Bureau of Local Government Finance Opinion

December 6, 2001 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Atty. Antonio B. Sta. Romana Law Firm Sta. Romana & Sta. Romana 79 Magsilo cor. San Francisco Sts. Mandaluyong City Dear Sir : This refers to your subjoined letters all dated November 12, 2001 requesting in behalf of your client, Pure Foods Corporation (PFC) confirmation of the following opinions: 1. That the various sales offices of PFC should be classified as processor/manufacturer and not as wholesaler, distributor or dealer; 2. That the following products of PFC are classified as essential commodities, subject to the tax rate of not exceeding one-half (1/2) of 37.5 % of 1%: a. Feeds b. Poultry products (live and dressed chickens) c. Processed agricultural products (Value added products) 3. That PFC is exempt from the payment of local business taxes to the various Local Government Units (LGUs) where PFC has its Branch Offices for four (4) years starting June 10, 1997 based on the fact that PFC is a BOI non-pioneer registered company; and HTCIcE 4. that PFC is liable to pay the Community Tax only once and in the place where its principal office is located, that is, in Pasig City, thus it is not required by law to pay the Community Tax in each and every Local Government Unit (LGU) where its various branch/sales offices, breeder farms, hatchery, contract farms, dressing plants, cold storages and processing plant are located. Representations are made that PFC is a duly registered domestic corporation with principal office located at Pasig City. It is in the business of manufacturing/processing agricultural products (feeds, poultry products and other agricultural products, processed agricultural products and other essential commodities). Its breeder farms, hatchery, contract growers farms, dressing plants, cold storages and processing plant are located throughout the country. Representations are made further that PFC manufactures/processes products for the purpose of its sale to others and not for its own use or consumption. It does not buy finished products, goods or merchandise for resale. It has branch/sale offices in Pasig City, Cebu City, Ormoc City, Bacolod City, Iloilo City, Davao City, General Santos City, Zamboanga City, Cagayan de Oro City, Ozamis City and other parts of the country. On June 10, 1997, the Board of Investments (BOI) issued Certificate of Registration No. DP 96-355 to PFC as non-pioneer status company. On Opinion No. 1 To support its claim, PFC cited the definition of manufacturer in Section 131 (o) of the Local Government Code (LGC), quoted as follows: TEcAHI "Section 131. Definition of Terms . When used in this Title, the term: "(a) . . . "(o) Manufacturer includes every person who, by physical or chemical process, alters the exterior texture or form or inner substance of any raw material or manufactured or partially manufactured product in such manner as to prepare it for special use or uses to which it could not have been put in its original condition, or who by any such process, alters the quality of any such raw material or manufactured or partially manufactured products so as to reduce it to marketable shape or prepare it for any of the use of industry , or who by any such p rocess, combines any such raw material or manufactured or partially manufactured products with other materials or products of the same or of different kinds and in such manner that the finished products of such process or manufacture can be put to a special use or uses to which such raw material or manufactured or partially manufactured products in their original condition could not have been put, and who in addition, alters such raw materials or manufactured or partially manufactured products, or combines the same to produce such finished products for the purpose of their sale or distribution to others and not for his own use or consumption ; (Underlining supplied.) Considering that PFC is engaged in the manufacture of agriculture products and other essential commodities, the distribution thereof is incidental to its line of business. Accordingly, it is the considered view of this Bureau that the tax rate to be applied to its various sales office should be that of a manufacturer in accordance with Article 232 (c) of the Implementing Rules and Regulations (IRR) implementing Section 143 (c) of the LGC. On Opinion No. 2 PFC cited Section 143 (c) and Section 131 (a) of the LGC quoted as follows: IDASHa "Section 143. Tax on Business . The municipality may impose taxes on the following businesses: "(a) . . . "(c) On exporters, and on manufacturers, millers, producers, wholesalers, distributors, dealers or retailers of essential commodities enumerated hereunder at a rate not exceeding one-half (1/2) of the rates prescribed under subsections (a), (b) and (d) of this Section: "xxx xxx xxx "(2) Wheat