Bureau of Local Government Finance Opinion

February 16, 1999 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION The City Assessor City of Kidapawan THRU : The Regional Director BLGF Regional Office No. XII Cotabato City S i r : This refers to your letter dated August 14, 1998, requesting, among others, an opinion as to whether the granting of tax exemption, under Section 25 (a), (b) and (c) of the Kidapawan Investment Code of 1997, is in accordance with the provisions of R.A. No. 7160, the Local Government Code of 1991, particularly Section 192, Chapter 5, Title One thereof. CSDcTA It appears that the abovementioned request is being made in view of your contention that the "tax exemptions or incentives being contemplated under Sec. 192, Chapter 5, Title One, Book Two refers to business taxes, fees and other charges and not real property taxes." The abovementioned Section 25 of the Investment Code of Kidapawan provides, thus: "a) Within four (4) years from the start of commercial operation, a newly registered enterprise with an Investment Value or capitalization of Fifteen Million Pesos (P15,000,000.00) or more shall be fully exempt from the Mayor's Permit, Building Permit Fees, Business tax and other fees and charges imposed under existing Municipal Ordinances; while any other investment of Fifteen Million Pesos and below shall be granted the same privileges aforecited for a period of three (3) years. "b) Small Scale Enterprise 1st 3 years - 100% exemption on Real Property Tax 4th year - 50% exemption on Real Property Tax 5th year - 25% exemption on Real Property Tax "c) Medium and Large Scale Enterprise 1st 3 years - 100% exemption on Real Property Tax 4th year - 50% exemption on Real Property Tax 5th year - 50% exemption on Real Property Tax" The grant of tax incentives within four (4) years from the start of commercial operation under Section 25(a) of the subject Investment Code is clearly not in conformity with Section 192 of the Local Government Code of 1991 and, therefore, not enforceable. Thus, the Sangguniang Panlalawigan should amend said Investment Code by reducing the period of exemption to not more than one (1) year from the actual date the business started operation. It is likewise emphasized that the grant of incentive shall not apply to regulatory fees which are levied under the police power of the municipality. It is important to note hereon that Section 192 of the Code specifically applies only to local taxes such as tax on transfer of real property ownership, tax on business of printing and publication, franchise tax, tax on sand and gravel and other quarry resources, professional tax, amusement tax, annual fixed tax for every delivery truck or van of manufacturers or producers, wholesalers of, dealers or retailers in, certain products, and tax on business, save real property taxes, which subject matter is entirely covered under Title Two thereof. Section 234, Title Two of the said Code, provides, as follows: "SEC. 234. Exemptions from Real Property Tax . The following are exempted from payment of the real property tax: "(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person; "(b) All charitable institutions, churches, parsonages or convents appurtenant thereto including mosques, nonprofit or religious cemeteries and all lands, buildings, and improvements which are actually, directly and exclusively used for religious, charitable or educational purposes; ITaESD "(c) All machineries and equipment that are actually, directly and exclusively used by local water districts and government-owned or -controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power; "(d) All real property owned by duly registered cooperatives as provided under R.A. No. 6938; and "(e) Machinery and equipment exclusively used for pollution control and environmental protection. "Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by, all persons, whether natural or juridical, including all government-owned or -controlled corporations are hereby withdrawn upon the effectivity of this Code." Apparently, the Code already categorically enumerated the real properties that should be granted exemption from real property taxes. Thus, the basic principle of "what is not included is deemed excluded" should apply. In view thereof, this Bureau believes and so holds that the grant of real property tax exemption under the aforecited Section 25 of the Investment Code of Kidapawan is without legal basis. Likewise we also find merit on your contentions that the tax exemptions or incentives being contemplated under Section 192 of the said Code refers to business taxes, fees and other charges and not to real property taxes. In view hereof, it is deemed necessary that recommendations be made before the Sangguniang Panlalawigan thereat in order that the same incentives could be rescinded. Be guided accordingly. Very truly yours, (SGD.) ANGELINA M. MAGSINO Deputy Executive Director Officer-in-Charge