Bureau of Local Government Finance Opinion

January 23, 2003 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 3rd Indorsement Respectfully returned to the ICO-Regional Director for Local Government Finance, Department of Finance, Region VII, 3rd Floor BF Building, N. Escario St., Cebu City. This refers to the request of the City Treasurer of Danao City for opinion concerning the "proposed offsetting of the real property tax obligation of the corporate entity Durano III and Sons, Inc. to the City, with the cost of their water reservoir, which it intends to dispose." A perusal of the within set of papers reveals the following information, to wit: 1. On June 13, 2002, the Sangguniang Panlungsod of Danao City passed Ordinance No. 12-02, " Authorizing the Honorable City Mayor, Ramon D. Durano III, to Institute Expropriation Proceedings in the Acquisition of the Concrete Reservoir Owned by the Durano III & Sons, Inc. located in Barangay Donggo-an, this City ." Apparently, the said Ordinance was purposely enacted in view of the refusal of the said corporation of the offer of the local government unit (Danao City) to purchase their water reservoir. 2. On the other hand, Mr. Ramon H. Durano VI of Durano III and Sons, Inc., in his letter dated September 11, 2002, addressed to the City Treasurer of Danao City, submitted, among others, that the Board of Directors of the said corporation, "are now constrained to propose for the offsetting of our taxes with the cost of the water reservoir and the land where it stands." 3. The Committee Report of the City Appraisal Committee of said city relative to the appraisal of the subject water reservoir and land reveals their findings, as follows: "1. That per ocular inspection conducted by the Appraisal Committee it was found out that: "a) The property is located at Donggo-an, Danao City, and was built sometime in the year 1960's. "b) The subject property has a dimension of 20.5m X 52.30m X 5.5m with an estimated market value of P6,710,290.00. SEIacA "c) The lot in which this property is located has an area of .350ha. with an estimated market value of P27,500.00." Moreover, representations made by Ms. Weng Pascua, Office of Congressman Durano thru telephone conversation, reveals that the said corporation has an accrued real property tax delinquency to the City in the total amount of P4,428,686.50 for the 2nd, 3rd and 4th quarter of CY 2000 up to the present. In this connection, attention is invited to the Supreme Court Decision (4 SCRA 622) in the case of the Republic of the Philippines vs. Mambulao, Lumber Co., the pertinent portions of which read as follows: "A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in action as indebtedness of the state or municipality to one who is liable to the state or municipality for taxes. Neither are they a proper subject of recoupment since they do not arise out of the contract or transaction sued on. . . (SO C.J.S., 73-74)." "The general rule based on grounds of public policy is well-settled that no set-off is admissible against demands for taxes levied for general or local governmental purposes. The reason on which the general rule is based, is that taxes are not in the nature of contracts between the party and party but grow out of duty to, and are the positive acts of the government, to the making and enforcing of which, the personal consent of individual taxpayers is not required. . . ." "If the taxpayer can properly refuse to pay his tax when called upon by the collector, because he has a claim against the governmental body which is not included in the tax levy, it is plain that some legitimate and necessary expenditure must be curtailed. If the taxpayer's claim is disputed, the collection of the tax must await and abide the result of a lawsuit, and meanwhile the financial affairs of the government will be thrown into great confusion (47 Am. Jur. 766-767)." Viewed in the light of the foregoing Supreme Court Decision, the request of Durano III and Sons, Inc. for offsetting of the real property tax obligation to the city government of Davao City, with the cost of the water reservoir and land owned by them, cannot be granted for lack of legal basis. Please be guided accordingly. (SGD.) MA. PRESENTACION R. MONTESA Executive Director