Bureau of Local Government Finance Opinion

October 27, 2014 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Atty. Antonio L. Cardio Atty. Leonardo A. Aurelio A. M. SISON, JR. & PARTNERS Law Office Suite 2002-A, Security Bank Centre 6776 Ayala Avenue 1226 Makati City, Philippines P.O. Box 3222, MCPO Gentlemen : This refers to your letter dated August 5, 2014, in behalf of your client Cosmos Bottling Corporation (CBC), requesting for refund/tax credit in the amount of Php183,308.59 of the charges and interests collected by the City Treasurer's Office, Calamba City, for the 2nd to 4th quarters of 2014, per revised Statement of Account (SOA) dated May 27, 2014. SaCIDT The said letter was referred to the City Treasurer of Calamba under a 1st Indorsement dated August 22, 2014 for comment and/or appropriate action together with the copy or excerpts of the Revenue Code of Calamba. In reply, the City Treasurer of Calamba under a letter dated September 22, 2014, copy enclosed, provides that the penalty and surcharges were imposed for 2nd quarter to 4th quarter business tax, including Mayor's Permit and Garbage Fee of year 2014. In particular however, the amount of P183,308.59 pertains to the 2nd Quarter (2014) surcharges and penalties. According to the City Treasurer of Calamba, such assessment was based on the total unpaid balance in accordance to the provision of Section 168 of the Local Government Code (LGC) of 1991 as implemented under Section 2C.03 of the Revised Revenue Code of Calamba, quoted hereunder: " Section 168. Surcharges and Penalties on Unpaid Taxes, Fees or Charges. The sanggunian may impose a surcharge not exceeding twenty-five percent (25%) of the amount of taxes, fee or charges not paid on time and an interest at the rate not exceeding two percent (2%) per month of the unpaid taxes, fees or charges including surcharges, until such amount is fully paid but in no case shall the total interest on the unpaid amount or portion thereof exceed thirty-six (36) months. " Section 2C.03. Surcharges and interest on unpaid taxes . In case the tax in this ordinance is not paid on the date fixed herein or upon occurrence of the event which has given rise of its collection, there shall be collected as part of the amount of surcharge of twenty five percent (25%) and interest thereon at the rate of two percent (2%) per month from the date it is due until it is paid, but in no case shall the total interest on the unpaid amount or portion thereof exceed thirty six (36) months." ( Underscoring for emphasis ) cHECAS In resolving the main issue on the imposition of surcharges and interests on the 2nd quarter to 4th quarters installments, it may be recalled that in your letter of August 5, 2014, that Office made the following representations: 1. For purposes of renewing its business license for the year 2014, CBC declares its gross sales during the preceding year (2013) in the total amount of Php226,171,628.12. 2. The CTO of Calamba City however erroneously or illegally computed the local business tax (LBT) of CBC based on its 2012 gross sales of Php348,832,508.64. 3. CBC paid the 1st quarter LBT as computed above by the CTO in order to avoid operating without the necessary permits. 4. On March 11, 2014, CBC through its external legal counsel filed a protest letter with claim for refund or tax credit of the excess payment amounting to Php107,328.28. 5. On April 2, 2014, CTO issued LOA No. 270, which was received by CBC on May 5, 2014, covering the Examination of CBC 2013 books of accounts. 6. On May 9, 2014, CBC submitted the required documents. 7. On May 27, 2014, CTO issued a revised SOA in the amount of Php280,364.87 net of tax credit (for the 1st quarter) in the amount of Php107,328.27 with LBT computed on 2013 gross sales of Php226,171,628.12 but included therein are surcharges and interest in the amount of Php183,308.59. In view of the foregoing, CBC filed a written protest within the 60-day reglementary period pursuant to Section 195 of the LGC, for erroneous or illegal assessment for using the 2012 gross sales/receipts of CBC as tax base in the computation of business tax instead of the 2013, which is in conformity with Section 143 of the LGC which provides that local business taxes shall be based " gross sales or receipts of the preceding calendar year ". On the other hand, such protest is governed by Article 285 of the Implementing Rules & Regulations (IRR) implementing Section 195 of the LGC, quoted as follows: "Article 285. Protest on Assessment. When the local treasurer of his duly authorized representative finds that correct taxes, fees, or charges have not been paid, he shall issue a notice of assessment stating the nature of the tax, fee or charge, the amount of deficiency, the surcharges, interests and penalties. Within sixty (60) days from the receipt of the notice of assessment, the taxpayer may file a written protest with the local treasurer contesting the assessment; otherwise, the assessment shall become final and executory. The local treasurer shall decide the protest within sixty (60) days from the time of its filing. If the local treasurer finds the protest to be wholly or partly meritorious, he shall issue a notice cancelling wholly or