Bureau of Local Government Finance Opinion

March 16, 2011 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 2nd Indorsement Respectfully returned to the ICO-Regional Director, Bureau of Local Government Finance, Department of Finance, Region II, Tuguegarao City, Cagayan, her within Indorsement dated January 5, 2011, seeking clarification/opinion on the effectivity of the assessment/re-assessment of real properties as a result of a general revision conducted in the Province of Batanes, more particularly in the Municipality of Basco. Clarification/opinion is likewise being sought on the legality of Ordinance No. 77, S. 2010, passed and approved by the Sangguniang Panlalawigan of Batanes, entitled "AN ORDINANCE PROVIDING FOR A SUPPLEMENTAL PROVISION TO SECTION 2A.06 OF THE PROVINCIAL REVENUE CODE (PRC) OF 2005 TO FURTHER RATIONALIZE THE TAX INCENTIVES THAT SHALL BE GRANTED TO TAXPAYERS." It was submitted that based on the representations made by the Provincial Treasurer of Batanes, the General Revision (GenRev for brevity) of Real Properties in the Municipality of Basco was completed in February 2010 and was immediately implemented by the Municipal Treasurer thereat which the Provincial Treasurer opposed, citing Section 221 of the Local Government Code (LGC) of 1991 and Article 312 of the Implementing Rules and Regulations (IRR). However, the Municipal Treasurer of Basco, not heeding the directive of the Provincial Treasurer, refused to accept payments of Real Property Tax (RPT) based on the taxable assessed values prior to the conduct of General Revision which was completed in February 2010, thus the above request. It appears from the preceding paragraph that the Municipal Treasurer of Basco implemented the new General Revision in the Municipality, which the Provincial Treasurer of Batanes dissented in view of the clear language of Section 221 of the LGC, which provides: SEC. 221. Date of Effectivity of Assessment or Reassessment. All assessments or reassessments made after the first (1st) day of January of any year shall take effect on the first (1st) day of January of the succeeding year : Provided, however, That the reassessment of real property due to its partial or total destruction, or to a major change in its actual use, or to any great and sudden inflation or deflation of real property values, or to the gross illegality of the assessment when made or to any other abnormal cause, shall be made within ninety (90) days from the date any such cause or causes occurred, and shall take effect at the beginning of the quarter next following the reassessment. (Emphasis ours) The action of the Provincial Treasurer to defer the implementation of the new GenRev is in consonance with Section 221 of the LGC wherein the collection of RPT shall be based on the taxable assessed values prior to the completion of the new GenRev, which the Municipal Treasurer of Basco allegedly ignored. cSEDTC Applying the aforequoted provision of law, we therefore concur with the stand of the Provincial Treasurer of Batanes that the assessment or reassessment as a result of the General Revision completed in February 2010 should take effect on the first (1st) day of January 2011. In this regard, the Municipal Treasurer is advised to collect and/or accept RPT payments based on the taxable assessed values prior to the new GenRev. The Municipal Treasurer is also advised that the implementation of the new General Revision shall be in accordance with the prescribed effectivity under Section 221 of LGC, supra . With regard to the legality of Ordinance No. 77, supra , Section 4 thereof provides as follows: "Section 4. Additional Schedule of Tax Discounts to be Implemented. In addition to the 20% Tax Discounts for advance payment before January 1 and 10% discounts for prompt payment in four (4) installments as provided under Sections 2A.05 and 2A.06, the following tax discounts shall be implemented: 1. 20% tax discount for advance payment in-full amount of the annual tax due after January 1 which advance payment in-full may be deferred receipt by the collecting office due to unavoidable circumstances and abnormal events prior to January 1. 2. 15% tax discount for prompt payment in-full amount of the annual tax due after January 1 through March 31. 3. 10% tax discount for prompt payment in-full of the remaining amounts schedule for installment after March 31, through September 30." Item Nos. 1 & 2. 20% Tax Discount for Advance Payment Section 4 (1) of Ordinance No. 77, Series of 2010 apparently implies that the 20% tax discount for advance payment made in full even after January 1 shall be granted if the delayed, deferment or temporary suspension of acceptance and/or collection of real property tax payments by the collecting office is due to " unavoidable circumstances and abnormal events " thus, literally extending the grant of a 20% discount which is not in conformity with Article 342 in relation to Article 341 and Section 246 of the LGC, infra , providing the manner and procedures in the granting of discounts for advanced and prompt RPT payments. On the other hand, Section 4 (2) provides for 15% RPT discount for prompt payment if paid after January 1 to March 31. The question to be resolved is whether Paragraphs (1) & (2) under Section 4, are in accordance with the provision of the LGC, which is the governing law in the affairs of local government units including local taxation. In view hereof, Article 342 of the Implementing Rules and Regulations (IRR) implementing Section 251 of the LGC is quoted as follows: " ART. 342. Tax Discount for Advance and Prompt Payment. If the basic real property tax and the additional tax accruing to SEF are paid on time or in advance in accordance with the prescribed schedule of payment as provided under Article 341 , the sanggunian concerned may grant a discount not exceeding twenty percent (20%) of the annual tax due . For purposes of this Rule, prompt payments may be given a discount of ten percent (10%) , while advanced payments may be entitled to the maximum discount of twenty percent (20%). (Boldfacing and underscoring ours) Relatedly, Article 341 of the IRR, implementing Section 250 of the Code is quoted as follows: aTHCSE "ART. 341. Payment of Real Property Taxes in Installments. The owner of the real property