Bureau of Local Government Finance Opinion

June 14, 2010 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 1st Indorsement Respectfully returned to the ICO-Regional Director for Local Government Finance, Cordillera Administrative Region (CAR) the herein letter dated March 24, 2010 regarding the request of SN Aboitiz Power-Benguet, Inc. (SNAP-BI for brevity) for tax exemption in view of its pioneer status declared by the Board of Investment (BOI). Under a letter dated February 3, 2010, addressed to that Office, the Municipal Treasurer of Itogon, Benguet requested the affirmation of the findings/opinion of the Provincial Legal Officer particularly on the following points: 1. That the "letter of SNAP-BI dated January 20, 2009 seeking tax exemption was filed out of time or beyond the 60-day reglementary period ". 2. That "SNAP-BI's Pioneer Status declared by BOI is improper considering that it does not fall under the definition set forth by law. In reply under a letter dated February 24, 2010 of Puno and Puno Law Offices, in behalf of SNAP-Benguet, addressed to that Office, the following representations and arguments were submitted: SNAP Benguet's Claim of Exemption is Based on a Clear Statutory Grant 1. As the new operator of the 100 MW Binga Hydroelectric Power Plant in Itogon, Benguet, SNAP-BI applied for registration with the BOI in order to avail of certain fiscal incentives granted under Philippine law. The BOI approved its application and issued the corresponding Certificate of Registration on August 12, 2008 as a pioneer enterprise. 2. SNAP-BI, in its letter dated January 20, 2009, informed the Treasurer of its exemption from local business taxes for six (6) years from 12 August 2008 based on a clear statutory grant under Section 133 (g) of the Local Government Code (LGC) of 1991. SDHacT 3. While it may be true that local government units have been granted fiscal autonomy under the 1987 Constitution, Section 5, Article X states that such autonomy "is subject to such guidelines and limitations as the Congress may provide". According to the Supreme Court in Petron Corp. v. Tiangco , Section 133, which restricts local government units from levying taxes on BOI-registered pioneer and non-pioneer enterprises, represents one such limitation. 4. Considering that there is a clear legislative grant of tax exemption, the Municipality of Itogon and the Treasurer cannot impose and collect local business taxes from SNAP-BI. 5. SNAP-BI cited various opinions of the BLGF recognizing the local business tax exemption granted to BOI-registered enterprises under Section 133 (g) of the LGC. SNAP-BI is qualified to Enjoy Pioneer Status under the 2008 IPP 1. The Municipality of Itogon and the Treasurer are barred from questioning the BOI Certificate. The BOI's decision to issue the BOI-Certificate of Registration with pioneer status to SNAP-BI, is already final and executory. 2. Under Article 36 of the Omnibus Investments Code, the Municipality of Itogon and the Treasurer had only thirty (30) days from August 12, 2008 within which to file an appeal of the BOI's decision with the Office of the President and which administrative remedy was not availed of by said Municipality. 3. Pursuant to Part III (C) of the 2008 IPP, power generation projects using renewable energy sources, such as water or hydro, may qualify for pioneer status. 4. Considering that SNAP-BI's operation of the Binga Hydroelectric Power Plant is a power generation project using renewable energy, the BOI properly granted SNAP-BI pioneer status within its powers and duties under Article 7 of the Code. 5. In the absence of any court decision revoking such grant by the BOI, the determination of the BOI is binding upon the Municipality of Itogon. The Supreme Court recognized the expertise of the BOI on matters falling under its jurisdiction in Garcia v. J.G. Summit Petrochemical Corp . Section 4 of Local Finance Circular No. 5-93 is merely directory, not mandatory. DCcTHa 1. According to the Provincial Legal Officer of Benguet, SNAP Benguet can not avail of the exemption from local taxes under the LGC since it failed to comply with Section 4 of Local Finance Circular No. 5-93 which provides: "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 "Whichever comes later, the President or any duly authorized representative of the registered enterprise, shall submit a BOI-certified true copy of said certificate of Registration to the local treasurer concerned together with a request for a Certificate of Exemption for the appropriate period, as indicated in Sec. 3 above. "(b) within fifteen (15) days from submission of its BOI Certificate of Registration by the registered enterprise, the local treasurer concerned shall, after due verification of the documents submitted, issue a Certificate of Exemption, in the form hereto attached as "Annex A", to the registered enterprise." In view of the above, SNAP-BI contended that its exemption from local business taxes is based on a clear legislative grant of tax exemption. Such clear legislative intent to grant tax exemption cannot be negated by the Secretary of Finance in promulgating Section 4 of LFC 5-93. Said Circular is an administrative issuance that contains guidelines "to prescribe the limitations, manner, and procedure for the imposition of local business taxes on BOI-registered enterprises and to supplement Article 221 (g) of the IRR with a view of further clarifying the implementation of said provision consistent with Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987, Republic Act No. 7042, otherwise known as the Foreign Investment Act of 1991 and other related laws and national policies." It is contended further that imposing additional requirements in the circular before a BOI-registered entity can avail of the tax exemption under the LGC offends a basic tenet in the exercise of the rule-making power of