Bureau of Local Government Finance Opinion

August 10, 1998 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 1st Indorsement Respectfully referred thru the Provincial Treasurer, Sta. Cruz, Laguna, to the Municipal Treasurer of Calamba, that province. This refers to the letter dated July 23, 1998 of Mr. Felipe S. Barroga, AVP-Controller, Pilipinas Hino Incorporated (Hino for brevity), requesting this Bureau to order that office to refund the payment of the business tax amounting to P131,250.00. Representations are made that Hino, with principal office in Mandaluyong City, is an assembler/manufacturer of Hino trucks and buses. In July 1998, the company transferred their manufacturing plant from Paso de Blas in Valenzuela, Metro Manila to Canlubang Industrial Estate in Calamba, Laguna. It is alleged that the company was unlawfully assessed by that municipality on the ground that the municipal tax amounting to P131,250.00, which is equivalent to 10% of 1% was based on the capital investment amounting to P131,250,000.00. It is alleged further that Hino was considered a newly established business in that area per Chapter II, Art. a, Section 2A.01.p of the Revenue Ordinance of that Municipality, quoted as follows: "Section 2A.01. Imposition of Tax. . . . "p) For newly established business, the taxes based on 1/10 of 1% of capital. 1. Corporations, partnerships, etc. Paid-up or contributed Capital. "xxx xxx xxx." In view thereof, Hino contends that the Local Government Code (LGC) of 1991 has no provision that payment of municipal business tax for newly established business be based on capital investment, thus the request for tax refund. In this connection, this Bureau hereby makes the following observations: 1. The Code has no provision authorizing municipalities to levy a tax on a newly-started businesses on the basis of capital investment. What the Code provides under Section 143 is a graduated fixed tax on assembler/manufacturer like Hino based on the gross sales/receipts for the preceding year. The phrase "gross sales for preceding year", however, does not mean a gross sales for one complete year of twelve months, but also contemplates situations where a business started to operate on a date other than January first of the calendar year, and, therefore, realized "gross sales" for only a fraction of the year. 2. Municipal Ordinance No. 92-00 particularly Chapter II, Article A, Section 2A.01.p, quoted above, does not conform with the Code, thus, the Municipal Treasurer should make representations with the local Sangguniang Bayan to make the necessary amendatory proposal so that the subject Ordinance would conform with the LGC of 1991. It bears emphasis, however, that the foregoing views are expressed in line with the provisions of Article 287 of the Implementing Rules and Regulations (IRR) implementing the LGC and not a declaration of the illegality of the ordinance as the matter falls within the jurisdiction of the Department of Justice. SaHTCE The Provincial Treasurer is, therefore, hereby instructed to advise the Municipal Treasurer of Calamba and the SB as regards the views expressed herein. Mr. Felipe S. Barroga is being furnished a copy of this indorsement for his information and guidance. Be guided accordingly. (SGD.) ANGELINA M. MAGSINO (Deputy Executive Director) Officer-In-Charge