. No FM018 to establish its regional headquarters in the Philippines. It is further represented that AFICL is being assessed by the Municipality of Makati to pay the Mayor's Permit Fee, Garbage Fees, Sign/Billboard Permit Fee, Sanitary Inspection Fee and other fees and charges. AFICL contends that pursuant to the provisions of EO No. 226, said Corporation is exempt from the payment of said impositions for reasons embodied in the 1st Indorsement dated January 10, 1991 of BOI. However, the request for exemption was not given due course by the said municipality due to an opinion of the Bureau of Local Government Finance (BLGF), this Department, the pertinent portion of which quoted as follows: ". . . AFICL is exempt from the payment of local business taxes or license fees, However, the exemption enjoyed by AFICL pursuant to Sections 64 and 65, supra , does not apply to the payment of permit fees, inspection fees, sanitary fees and service charges because exemption from taxes does not carry with it the exemption for the payment of fees for regulation, inspection, surveillance and service rendered. This is because taxes are for revenue purposes while fees and charges are payment for expenses incurred to protect public interest and in furtherance of the general welfare clause of the Constitution. xxx xxx xxx The fees mentioned in the aforequoted opinion are, by nature, service charges as compensation for services actually rendered by the local government unit, while the Mayor's permit fees are exacted under the police power under which municipal corporations are authorized to enact ordinances to provide for the health, safety and general welfare of the citizenry and promote favorable peace and order conditions in the locality. In view thereof, this Department hereby maintains the previous stand taken by BLGF on the request of AFICL. Moreover, attention is invited to Sec. 193 of the Local Government Code of 1991 (RA 7160) which took effect on January 1, 1992, quoted hereunder: casia "Sec. 193. Withdrawal of Tax Exemption Privileges . Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons whether natural or juridical, including government-owned or-control corporations, except local water districts cooperatives duly registered under R.A. N. 6938, non-stock and non-profit hospitals and educational institutions are hereby withdrawn upon the effectivity of this Code." It is clear that under the aforequoted Section, AFICL loses all exemptions beginning January 1, 1992. PAMURI PAMURI is an association of all Multinational Companies and Regional Headquarters in the Philippines. On behalf of its member, Cable and Wireless (Marines) Ltd. (CWL), PAMURI is requesting opinion as to the applicability of Art. 65 in relation to the payment of real property tax of said company on its Cable Depot (Regional Warehouse). Representation is made that CWL was authorized under SEC Reg. No. FM-034 dated August 23, 1990, and Certificate of Authority No. 004 dated February 8, 1991 to establish a regional office and regional warehouse, respectively. The Municipality of Bauan, Batangas is collecting from the CWL real property tax on its Cable Depot (Regional Warehouse). It is the contention of CWL that since it is both authorized to established regional warehouses and regional headquarters, the exemption enunciated under Art. 65 covers both entities as it is not possible to separate one from the other, since, establishment of a regional office is a pre-requisite on the establishment of a warehouse. Hence, said warehouse is exempt from payment of real property tax by virtue of the provision of Art. 65. cd i BOI noted that the establishment of regional office is covered by Book III of E.O. No. 226, which enumerates the available incentives granted therein while the establishment of regional warehouse and its incentives are provided for under Book IV of said Executive Order. Hence, separate incentives are granted to both business establishments. Be that as it may, it is the view of BOI that CWL is not covered by the exemptions provided for under Article 65, citing the case of Meralco Vs. Central Board of Assessment Appeals, (114 SCRA 260), in which the Supreme Court ruled that "the real property tax is not a local tax because it has always been imposed by the law making body (national legislative body). The Real Property Tax Code merely authorizes local government to collect real property tax in the same manner that municipal licenses, and taxes are authorized to be collected under the local Tax Code." This Department concurs therein. However, PAMURI countered that under Sec. 232 of the Local Government Code of 1991, the power to impose tax on real property now lies with the local government unit. Hence, the previous characterization of the real property as a national tax, in the case of Meralco vs. Central Board of Assessment Appeals, which is collected by the local government is now obsolete. This Department likewise concurs therein. In resolving the issue, it is the view of this Department that Cable and Wireless (Marines) Ltd. is still not exempt from the payment of real property tax considering the provisions of Sec. 234 of said Local Government Code, quoted as follows: "Sec. 234. Exemptions from Real Property Tax . The following are exempted from payment of the real property tax: "(a) Real property owned by the Republic of the Philippines or any of its political subdivision except when the beneficial use thereof has been granted for consideration or otherwise, to a taxable person; "(b) Charitable institutions, churches, personages or convents appurtenant thereto, mosque, nonprofit or religious cemeteries and all lands, building, and improvements actually, directly, and exclusively used for religious, charitable or educational purposes; "(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; "(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and "(e) Machinery and equipment used for pollution control environment protection. "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." (Underlining supplied). cdasia We hope that this clarifies matters. Very truly yours, By authority of the Secretary (SGD.) JUANITA D. AMATONG Undersecretary