Bureau of Local Government Finance Opinion

March 30, 2006 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Ms. Imelda Teoxon-Valencia Municipal Assessor Garchitorena, Camarines Sur M a d a m : This has reference to your letter dated August 25, 2005, seeking clarification on the request of GLOBE Telecommunications, Inc. to revise the assessment of its real properties (radio equipment, machinery and spare parts) essential to its business from taxable to exempt, as provided for under its legislative franchise (R.A. 7229) on the basis of the Supreme Court decision in the case of Radio Communications of the Phil. Inc. (RCPI vs. Provincial Assessor of South Cotabato, et al. (G.R. No. 144486, April 13, 2005). In this connection, attention is invited to the attached letter dated October 26, 2005, of this Bureau, resolving the issue, (on the real property exemption/taxability of GLOBE Telecom, Inc.) citing the abovementioned Supreme Court Decision, the pertinent portions of which are as follows: "Section 3. Section nine of the same Act is hereby amended to read as follows: "Section 9 (a) The grantee shall be liable to pay the same taxes on its real estate, buildings, and personal property, exclusive of the franchise , as other persons or corporations are now or hereafter may be required by law to pay, except radio equipment, machinery and spare parts needed in connection with the business of the grantee , which shall be exempt from customs duties, tariffs, and other taxes, as well as those declared exempt in this section. (Emphasis supplied) AacDHE "Relatedly and with regard to the impact of other laws such as R.A. No. 7925 (Equality of Treatment Clause), attention is invited to the following discussion under the subject RCPI case: "xxx xxx xxx. "RCPI cannot also invoke the equality of treatment clause under Section 23 of Republic Act No. 7925. The franchises of Smart, Islacom, Teletech, Bell, Major Telecoms, Island Country, and Islatel, all expressly declare that the franchise shall pay the real estate tax, using words similar to section 14 of R.A. 2036, as amended. The provisions of these subsequent telecommunication franchises imposing the real estate tax on franchises only confirm that RCPI is subject to real estate tax. Otherwise, RCPI will stick out like a sore thumb, being the only telecommunications company exempt from the real estate tax, in mockery of the spirit of equality of treatment that RCPI is invoking, not to mention the violation of the constitutional rule on uniformity of taxation ." (Emphasis supplied) HATEDC "Inasmuch as GLOBE's legislative franchise categorically states its liability to pay the real property tax, GLOBE shall be liable to real property tax effective on the date the franchise of GLOBE took effect. Provided that if the subject property of GLOBE was declared for the first time, the subject property shall be assessed for the period during which it would have been liable but in no case exceeding ten (10) years prior to the date of initial assessment pursuant to Section 222 of the Local Government Code of 1991. "xxx xxx xxx. "In the light of all the foregoing, GLOBE is therefore liable to pay real property tax on its radio station building, machinery shed, and radio relay station tower, while radio equipment, accessories and spare parts needed in the business are exempt therefrom." In view hereof, this Bureau agrees with GLOBE's contention that the company's radio equipment, machinery and spare parts needed in connection with its business, are not subject to real property tax. However, land, buildings and other permanent structures including its machinery, shed and radio relay station tower should be assessed for taxation purposes. The BLGF will issue the corresponding Memorandum Circular on the matter, for dissemination to all Assessors and others concerned. Be guided accordingly. TSHEIc Very truly yours, (SGD.) MA. PRESENTACION R. MONTESA Executive Director