partially the assessment. However, if the local treasurer finds the assessment to be wholly or partly correct, he shall deny the protest wholly or partly with the notice to the taxpayer. cAaDHT The taxpayer shall have thirty (30) days from the receipt of the denial of the period or from the lapse of the sixty-day period prescribe herein within which to appeal with the court of competent jurisdiction, otherwise the assessment becomes conclusive and unappealable." By filing the written protest, this Bureau is of the view that the assessment should have been deferred and the running of surcharges and interests were stayed until the protest had been resolved in accordance to the provision of Section 195, as implemented under Article 285 of the IRR, supra . Further, it is our view that the subsequent issuance of the revised Statement of Accounts (SOA) on May 27, 2014, after the conclusion of the examination of books of accounts of CBC, invalidated the previous SOA which otherwise could have given rise to the levy of surcharges and penalties on the account of "late payment" if otherwise, not based on erroneous tax base. In view thereof, CBC cannot be made liable for surcharges and penalties for "late payments" as alleged by the City Treasurer of Calamba in her reply letter of September 22, 2014. This is for the simple reason that had the original SOA been made in conformity with the pertinent provisions of the LGC, the herein issue could not have occurred. Tacitly stated, the imposition of surcharges and interests for the alleged payments made by CBC beyond the deadline is tantamount to penalizing CBC for the mistake made by CTO-Calamba. Nonetheless, CBC cannot be made accountable for the act that gave rise to the problem which it did not commit but from an erroneous assessment made by taxing authority. After all, to concur with the assessment issued by City Treasurer of Calamba will bother this Bureau no end considering that the revised SOA was issued only on May 27, 2014 and assessing CBC of surcharges and interest for paying beyond the deadline of April 30, 2014 is beyond pale. For how could CBC made the payment on time when in the first place the Notice of Assessment was issued after the deadline of April 30, 2014. With regard to the 3rd-4th quarter installments, the view embodied in our referral letter of August 22, 2014 to the City Treasurer of Calamba is hereby reiterated as follows: "Nevertheless, CBC objected the new SOA as it was computed based on the actual gross sales/receipts of P226,171,628.12 thus the total amount of P280,464.87 already included the surcharges and interests corresponding the 3rd and 4th quarter assessments which, needless to say, is yet to become due and collectible at the time of the issuance of said new SOA on May 27, 2014. . . ." HCaDIS Another issue that needs discussion is the imposition of surcharges and penalties for Mayor's Permit and Garbage Fees. The aforecited provision of the Revised Code of Calamba-2006 ("RCC", for brevity), provides that in case the tax imposed [I]n said Code is not paid on the date fixed therein or upon occurrence of the event which given rise of its collection, there shall be collected as part of the amount of surcharge of twenty five percent (25%) and interest thereon at the rate of two percent (2%) per month from the date it is due until it is paid, . . . ". By way of comment, it may be stated that RCC-2006 imposes surcharges and interests only on tax not paid on the date fixed therein or upon occurrence of the event which gives rise of its collection. Clearly, however, as per computation presented by the City Treasurer of Calamba in her letter dated September 22, 2014, it imposes also both the surcharges and penalties (interests) on unpaid Mayor's Permit and Garbage Fee which squarely do no fall within the realm of taxes. The LGC of 1991 defines a "fee" as a charge fixed by law or ordinance for the regulation or inspection of a business or activity. . . . Conversely, a "tax" may be defined as enforced contributions made for purposes of revenue generation and redistribution. (Compendium of Local Impositions) In contrast, said impositions are differentiated as to purpose: a "fee" is levied for the purposes of regulating any business activity within a jurisdiction while a tax is levied for the main purpose of revenue generation which is the necessary "lifeblood" to run the government. The immediate preceding discussion considered, CTO-Calamba should reconsider its SOA of May 27, 2014 for purposes of recomputing the correct taxes, fees and charges in accordance to the explicit wordings of Section 2C.03, which provides that the twenty-five percent (25%) surcharge and the two percent (2%) per month interest are imposable only on unpaid tax. In view of the foregoing, this Bureau suggests that CBC should confer with the City Treasurer of Calamba for the purpose of discussing the issues at length to determine CBC's entitlement to a refund for the surcharges and penalties paid thereto by way of tax credits which will be applicable to its future tax obligations of the same nature. We hope that this will help clarify matters. AHCETa Very truly yours, (SGD.) SALVADOR M. DEL CASTILLO OIC-Executive Director