administrative agencies. After all, the power of administrative officials to promulgate rules in the implementation of a statute is necessarily limited to what is found in the legislative enactment itself. The implementing rules and regulations of a law cannot extend the law or expand its coverage, as the power to amend or repeal a statute is vested in the Legislature. (MCC Industrial Sales Corp. v. Ssangyong Corp., G.R. No. 170633, 17 October 2007.) The administrative agency issuing these regulations may not enlarge, alter or restrict the provisions of contemplated by the legislature. (Pilipinas Cao, Inc. v. Court of Appeals, 372 SCRA 548) Thus, if the discrepancy occurs between the basic law and an implementing rule or regulation, it is the former that prevails, because the law cannot be broadened by a mere administrative issuance. (MCC Industrial Sales Corp. v. Ssangyong Corp., G.R. No. 170633, 17 October 2007.) Had the Legislature really wanted to impose additional requirements before the tax exemption can be availed, it could have easily injected the same in the LGC. DAEaTS SNAP-BI likewise pointed out that this is the same conclusion reached by the Department of Finance in its opinion dated 24 April 1995 (which was reiterated by the BLGF in its letter dated 6 December 2001), when it ruled that the guidelines under LFC 5-93 "cannot, as they are not meant to, amend provisions of law particularly the LGC of 1991", the pertinent portion of which is quoted as follows: "Accordingly, in reply to your query, it is the considered view of this Department that the 60-day period prescribed under LFC No. 5-93 abovementioned 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. . . ." Upon review of documents submitted, this Bureau expresses the following views on the issues raised above: Request for tax exemption was filed out of time or beyond the 60-day reglementary period. As can be gleaned above, the Supreme Court had issued several decisions on the availment of tax exemptions. In addition the Supreme Court in the case of Ramos vs. Court of Appeals, 108 SCRA 728, 1981 , ruled that "Again, the statute, being the will of the legislature, should be applied in exactly the way the legislature has expressed itself clearly in the law. The clear, unambiguous and unequivocal language of the statute precludes the court from construing it and gives it no discretion but to apply the law." It is the accepted concept that in the interpretation of the provisions of existing laws, where interpretation is proper, the decision of the Supreme Court is final being the branch of the government mandated by the Constitution as interpreter of the laws of the land. Hence, unless a law is passed or changed, this Bureau finds no merit in disturbing the judicial interpretation made by competent authority regarding the availment of tax exemptions. In this connection and considering that it is in full accord with the Supreme Court rulings, this Bureau maintains its previous stand 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. SNAP-BI's Pioneer Status declared by BOI is improper considering that it does not fall under the definition set forth by law. TAEcCS As mentioned above one of the powers and duties of the BOI under Article 7 of the Omnibus Investment Code is to "process and approve applications for registration with the Board, imposing such terms and conditions as it may deem necessary to promote the objectives of this Code, . . . ." It is clear that the BOI has the exclusive authority to determine whether or not an enterprise can be registered with a pioneer or non-pioneer status. Again the Supreme Court recognized the expertise of the BOI in the case of Garcia v. J.G. Summit Petrochemical Corp. the pertinent portion of which states, "As has been this Court's consistent holding, administrative and quasi-judicial agencies, which have acquired special knowledge and expertise on matters falling under their jurisdiction, are in a better position to pass judgment thereon. As a general rule, their findings of fact are generally accorded great respect by the court." Moreover, it must be pointed out that the Municipality of Itogon failed to avail of the administrative remedy pursuant to Article 36 of the Omnibus Investment Code, which is to file an appeal of the BOI's decision with the Office of the President thirty (30) days from 12 August 2008, which was the date of the issuance of SNAP-BI's Certificate of Registration. In view of the foregoing, this Bureau, regrets that it cannot agree to, or support, the findings/opinion of the Provincial Legal Officer on the issues raised by SNAP-BI for lack of legal basis in the LGC and its implementing rules and regulations. Be guided accordingly. (SGD.) MA. PRESENTACION R. MONTESA Executive Director ATTACHMENT 1st Endorsement February 25, 2009 Respectfully forwarded to the Honorable Members of that August Body, the herein letter dated 20 January, 2009 of SNAPB re: Exemption from Business Taxes of SN Aboitiz Power-Benguet, Inc. ("SNAPB"), a BOI-Registered Pioneer Enterprise together with its attachments. DaESIC Also enclosed is our reply letter dated February 4, 2009, which is self-explanatory. However, please be informed that SNAPB submitted to this office a Certified True Copy of the Original BOI Certificate of Registration only, but no Request for Certification of Exemption , which is a requirement in the availment of the exemption. In relation thereto, we are respectfully seeking your support to refer the matter to the Provincial Legal Officer for his legal opinion as to the correct interpretation of the Specific Terms and Conditions incorporated in the BOI Certificate of Registration granted to SNAPB in order that we will know what further course of action to take as far as the collection of taxes is concerned. For your information and appropriate action. (SGD.) ANGELA C. CARIO Municipal Treasurer