Bureau of Local Government Finance Opinion

June 1, 2011 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Ms. Pura R. Nunal City Treasurer City Hall Isabela City, Basilan Madam : This refers to your separate first Tracer Letters all dated March 8, 2011, addressed to Mr. Alfredo Oyao, General Manager of Basilan Electric Company; Atty. Josette Adrienne A. Abarca and Atty. Norina Aileen C. Sanchez, both of Globe Telecom, Inc.; and Ms. Loraine F. Gallevo of Chevron Philippines, Inc., copies of which were furnished this Bureau, relative to Isabela City Ordinance No. 11-328, dated February 17, 2011, granting amnesty on surcharges, interests and penalties of delinquent real property taxes due in CY 2010 and prior years based from the provisions of Section 192 of R.A. No. 7160, otherwise known as the Local Government Code of 1991. We take note that an amnesty was earlier granted by that city on unpaid real property taxes due in CY 2009, under City Ordinance No. 08-2008, dated August 7, 2008, on account of the financial crisis. In the letter dated January 5, 2009, to the City Mayor of Naga City, Cebu, this Bureau clarified the authority of local governments to grant amnesty on delinquent real property taxes, as follows: aESHDA "The Lo cal Government Cod e of 1991, authorized the condonation or reduction of real property taxes and interests either through the local sanggunian or the President of the Philippines, viz. : 'SEC. 276. Condonation or Reduction of Real Property Tax and Interest. In case of a general failure of crops or substantial decrease in the price of agricultural or agribased products, or calamity in any province, city, or municipality, the sanggunian concerned, by ordinance passed prior to the first (1st) day of January of any year and upon recommendation of the Local Disaster Coordinating Council, may condone or reduce, wholly or partially, the taxes and interest thereon for the succeeding year or years in the city or municipality affected by the calamity. 'SEC. 277. Condonation or Reduction of Tax by the President of the Philippines. The President of the Philippines may, when public interest so requires, condone or reduce the real property tax and interest for any year in any province or city or a municipality within the Metropolitan Manila Area.' Section 276 allows the condonation or reduction of real property tax and interest, wholly or partially, in the event of: 1) general failure of crops; 2) substantial decrease in the price of agricultural or agri-based products; or 3) calamity, for the succeeding year or years after the occurrence of any of the events mentioned, through an ordinance passed before the 1st day of January of any year, on recommendation of the Local Disaster Coordinating Council. It must be noted that the presence of an economic crisis is not one of the conditions by which condonation or reduction of real property tax or interest may be granted by the sanggunian . The condonation or reduction contemplated under Section 276, is prospective in application, meaning, only real property taxes or interests due the succeeding year or years, after any of the abovementioned incidents happened which adversely affected the taxpayer's ability to pay, may be condoned or reduced, and not unpaid real property taxes or interests of the past year or years. Further, as such applicability or nature of the condonation or reduction is prospective, what are covered therefore are real property taxes and interest, not penalties or surcharges. Incentive or relief as reason for condonation or reduction of real property tax and interest may not be appropriate for the reason that tax incentives or reliefs as authorized under Section 192 (Authority to Grant Tax Exemption Privileges) of the Local Gov ernment Code of 1991, are deemed applicable for local taxes such as business taxes covered in Title One, Book II of the same Co de ." STcaDI "Secti on 276 of the same Co de may be the basis for such condonation or reduction of taxes and interests provided the requirements or conditions set forth therein are satisfied to ensure that such condonation or reduction would be an effective means of generating additional revenues without undermining confidence in tax collection and enforcement, and not to discourage diligent taxpayers ." (emphases supplied) Please be guided accordingly. Very truly yours, (SGD.) MA. PRESENTACION R. MONTESA, CESO III Executive Director