Bureau of Local Government Finance Opinion

August 5, 2011 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 4th Indorsement Respectfully returned to the ICO-City Treasurer, Puerto Princesa City, the within 3rd Indorsement dated July 2, 2011, relative to the legal opinion dated July 28, 2011 of the City Legal Officer, that City. aSTHDc A reading of said opinion shows that the City Legal Officer is of a different stand on the issue of whether Liquefied Petroleum Product (LPG), one of the so called "Petroleum Products", is subject to local business tax. It may be recalled that this Bureau, under its 1st Indorsement dated June 23, 2011 relative to the query of Ms. MELANIE P. DORMILE of Millennium Gas Trading (MGT), instructed that Office "to implement the aforequoted Section 3 of LFC No. 1-05 to ensure compliance with the provisions of the LGC and its IRR" . Relative thereto, it is worth mentioning that LFC No. 1-05 was issued by the Department of Finance (DOF) in line with Article 287 of the Implementing Rules and Regulations of the Local Government Code (LGC) of 1991, which provides: "Article 287. Administrative Authority of the Secretary of Finance . The Secretary of Finance shall, in consultation with the various leagues, formulate and prescribe, from time to time, procedures and guidelines as may be necessary for the proper, efficient and effective implementation of the provisions of Title I, Book II of the Code ." (Emphasis supplied) As an established rule in our jurisprudence that ". . ., it has always been the rule firmly established in this jurisdiction that contemporaneous interpretations of a statute or implementing rules or regulations by executive or administrative officials charged with the implementation of such statute or regulations, are entitled to great weight and respect from the courts. Thus, the general rule is that the construction of a statute by an administrative agency charged with the task of interpreting or applying the same is entitled to great weight and respect . . . ." ( National Food Authority (NFA) et al. vs. Masada Security Agency, Inc. , G.R. No. 163448, March 8, 2005) TSIaAc Further, "[I]n determining whether an agency has certain powers, the inquiry should be from the law itself. But once ascertained as existing, the authority given should be liberally construed." [Agpalo, ADMINISTRATIVE LAW (2005); citing Matienzo v. Abellera, G.R. No. 77632, June 8, 1988, 162 SCRA 1] Moreover, "Administrative issuances have the force and effect of law. 32 They benefit from the same presumption of validity and constitutionality enjoyed by statutes. These two precepts place a heavy burden upon any party assailing governmental regulations. 33 Petitioner's plain allegations are simply not enough to overcome the presumption of validity and reasonableness of the subject imposition." [ Chevron (Caltex) vs. BCDA , G.R. No. 173863, September 15, 2010] Now, with due respect and going back to the opposing opinion of the City Legal Officer, this Bureau is firm on its stand that LPG, being one of the petroleum products, is not subject to local business tax (LBT) and therefore beyond the taxing power of local government units (LGUs). In the same opinion, the City Legal Officer made reference to the ruling/opinion issued by this Bureau in a letter dated August 30, 2001 addressed to the Mayor of Alaminos, Pangasinan, which states that "It may be mentioned, however, that while it is true that LPG is a petroleum product, a reading of the provision of Article 232 (c) (3) of the said IRR, quoted hereunder, will reveal that LPG is also cooking gas and therefore subject to local tax." It is informed however, that Local Finance Circular No. 1-05 dated December 8, 2005 was issued to clarify among others, the coverage of the phrase "Petroleum Products" including LPG, which the City Legal Officer thereat considered also as cooking gas , citing Article 232 (c) (e) (sic) , quoted hereunder, and thus subject to local tax. "Article 232. Tax on Business . The municipality may impose taxes on the following businesses. "xxx xxx xxx "(c) On exporters, and on manufacturers, millers, producers, wholesalers, distributors, dealers, or retailers of essential commodities enumerated hereunder at a rate not exceeding one-half (1/2) of the rates prescribed under subsections (a), (b) and (d) of this Article: "xxx xxx xxx "(3) Cooking oil and cooking gas ; (emphasis our) aDHScI "xxx xxx xxx." The good City Legal Officer failed to consider Paragraph (h) of the same Article which made a further qualification as follows: "(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 products shall not be subject to any local tax imposed under this provision . (Boldfacing and underscoring for emphasis) Factually, it is on the import of the phrase " in line with existing national policy " quoted above that LFC 1-05 was issued which is consistent with the pertinent provisions