or cassava flour, meat, dairy products , locally manufactured, processed or preserved food , sugar, salt and other agricultural , marine, and fresh water products, whether in their original state or not. "xxx xxx xxx "(6) Poultry feeds and other animal feeds AaSTIH "xxx xxx xxx." (Underlining supplied.) "Section 131. Definition of Terms. When used in this Title, the term: "(a) Agricultural Product includes the yield of the soil, such as corn, rice, wheat, rye, hay, coconuts, sugarcane, tobacco, root crops, vegetables, fruits, flowers, and their by-products; ordinary salt; and kinds of fish; poultry; and livestock and animal products, whether in their original form or not. "The phrase whether in their original form or not refers to the transformation of said products by the farmer, fisherman, producer or owner through the application of processes to preserve or otherwise to prepare said products for the market such as freezing, drying, salting, smoking, or stripping for purposes of preserving or otherwise preparing said products for the market; "xxx xxx xxx." On the basis of the foregoing, this Bureau expresses the view that feeds, poultry products (live and dressed chicken), processed agricultural products (value added products) may be considered as essential commodities as contemplated by Section 143 (c) (2) & (6) of the Code, subject to only one-half (1/2) of the rates of business taxes prescribed under Section 143 (a) of the same Code as implemented under a duly enacted tax ordinance of the local government units concerned. cDHCAE It bears emphasis, however, that if goods other than those enumerated under Section 143 (c) are being manufactured by said company, the gross receipts therefrom should be computed separately under the pertinent schedule of the same governing tax ordinances. On Opinion No. 3 PFC cited Section 133 (g) of the LGC which provides that: "Section 133. Common Limitations on the Taxing Powers of Local Government Units . Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: "(a) . . . "(g) Taxes on business enterprise certified to by the Board of Investments as pioneer or non-pioneer for a period of six (6) and four (4) years, respectively, from the date of registration; (Underlining supplied.) This Bureau has expressed a uniform view on previous similar cases concerning tax exemption of BOI-registered enterprises. For so long as a business enterprise is certified by the BOI as pioneer or non-pioneer, it shall remain exempt from local taxation for a period of six (6) and four (4) years, respectively, from the date of registration. Accordingly, and considering that PFC is registered with the BOI as non-pioneer enterprise, said corporation shall be exempt from local business taxes from the date of registration which is June 10, 1997 up to June 9, 2001, or for a period of four years. ETDaIC It bears emphasis, however, that the exemption granted to pioneer and non-pioneer enterprises shall apply only upon presentation of the corresponding BOI certification. However, said enterprises shall still be liable to pay the Mayor's Permit and other regulatory fees or service charges that the local government units concerned may have imposed under a duly enacted tax ordinance, the exemption being applicable to local taxes only. In addition and for the purpose of implementing the aforequoted provision of the Code, the Department of Finance issued Local Finance Circular (LFC) No. 5-93 dated October 22, 1993, pursuant to Article 287 of the Implementing Rules and Regulations (IRR), prescribing the limitations, manner and procedures for the imposition of local business taxes on BOI-registered enterprises, the pertinent portion of which is quoted hereunder: "Section 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. ISCDEA "xxx xxx xxx." In this connection, it may be stated that guidelines issued by the Department of Finance 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) guide 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) guide 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. Thus, it is the considered view of the Department that the 60-day period prescribed under LFC No. 5-93 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. On Opinion No. 4 This has been clarified under Section 2 of Memorandum Circular No. 153, dated June 4, 1992, of the Office of the President, which states that "the community tax shall be paid . . . in the place where the principal office of the juridical entity is located . . . ." Hence, branches, sales offices or warehouses of business entities located other than the place of the principal office shall not anymore pay the community tax. IHcTDA We hope that this will help clarify matters. Very truly yours, (SGD.) BENJAMIN A. GERONIMO Executive Director <www.blgf.gov.ph/downloads/opinion/localtax/2001/a2001-1207.pdf> last visited January 13, 2014.