Bureau of Local Government Finance Opinion

February 19, 2001 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Atty. Rolando P. Navarro VP-Legal Services Chemphil Group Chemical Industries of the Phils., Inc. Chemphil Bldg. 851 Arnaiz Avenue Legaspi Village 1229 Makati City Sir : This refers to your letter dated February 14, 2001 relative to Resolution 108-96 approving Tax Ordinance No. 96-001 enacted by the Sangguniang Bayan of San Pascual, Batangas, specifically Section 2 thereof which imposes a tax of 2% of the gross sales and receipts on certain business. Representations are made that LMG Chemicals Corporation (LMG for brevity) and Chemphil Albright and Wilson Corp. (CAWC for brevity) are chemical manufacturers under the Chemphil Group with head offices in Makati City and operating manufacturing plants in San Pascual, Batangas. Prior to the passage of Ordinance No. 96-001, both companies were paying the local business tax to the said municipality in accordance with the schedule provided for in Section 143 (a) of the Local Government Code of 1991 (LGC), quoted as follows: "Section 143. Tax on Business. The municipality may impose taxes on the following businesses: CTcSAE "(a) On manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and compounders of liquours, distilled spirits, and wines or manufacturers of any article of commerce of whatever kind or nature, in accordance with the following schedule: "xxx xxx xxx." Citing Secs. 132 and 143 (h) of the LGC, the Sangguniang Bayan of San Pascual passed on December 9, 1996 Resolution No. 108-96 approving Tax Ordinance No. 96-001. Article IV, Section 2 of said Ordinance provides as follows: "Tax on Business Subject to the Excise, Value-Added or Percentage Taxes under the NLRC. On any of the following business and articles of commerce subject of the excise, value-added or percentage taxes under the National Internal Revenue Code (NIRC) as amended, a tax of two percent (2%) per annum of the gross sales or receipts of the preceding calendar year is hereby imposed: a. On persons who sell goods and services in the course of trade or business and those who import goods whether for business or otherwise, as provided for in Sections 100 to 103 of the NLRC as administered and determined by the Bureau of Internal Revenue pursuant to the pertinent provisions of said Code. b. On the gross receipts of keepers of garages and cars for rent or hire driven by the lessee. c. Excisable goods subject to VAT;" On the other hand, Section 143 (h) of the LGC, reads as follows: "Sec. 143. Tax on Business. The municipality may impose taxes on the following businesses: IaSAHC "(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 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." It is claimed that after the enactment of the Tax Ordinance No. 96-001, the municipality of San Pascual started assessing the corporations based on the tax rate of 2% per annum of the gross sales or receipts of the preceding calendar year. Both companies have continuously paid under protest the assessment made until last month. It was pointed out that the Department of Finance has come out with several rulings that the tax of two percent (2%) can be imposed only on business which cannot be taxed under Section 143 (a), (b), (c), (d), (e) and (g). In view of the above it is your contention that the section speaks of the term "manufacturer" twice; first, it is referred to as the manufacturer of liquor, distilled spirits and wines, and, second, as the manufacturer of any articles of commerce of whatever kind or nature, thus, the intention of the legislative branch is to subject both manufacturers to the maximum rate of 37-1/2% and therefore, the said named manufacturers are not covered under Section 143 (h) and consequently under the Ordinance No. 96-001 of said municipality. That Office contends further that Section 143 (a) uses the disjunctive term "or" which indicates and denotes an alternative or choice and, therefore, the said provision which mentions the term "manufacturer" should be applied and interpreted separately, as ruled by the Supreme Court in various cases. Finally, that Office contends that while Section 143 (a) speaks of "manufacturers" Section 143 (h) speak of "or any business not otherwise specified in the preceding paragraphs" while Sec. 2 of Tax Ordinance No. 96-001 speaks of "person who sells goods or services in the course of trade or business and those who import whether for business or otherwise." This Bureau finds your contentions in order and concurs therein. In addition, it may be stated that while it is true that manufacturers of chemicals are not expressly mentioned in Section 143 (a) of the LGC, nevertheless they may be deemed included in the blanket clause "or manufacturers of any article of commerce or whatever kind or nature" after the enumeration. Accordingly, LMG and CAWC, shall be subject to, or liable to pay the business tax under Section 143 (a) of the LGC as implemented by a duly-enacted tax ordinance of the municipality of San Pascual, Batangas and not under Section 143 (h) of the same Code as implemented under Section 2 of Tax Ordinance No. 96-001. CAIaHS The Municipal Treasurer of San Pascual, Batangas is being furnished a copy of this letter for his information and guidance. Very truly yours, (SGD.) BENJAMIN A. GERONIMO Executive Director <www.blgf.gov.ph/downloads/opinion/localtax/2001/a2001-0218.pdf> last visited January 16, 2014.