of R.A. No. 8479 and other related laws. The above premises considered, this Bureau deems that the issue to be resolved boils down as to whether MGT is liable for the payment of business tax on its sale of LPG. In the case of National Tobacco Adm. vs. COA , 311 SCRA 755 (citing Agpalo, Statutory Construction, 1986 edition), the Supreme Court held that the intent of a statute should be ascertained from the statute taken as a whole and not in parts or sections, thus: "Cardinal is the rule in statutory construction 'that the particular words, clauses and phrase should not be studied as detached and isolated expressions, but the whole and every part of the statute must be considered in fixing the meaning of any of its parts and in order to produce a harmonious whole. A statute must be so construed as to harmonize and give effect to all its provisions whenever possible .' And the rule that statute must be construed as a whole requires that apparently conflicting provisions should be reconciled and harmonized, if possible. It is likewise a basic precept in statutory construction that the intent of the legislature is the controlling factor in the interpretation of the subject statute . " (emphasis ours) AaITCS Discerning from the above rule, it can be said that in the instant case, while the law subjects payment of the business tax from all exporters, manufacturers, producers, wholesalers, distributors, dealers or retailers of cooking gas under Section 143 (c) (3) of the Local Government Code, the same law, however, does not contemplate to cover the sale of LPG as the same was categorically exempted under Section 133 (h) of the same Code. Such interpretation is in consonance with the apparent intent of the legislature to remove petroleum products from the taxing power of local government units. In support of the said interpretation are the Department of Justice (DOJ) Resolution dated September 17, 1993 and the pronouncement made by the Energy Regulatory Board (ERB), embodied in our letter dated April 1, 2003 addressed to Mr. Luis Banzon, President of LPGIP and Mr. Adelio R. Capco, President, PGDAI. Under the said DOJ Resolution, it was ruled that local government units imposing taxes on petroleum products are violating the law, as doing so is contrary to law, public policy and national economic policy . The ERB, on the other hand, declared that "additional taxes on petroleum business are detrimental to the economy and disruptive of business and industrial plans and policies, and should at all times be avoided especially at this time when the government is in the process of implementing its economic recovery programs." Furthermore, in the case of "PETRON CORPORATION vs. MAYOR TOBIAS M. TIANGCO, and MUNICIPAL TREASURER MANUEL T. ENRIQUEZ of the MUNICIPALITY OF NAVOTAS, METRO MANILA" , G.R. No. 158881 dated April 16, 2008, the Supreme Court, Second Division, granting the petition of Petron Corporation and reversing and setting aside the Decision of the RTC-Malabon City, thus declared: "We can concede that a tax on a business is distinct from a tax on the article itself, or for that matter, that a business tax is distinct from an excise tax. However, such distinction is immaterial insofar as the latter part of Section 133(h) is concerned, for the phrase "taxes, fees or charges on petroleum products" does not qualify the kind of taxes, fees or charges that could withstand the absolute prohibition imposed by the provision. It would have been a different matter had Congress, in crafting Section 133(h), barred "excise taxes" or "direct taxes," or any category of taxes only, for then it would be understood that only such specified taxes on petroleum products could not be imposed under the prohibition. The absence of such a qualification leads to the conclusion that all sorts of taxes on petroleum products, including business taxes, are prohibited by Section 133(h). Where the law does not distinguish, we should not distinguish. (PETRON CORPO RATION vs. MAYOR TOBIAS M. TIANGCO, and MUNICIPAL TREAS URER MANUEL T. ENRIQUEZ of the MUNICIPALITY OF NAVOTAS, METRO MANILA , G.R. No. 158881, April 16, 2008) CacEIS xxx xxx xxx While Section 133(h) does not generally bar the imposition of business taxes on articles burdened by excise taxes under the NIRC, it specifically prohibits local government units from extending the levy of any kind of "taxes, fees or charges on petroleum products." Accordingly, the subject tax assessment is ultra vires and void." (Emphasis ours) It being apparent that the intent of the law is to exempt the sale of LPG from the payment of business tax, the previous ruling of this Bureau on the matter should thus be affirmed. The instruction to that Office to implement Section 3 of LFC No. 1-05 to ensure compliance with the provisions of the LGC and its IRR stands. Be guided accordingly. (SGD.) MA. PRESENTACION R. MONTESA, CESO III Executive Director