Bureau of Local Government Finance Opinion

February 3, 2010 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 1st Indorsement Respectfully referred to the Municipal Treasurer, Pigcawayan, Cotabato, the herein letter dated January 19, 2010 of Mr. Mario P. Cacabelos and Ms. Enedina G. Cacabelos , General Manager and Manager/Dealer, respectively, of QUALITY PETRON SERVICENTER located at Quezon Avenue, that Municipality, seeking clarification regarding the alleged non-implementation of Department of Finance's Local Finance Circular No. 1-05 dated December 8, 2005, more specifically Section 3 thereof which provides: "SEC. 3. Exemption from Local Taxation . (a) Pursuant to Section 133 (h) of the LGC and Article 22 (h) of the IRR, local government units are prohibited from imposing taxes, fees and charges on petroleum products, which include the sale of petroleum products by gasoline stations, dealers, resellers or retailers. However, the sale of tires, batteries and other accessories (TBA) as well as services rendered by them are subject to business taxes. (b) Haulers of petroleum products who operate as transportation contractors or independent common carriers shall be exempt from local taxes pursuant to Section 133 (j) of the LGC. (c) Taxes, fees, charges and other impositions shall not be levied on petroleum products carried into or out of or passing through the territorial jurisdictions of local government units pursuant to Section 133 (e) of the Code." LFC 1-05 was issued in relation to Section 133 (h) of the Local Government Code (LGC) of 1991 which reads: "SEC. 133. Common Limitations on the Taxing Powers of Local Government Units . Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and Barangays shall not extend to the levy of the following: xxx xxx xxx (h) Excise taxes on articles enumerated under the National Internal Revenue Code , as amended, and taxes, fees or charges on petroleum products ; (Emphasis supplied) TIDaCE As can be clearly gleaned from the language of Section 133 (h), it is clear that the prohibition with respect to petroleum products extends not only to excise taxes thereon, but also the levy of "taxes, fees and charges" . To elucidate further the import of the abovequoted provision of law, Article 232 (h) of the Implementing Rules and Regulations (IRR), implementing Section 143 (h) of the LGC, states that: "ART. 232. Tax on Business . . . .: xxx xxx xxx "(h) On any business, not otherwise specified in the preceding paragraphs which the sanggunian concerned may deem proper to tax provided that on any business subject to the excise, value added or percentage tax under the National Internal Revenue Code, as amended, the rate of tax shall not exceed two percent (2%) of gross sales or receipts of the preceding calendar year, and provided further that in line with existing national policy, any business engaged in the production, manufacture, refining, distribution or sale of oil, gasoline and other petroleum product shall not be subject to any local tax imposed under this provision . (Boldfacing and emphasis ours) In this connection, comment and/or appropriate action of that Office on the matter is hereby requested, together with the copy of the Tax Ordinance or excerpt thereof, levying the business taxes either on petroleum products or dealers, distributors or retailers of petroleum products, five (5) days from receipts hereof. Information is also requested as to the reason for the alleged non-implementation/application of LFC 1-05 considering that it had been issued in 2005. It is reminded that it is a well-settled rule in our jurisprudence that rules and regulations issued by the executive or administrative officers, like the Secretary of Finance, pursuant to, and as authorized by law, has the force and effect of laws. (Manila Jockey Club, Inc. vs. Games and Amusements Board, 107 Phil. 151) Further, administrative regulations and policies enacted by administrative bodies to interpret the law have the force of law and are entitled to great respect. (Eslao vs. Commission on Audit, 236 SCRA 161) Be guided accordingly. (SGD.) MA. PRESENTACION R. MONTESA Executive Director