Bureau of Local Government Finance Opinion

March 7, 2003 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION The ICO-Regional Director for Local Government Finance Department of Finance-Region VII 3rd Floor, BF Building Escario St., Cebu City M a d a m : This refers to your letter dated November 11, 2002, concerning the request for opinion of Atty. Jorge John T. Cane, Office of the City Legal Officer, Danao City, as to whether the real property exemption proviso provided under R.A. No. 8748 extends to the buildings, machineries and equipment owned by ECOZONE registered enterprises. Apparently, Cebu Mitsumi Inc. (CMI for short), entered into a Registration Agreement with the Philippine Economic Zone Authority (PEZA) on April 2, 2002. Prior to such Agreement, CMI which was assessed as taxable, was religiously paying the real property taxes due on its real properties including its buildings, machineries and equipment. In this regard, clarification is requested as to the date the exemption of CMI will commence, considering a provision of law which states, that: "if property is not exempt on the tax day, it is liable to taxation for the year although afterwards it becomes exempt." That Office likewise cited the opinion rendered by this Bureau as embodied in our letter of March 23, 1998, regarding the exemption of Taiyo Yuden Philippines, Inc. situated within the Mactan Processing Zone Authority (MEPZA) of Cebu City; and the provision of Revenue Regulations No. 1-00 issued by the Department of Finance (DOF) on November 12, 1999, pertinent portions of which are all quoted below: BLGF Letter dated March 23, 1998 : "In reply, . . . the letter dated August 26, 1997 of the Department of Finance relative to a similar subject matter, the resolving portion of which states as follows: "The law cannot be clearer than what it already is. By stating that `no taxes local and national shall be imposed' on subject operators and that `in lieu of paying taxes, five percent (50%) of the gross income earned shall be remitted to the national government, the law covers all taxes. The IRR filled in the word `all' in implementing this fiscal incentive in recognition of the clear mandate of the law. Verily, the IRR defined the nature of the 5% imposition as a `final tax' which, in essence, is a tax that precludes the application of other taxes on the subject. It may also be noted that Rule XX, Section 2 of the IRR, does not mention real property tax payment as among those allowable deductions from gross income. We have no other impression from this omission other than that ECOZONE Operators are indeed exempt from real property tax. Otherwise, such payments should have been considered tax deductible." (Emphasis supplied) DOF Revenue Regulations No. 1-00: "SEC. 4. Nature of the 5% Tax and Extent of Tax Exemption . "The above 5% tax is imposed on "gross income earned" hence, income tax in nature and a national internal revenue law in character. Registered ECOZONE enterprises shall be exempt from all other taxes, national or local, except the real property tax on land owned by developers, pursuant to Section 24 of R.A. No. 7916, as amended by R.A. No. 8748." (Emphasis supplied) The provision of R.A. No. 7916 which was approved on February 24, 1995 was made as the basis of this Bureau in the issuance of the above opinion. Section 24 thereof provides: "SEC. 24. Exemption from Taxes Under the National Internal Revenue Code . Any provisions of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national, shall be imposed on business establishments operating within the ECOZONE. In lieu of paying taxes, five percent (5%) of the gross income earned by all businesses and enterprises within the ECOZONE shall be remitted to the national government. . . ." On the other hand, the abovementioned DOF Revenue Regulations No. 1-00 was issued by the Bureau of Internal Revenue (BIR), to further clarify the extent of exemption from taxes of ECOZONE Operators as provided under Section 4 of R.A. No. 8748, amending Section 24 of R.A. No. 7916 as implemented under Revenue Regulations No. 12-97. Section 24 of R.A. No. 8748, now provides: "SEC. 4. Chapter III, Section 24 of Republic Act No. 7916 is hereby amended to read as follows : "SEC. 24. Exemption from National and Local Taxes . Except for real property taxes on Land owned by developers, no taxes, local and national, shall be imposed on business establishments operating within the ECOZONE. In lieu thereof, five percent (5%) of the gross income earned by all business enterprises within the ECOZONE shall be paid and remitted . . . :" (Emphasis ours) Comparatively, Taiyo Yuden Philippines, Inc. which became a PEZA registered enterprise in 1987 is evidently covered by the provisions of R.A. No. 7916, approved on February 24, 1995, providing for the exemption from all taxes, both national and local, while Cebu Mitsumi Inc., whose registration with PEZA was only on April 2, 2002, is deemed covered by the amending provisions of R.A. No. 8748, approved on June 1, 1999, providing for the exemption from national and local taxes, except for real property taxes on lands. The issue to be resolved now is the date when the exemption of the subject real properties owned by Cebu Mitsumi Inc., shall take effect. Section 221 of R.A. No. 7160, also known as the Local Government Code of 1991, provides: "SEC. 221. Date of Effectivity of Assessment or Reassessment . All assessments or re-assessments 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 sudden inflation or deflation of real property values, or to the gross illegality of the assessment when made or 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 supplied) Viewed in the light of the foregoing, this Bureau believes that except for the land, the buildings, machineries and equipment owned by Cebu Mitsumi Inc. are exempt from real property tax effective CY 2003, the year following its registration with PEZA, pursuant to Section 24 of R.A. No. 8748. ITScHa Be guided accordingly. Very truly yours, (SGD.) MA. PRESENTACION R. MONTESA Executive Director