Bureau of Local Government Finance Opinion

March 4, 1994 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION The Municipal Mayor Thru the Municipal Treasurer Limay, Bataan S i r : This refers to your letters dated May 18 and 24, 1993, respectively, together with all the enclosures, inquiring among others if the contractors of NPC are liable to pay the business tax pursuant to Section 143(e) of RA 7160 as adopted under the Municipality's revenue code provided for in Sec. 2B-02(e), Art. B, Chapter II. Following the query, if liable, will the tax be based on the whole amount of the contract including the cost of equipment imported by the foreign contractor even if it is paid in foreign currency outside the Philippines. Your 2nd letter reiterates the contents to the 1st letter and identifies the contractors of NPC as ABB Power Generation Ltd. and KAWASAKI Heavy Industries and, further, informs that KAWASAKI was granted by the Board of Investments a pioneer enterprise status. Hence, you are also inquiring as to the implication of the provisions of Art, 22(g) of the Implementing Rules and Regulations (IRR) of the Local Government Code of 1991. cd It appears from the attached copy of the contract entered into by NAPOCOR referred to as CORPORATION and its CONTRACTORS, that: 1) The said contractors are as follows: ABB Power Generation Ltd. (ABB for short) with principal office at CH-5401 Baden, Switzerland; KAWASAKI Heavy Industries, LTD. (KHI) with principal office at 4-1 Hamamatsu-cho, 2-Chome, Minato-ku, Tokyo, Japan; and, MARUBENI CORPORATION with principal office at 4-2 Ohtemachi 1-chome, Chiyoda-ku, Tokyo. Japan; 2) The CORPORATION has confirmed its expansion order for the BATAAN Combined Cycle Power Plant (referred to as Block "B") to the CONTRACTOR to purchase another 300 MW Bunker C Oil-Fired Combined Cycle Power Plant to be installed at the on-going Combined Cycle Power Plant (referred as Block "A") in Limay, Bataan; acd 3) "Block 'A' D/B Contract" shall mean the contract signed between CORPORATION and CONTRACTOR on June 19, 1991 for the engineering, supply, installation, construction, test and commissioning on a full turn-key basis of the Block "B" 300 MW Bataan Combined Cycle Power Plant located at the area adjacent to Block "A" at Limay Bataan; and 4) Under the paragraph on "Estimated Total Contract Price" the following appears: "The Contract Price does not include any taxes (including VAT, duties, tariff, fees, import, excise, and any other taxes that may be imposed on the project in the Republic of the Philippines." (Underlining supplied) Viewed in the light of the foregoing, the three (3) contractors are foreign contractors and do not have their principal offices within the country. However, this Department, after verification with Kawasaki Heavy Industries and Marubeni Corporation, was informed that the said two (2) corporations have a representative office and a branch office, respectively, in Makati and both also have project offices in Limay, Bataan where their projects are being prosecuted. As regards the allegation that KAWASAKI was granted a pioneer status, attention is invited to Article 221(g) of the IRR, implementing Section 133(g) of the Code, which states: "Art. 221. Common Limitations on the Taxing and Other Revenue-raising Powers of Local Government Units . Unless otherwise provided herein, the exercise of the taxing and revenue raising powers of provinces, cities, municipalities and barangays shall not extend to the levy of the following: "(a) . . . "(g) Taxes on business enterprises certified to by the Board of Investments as pioneer or non-pioneer for a period of six (6) and four (4) years, respectively, from the date of registration. cdtai xxx xxx xxx From the above provision, KAWASAKI if certified to by the Board of Investments (BOI) as a pioneer enterprise shall enjoy tax exemption for a period of Six (6) years from the date of its registration. Premises considered, this Bureau holds the view that in the absence of any express provision of law or other valid authority, foreign contractors doing business in the Philippines are liable to pay business taxes on contractors imposed by cities or municipalities pursuant to the pertinent provisions of the Code. It follows, therefore, that the abovementioned contractors of NPC, including ABB which has a project office in that municipality are liable to pay business taxes thereat as contractors on the basis of the gross receipts they realized during the preceding year. It is emphasized that the term "gross receipts", as applied to contractors, would be the total amount of service fees, including the amount charged or materials parts of the things to be constructed supplied with the service, and advance payments or deposits actually or constructively received during the taxable year. Such part of the contract price or those payments or deposits which are not actually or constructively received by the contractor during the taxable year and materials or equipment that do not form part of the things to be constructed although they were supplied during the said year shall be excluded from the tax base. However, in this specific case, the exemption granted to pioneer and non-pioneer enterprise under Section 133(g) of the Code aforecited for the corresponding periods of six (6) years and four (4) years from the date of their registration shall apply upon presentation of the corresponding BOI certification. Notwithstanding such BOI certification, however, the said contractors shall still be liable to pay the Mayor's permit and other regulatory fees or service charges that the municipality may have imposed under its duly-enacted local tax ordinances, the exemption being applicable to local taxes only. It is hoped that this will clarify matters. Very truly yours, (SGD.) LORINDA M. CARLOS Executive Director