or the person having legal interest therein may pay the basic real property tax and the additional tax for Special Education Fund (SEF) due thereon without interest in four (4) equal installments; the first installment to be due and payable on or before the thirty-first (31st) of March; the second installment, on or before the thirtieth (30th) of June; the third installment, on or before the thirtieth of September; and the last installment on or before the Thirty-first (31st) of December, except the special levy the payment of which shall be governed by ordinance of the sanggunian concerned. . . . ." (Emphasis supplied) Further, Section 246 of the Code is quoted as follows: "SEC. 246. Date of Accrual of Tax. The real property tax for any year shall accrue on the first day of January and from that date it shall constitute a lien on the property which shall be superior to any other lien, mortgage, or encumbrance of any kind whatsoever, and shall be extinguished only upon the payment of the delinquent tax." (Emphasis supplied) The question submitted for resolution is whether or not the granting of Additional Schedule of Tax Discounts under Ordinance No. 77, Series of 2010, is in accordance with the provisions of the LGC, and whether it is within the authority of the Sangguniang Panlalawigan (SP) to promulgate and approve such Ordinance. For purposes of clarification, Section 3 of the said Ordinance, which provides the following incentives, is quoted as follows: "1. It shall provide the appropriate tax incentives for taxpayers who are not at fault in any deferment of receipt by the collecting office with the right manifestation of wanting to avail any of the tax incentives provided. "2. It shall provide the appropriate tax incentives for taxpayers who would want to pay in-full after January 1 through the end of the first quarter of March 31. "3. It shall provide the general rules that shall govern the collection of payment and define the role of the Local Chief Executive. The intention of the SP in enacting the Ordinance may be commendable as far as granting incentives and flexibility to taxpayers is concerned even for late or delayed payments not of their fault. However, it must be advanced that a local legislation has to be enacted pursuant and in accordance with the provisions of the LGC which is the very source of local taxing authority, otherwise, a discordance between the local and the national law will occur. Given this possibility, both the local legislation and national legislation have to be in harmony with each other. It is an established rule in jurisprudence that "If there is conflict between a national law and local law, the latter must give way to the former, an inferior law must always conform with the superior law." This dictum can be best applied to an adage that says that " a spring cannot be greater than its source. " To achieve such accord and avoid conflict, the provisions of Ordinance No. 77 shall conform with that of the provisions of the LGC, supra , thus: 1) Payment of real property tax (RPT) shall be in accordance with the prescribed schedule of payment as provided under Article 341, quoted hereunder: "ART. 341. Payment of Real Property Taxes in Installments. The owner of the real property or the person having legal interest therein may pay the basic real property tax and the additional tax for Special Education Fund (SEF) due thereon without interest in four (4) equal installments; the first installment to be due and payable on or before the thirty-first (31st) of March; the second installment, on or before the thirtieth (30th) of June; the third installment, on or before the thirtieth of September; and the last installment on or before the Thirty-first (31st) of December, except the special levy the payment of which shall be governed by ordinance of the sanggunian concerned. . . . ." (Emphasis supplied) EHCaDS 2) Payment of RPT on time or in advance pursuant to Article 341, supra , will allow the taxpayer a maximum twenty percent (20%) discount and for prompt payment, not exceeding ten percent (10%) discount; (Art. 342, supra) 3) The law (Section 246 abovequoted) provides that the accrual of RPT for any year shall be the first day of January. Beyond this period, it shall constitute a lien on the property in the form of interest at two percent (2%) per month on the unpaid amount of tax or fraction thereof, but in no case shall the total interest on the unpaid tax or portion thereof exceed thirty-six (36%) months. 1 The foregoing discussion considered, it is clear that the conditions set forth in the grant of incentives to taxpayers in Section 4 of Ordinance 77 is not in full accord with the pertinent provisions of the LGC and its IRR. To summarize, the LGC provides that a taxpayer may be accorded a discount of not more than 20% for advance payment and not exceeding 10% for prompt payment. However, it is clarified that if the taxpayer opted to avail of the four (4) equal installment scheme, any payment or installment shall be made in accordance with the prescribed schedule under Article 341 of the IRR otherwise, the taxpayer will be automatically assessed a penalty for each month of delay or fraction thereof. In essence, the intention of the Ordinance may be laudable but simply subjective. If implemented, one possible consequence is that it may even bring more problems rather than positive results. It may invite laxity on both the taxpayers and the collecting office not to do their respective obligations properly because of the apparent complacency of the Ordinance. In this connection, the Provincial Treasurer of Batanes is advised to make representations with the SP so that amendatory provisions can be introduced regarding the subject Ordinance and for it to conform with the provisions of the LGC and Its IRR. It is informed however, that the above views are not a declaration of the illegality or unconstitutionality of the subject Ordinance as such authority resides exclusively with the Secretary of Justice or to a court with competent jurisdiction. The Municipal Treasurer of Basco, Batanes is being furnished a copy of this Indorsement for guidance and information. Be guided accordingly. DACcIH (SGD.) MA. PRESENTACION R. MONTESA, CESO III Executive Director Footnotes 1. Section 225, LGC.