Bureau of Local Government Finance Opinion

May 17, 2010 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 1st Indorsement Respectfully returned to the OIC-City Treasurer, Sorsogon City, his within letter dated April 12, 2010 requesting legal opinion regarding the liability for business taxes of Sorsogon City Water District. In the attached letter dated April 7, 2010, Engr. RONALDO G. BARBONO, General Manager, Sorsogon City Water District (SCWD), denied the assertion of that Office that the company is operating without permit/license thus violating Sec. 5 (E) of City Ordinance, CY 2001, as well as the provisions of Section 291 and 292 of R.A. 7160, otherwise known as the Local Government Code (LGC) of 1991 and Article 388 of the Implementing Rules and Regulations (IRR) implementing Section 291 of the LGC. In his assertion, Engr. Barbono invoked P.D. No. 198, as amended, commonly known as the Provincial Water Utilities Act of 1973, which, according to him, "clearly and explicitly states that 'water district' is exempted from payment of all National Government, local government and municipal taxes and fee" . Section 46 of P.D. No. 198, as amended, provides as follows: Sec. 46. Exemption from Taxes. A District shall (1) be exempt from paying income taxes and (2) shall be exempt from payment of (a) all National Government, local government and municipal taxes and fees, including any franchise, filing, recordation, license or permit fees or taxes and any fees, charges or costs involved in any court or administrative proceeding in which it may be a party and (b) all duties or imposts on imported machinery, equipment and materials required for its operations. Further, Section 193 of LGC is quoted as follows: Sec. 193. Withdrawal of Tax Exemption Privileges . Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations, except local water districts , cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code. Engr. Borbono, based on the abovequoted provisions of law and by citing Agpalo's Statutory Construction (1985) , that the tenets of the universally accepted doctrine that a "Law is superior to an ordinance", concluded that SCWD is exempt from payment of business permit/license. DacTEH The crucial issue to be resolved is whether SCWD, being a local water district, is exempt from local business taxation as well as business permits and license for its operation. For early resolution of the issue at hand, Article 283 of the IRR, implementing Section 193 of the LGC is quoted as follow: "Art. 283. Withdrawal of Tax Exemption Privileges or Incentives . Unless otherwise provided for in this Rule, beginning January 1, 1992, all local tax exemption privileges or incentives granted to and presently enjoyed by any person, whether natural or juridical, including government-owned or -controlled corporations- are considered withdrawn, except the following: (a) Local water districts ; xxx xxx xxx." From the abovequoted provision of the law, it is clear that local water districts are among the exception to the rule (withdrawal of tax exemption privileges or incentives) . It may be noted that the denominating factor is the phrase "local water district". Stated otherwise, SCWD, being a local water district, clearly belongs to the exception and therefore remains exempt from the payment of local taxes. With regard to business permits and licenses, Section 534 of the LGC is quoted as follows: SEC. 534. Repealing Clause . (a) . . . are hereby repealed. xxx xxx xxx (f) All general and special laws, acts, city charters, decrees , executive orders, proclamations and administrative regulations, or part or parts thereof which are inconsistent with any of the provisions of this Code are hereby repealed or modified accordingly. (emphasis ours) In view hereof, this Bureau is of the opinion that the abovequoted provision of LGC had modified and/or repealed Section 46 of P.D. No. 198, as amended, which exempts local water districts from paying license or permit fees. Thus, SCWD no longer enjoys exemption from the payment of business permits/license and is therefore required to secure such permit or license in order to validate its operations otherwise, these shall be considered illegal. Further, the exception provided in Section 193 of the LGC aforequoted refers to tax exemptions or incentives and does not include payment of business permits and licenses which is a pre-requisite for regular businesses before they can legally engage in any undertaking. This view is best sustained by applying the rule in statutory construction which states that "what has not been expressly enumerated is deemed excluded". Clearly therefore, business permits and licenses are not among the exceptions retained by businesses enjoying tax exemptions or incentives. IaSCTE Furthermore, Section 147 of the LGC, in relation to Section 151 thereof, provides as follows: "SEC. 147. Fees and Charges . The municipality may impose and collect such reasonable fees and charges on business and occupation and, except as reserved to the province in Section 139 of this Code, on the practice of any profession or calling, commensurate with the cost of regulation, inspection and licensing before any person may engage in such business or occupation, or practice such profession or calling." The abovequoted provision of law is plain and clear that it is mandatory for the operation of any business or calling to secure a Mayor's permit in the local government unit where they are engaged in business. It is worth mentioning that the above authority of the city government to impose such regulatory fee emanates from Section 445 of the LGC, quoted as follows: "SEC. 455. Chief Executive; Powers, Duties and Compensation. (a) The city mayor, as chief executive of the city government, shall exercise such powers and perform such duties and functions as provided by this Code and other laws. "xxx xxx xxx. (2) Enforce all laws and ordinances relative to the governance of the municipality and the exercise of its corporate powers provided for under Section 22 of this Code implement all approved policies, programs, projects, services and activities of the municipality and, in addition to the foregoing, shall: "xxx xxx xxx. (3) Initiate and maximize the generation of resources and revenues, and apply the same to the implementation of development plans, program objectives and priorities as provided for under Section 18 of this Code, particularly those resources and revenues programmed for agro-industrial development and country-wide growth and progress, and relative thereto, shall: DcTaEH xxx xxx xxx. (iii) Ensure that all taxes and other revenues of the municipality are collected and that municipal funds are applied in accordance with law or ordinance to the payment of expenses and settlement of obligations of the municipality; (iv) Issue licenses and permits and suspend or revoke the same for any violation of the conditions upon which said licenses or permits had been issued, pursuant to law or ordinance;" (Boldfacing and underscoring supplied) It is worth noting that the LGC, which took effect on January 1, 1992, is a later legislation and therefore, its provisions shall prevail over that of P.D. No. 198 (May 25, 1973) and P.D. No. 768 (August 15, 1975). We hope that we have clarified matters. Very truly yours, (SGD.) MA. PRESENTACION R. MONTESA Executive Director