Bureau of Local Government Finance Opinion

December 6, 2010 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 1st Indorsement Respectfully referred to the Municipal Treasurer, Polomolok, South Cotabato for comment and/or appropriate action, the attached letter dated 23 November 2010 of Mr. JOSEPH ALAN DIOSANA, Comptroller, Pioneer Hi-Bred Philippines, Inc. (PIONEER, for brevity), seeking clarification on the applicability of local business tax (LBT) on its operations in that Municipality, based on our opinion rendered under a letter dated November 25, 2010 addressed to Gerodias Suchianco Estrella Law Firm, copy furnished that Office. As a reminder, the opinion was issued as a rejoinder of the query submitted to this Bureau for resolution, concerning the Initial Assessment Notice issued by that Office to PIONEER for alleged LBT deficiencies for CY 2008 in the total amount of P1,173,544.57 as a result of classifying the company both as "Manufacturer/Producer" and "Exporter". Further, it was informed that the Notice was issued pursuant to Local Finance Circular No. 4-93 dated July 30, 1993 and as implemented under Section 2A.01 (a) of Polomolok Municipal Tax Ordinance No. 1, Series of 2007 ("Ordinance"). Without discussing at length, this Bureau ruled as follows: 1) Although PIONEER, a producer of essential commodity (corn), is not principally engaged in the business of exporting goods and services, the company is considered as an "exporter" even if it exports only a small portion of its produce, based on the provision of LFC 4-93, which states that: " Exporter shall refer to those who are principally engaged in the business of exporting goods and services, as well as manufacturers and producers whose goods or services are both sold domestically and abroad. " 2) PIONEER, as an exporter of an essential commodity like corn is liable to pay the business tax only at a rate not exceeding one-half of the rates prescribed under subsections (a), (b) and (d) of Article 232 of the Implementing Rules and Regulations (IRR) of the LGC. 3) It was clarified further that an "exporter" , regardless of whether it exports essential or non-essential commodities, shall be taxable at the rate provided under Section 143 (c) of the LGC, which provides: cADSCT " SEC. 143. 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 Section: xxx xxx xxx." (Boldfacing and underscoring for emphasis) PIONEER submits that that Office, on October 2010, issued an Order of Payment for alleged LBT deficiency, claiming that the same is supported by the Opinion aforementioned. However, PIONEER claims that that Office has a different interpretation of the said Opinion, thus: 1. As a producer of corn, an essential commodity, PIONEER is only liable for tax at the rate of 1/2 of the business tax prescribed under the Ordinance of that Municipality; and 2. There is an alleged overpayment of Php454,405.77 of the LBT thus, entitling the company to a tax credit of the same amount applicable to its future tax obligation of the same nature and purpose. In view of all the foregoing, her comment and/or appropriate action on the matter is hereby requested within ten (10) days upon receipt hereof, together with the copy of the Ordinance and/or excerpts thereof imposing LBT on manufacturers/producers and exporters of essential commodities. Be guided accordingly. (SGD.) MA. PRESENTACION R. MONTESA, CESO III Executive Director