Bureau of Local Government Finance Opinion

September 20, 2002 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Ms. Eloisa J. Martinez Controller Mobil Philippines, Inc. 17/F, The Orient Square Emerald Ave. Ortigas Center Pasig City Madam : This refers to your letter dated July 20, 2002 requesting confirmation that the sales of petroleum products by a company, in this case the Mobil Philippines, Inc. (MPI) are exempt from local taxation. Representations are made that MPI is a corporation duly organized and registered with the Philippine Securities and Exchange Commission and is primarily engaged in the manufacture and sale of petroleum and related products. That on July 2, 2002, MPI received a letter of Assessment from the City Treasurer's Office of Manila for the alleged local business tax deficiency for its sales of petroleum products subject to value-added tax, particularly lubricating oils and greases for the years 1997 to 2001 under Sections 14, 15, and 21 of Ordinance No. 7794 (otherwise known as the Revenue Code of the City of Manila, as amended by Ordinance No. 7807). HSTAcI Considering its nature of business, MPI believes that it is exempt from the payment of local business tax pursuant to Article 232 (h) of the Implementing Rules and Regulations (IRR) of the Local Government Code (LGC) of 1991 quoted hereunder, in relation with Articles 236 and 237 thereof: "Article 232. Tax on Business . The municipality may impose taxes on the following businesses: "(a) . . . "(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 NIRC, 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. "xxx xxx xxx." MPI likewise cites Section 133 (h) of the LGC, in conjunction with Article 221 (h) of IRR which provides: "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: HCacTI "(a) . . . "(h) Excise tax on articles enumerated under the National Internal Revenue Code, as amended, and taxes, fees or charges on petroleum products; "xxx xxx xxx." In addition, MPI informs that the term "petroleum products" as defined under Revenue Regulations No. 7-83, shall include hydrocarbons, crude oil, intermediate refinery stocks, base stocks (including other intermediate petroleum products such as lubricating oil base stocks which are blended into greases and lubricating oils) and all other products enumerated in Sections 153, 155 and 156 of the NIRC of 1977. ( Now incorporated in Section 148 of the NIRC of 1997 ) Section 148 of the NIRC of 1997, in connection with Revenue Regulations No. 13-77 (otherwise known as the "Petroleum Products Regulations"), lists the following goods as "petroleum products" subject to excise tax: Lubricating oil and greases Processed gas Waxes and petrolatum Denatured alcohol for motive power Naptha, regular gasoline and other similar products of distillation Leaded premium gasoline Aviation turbo jet fuel Kerosene Diesel fuel oil Liquified petroleum gas Asphalts Bunker fuel oil Finally, MPI cites rulings and opinions previously issued by this Bureau directing the local government units concerned to cease and desist from collecting any tax on businesses engaged in, among others, distribution or sale of petroleum products. Be that as it may, MPI claims that the City Treasurer apparently has failed to recognize or ignored the fact that lubricating oils and greases are considered as petroleum products, and as such the proposed deficiency tax assessment against MPI is contrary to the provisions of Article 232 (h) of the IRR, which clearly, expressly and unambiguously exempt from local taxation any business engaged in the production, manufacture, refining, distribution or sale of oil, gasoline and other petroleum products. In this connection, we draw attention to Title VI, Chapter V, Section 148 of the Tax Reform Act of 1997 (National Internal Revenue Code), quoted as follows: ECTHIA "Chapter V Excise tax on Petroleum Products "Sec. 148. Manufactured oils and other fuels . . . . "(a) Lubricating oils and greases, including but not limited to, basestock for lube oils and greases, high vacuum distillates, aromatic extracts and other similar preparations, and additives for lubricating oils and greases, whether such additives are petroleum based or not, . . . . "xxx xxx xxx." In view of the aforequoted provisions of the law, it is clear that lubricating oils and greases are considered petroleum products, thus the manufacture and sale of the same shall not be subject to any local tax imposed under the duly-enacted tax ordinance of the City of Manila. It is stressed, however, that the exemption pertains to tax, thus MPI is still liable to pay Mayor's permit and other regulatory fees and charges imposed under the same ordinance. caCSDT It is likewise emphasized, that the above ruling is based on the facts and representations made in the above letter of MPI and any change in the facts as presented will invalidate the ruling rendered on the matter. We hope that this will help clarify matters. Very truly yours, (SGD.) MA. PRESENTACION R. MONTESA Executive Director