Bureau of Local Government Finance Opinion

October 14, 1998 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 3rd Indorsement Respectfully returned to the Provincial Assessor of Palawan, Puerto Princesa City, his within preceding Indorsement dated May 15, 1998, requesting reconsideration of the ruling embodied in the 1st Indorsement dated April 13, 1998, of this Bureau, copy enclosed, which resolved, that: " Celestial, (Celestial Nickel Mining Exploration Corporation) being merely a Contractor, with primary obligation to undertake and execute mining operations (for the exploration, development and commercial utilization of certain nickel ore deposits existing within the contract area (land)) 'in behalf of the Government,' is deemed not liable to real property taxes on its area of operations as stipulated in the abovementioned MPSA considering that the said corporation could not be considered as beneficial user of the subject land ." In support of the abovementioned request for reconsideration, the said Provincial Assessor advanced the following arguments, viz: 1. That, as a Contractor, "Celestial utilizes and enjoys the property according to its own liking, that is, to undertake and execute mining operations within the mineral land owned by the state;" 2. When the government and Celestial entered into this MPSA, "the government intended to pass to contractor/grantee 'Celestial' the right to possess, enjoy and control the area. Except the right for the acquisition of Title thereon, Celestial as a Contractor had been granted by the Government an almost absolute rights and privileges as clearly manifested under Section X of said MPSA . . .;" and 3. The said MPSA had granted Celestial as a contractor, the exclusive entity "to conduct mining operations within the Contract Area for and in behalf of the Government . However, in its capacity as contractor for and in behalf of the Government , it was neither expected to perform basic services for and in behalf of the Government nor the Government remunerate Celestial for doing functions in its behalf, but rather, engage in entrepreneurship functions within the area owned by the state for the object of profit. In this instant case, the provisions of the herein MPSA cannot deny the fact that 'Celestial' is a 'contractor' and at the same time 'beneficial user"'. It may be recalled, in this connection, that the issue on the "actual use" over the subject land owned by the state has been amply ventilated under our above mentioned April 13, 1998 ruling. Noticeably also, the said Provincial Assessor agreed to the fact that "Celestial as a Contractor . . . conduct mining operations within the Contract Area for and in behalf of the Government," not in its behalf. Granting, therefore, for the sake of argument, that Celestial has been passed the right of possession of the Contract Area as specified under Section X(2)(b) of the said MPSA, this is solely limited to the conduct of its operations and explorations which is deemed necessary to efficiently perform the same. But this does not necessarily mean that full enjoyment and control of the said Contract Area has been vested upon Celestial. cSICHD A further perusal of the said MPSA, reveals the following: "Whereas, the 1987 Constitution of the Republic of the Philippines (the 'Constitution') provides . . . that all lands of the public domain, . . . are owned by the State and that the exploration , development and utilization of such resources shall be under the full control and supervision of the State ; "Whereas, the Constitution further provides that the State may directly undertake such activities, or it may enter into a co-production, joint-venture, or production sharing agreements with Filipino citizens, or Corporations or Associations at least sixty per centum (60%) of whose capital is owned by such citizens ; and" It is clear, therefore, that the subject land covered by the MPSA located in Barangays Ipilan and Mambalot, Brook's Point, Palawan, is owned by the State. Celestial, being the Contractor, neither has the right of utilization and enjoyment of the property according to its own liking; nor it has the right to possess and control the same, in view of the fact that the Government is the one who has the full control and supervision of the mining operations and explorations, and as specifically stipulated in the terms and conditions under the said MPSA. Being a Contractor, it is but just and reasonable for Celestial to expect returns from such project, which, in accordance with the MPSA, such returns may be realized by way of sharing from the production. In view thereof, the fact still remains that Celestial conducts its mining operations within the Contract Area, only "for and in behalf of the Government" and therefore, the same is not liable to pay real property taxes on the subject "contract area." In view of the foregoing, it is regretted that your abovementioned request cannot be favorably acted upon for lack of merit. (SGD.) ANGELINA M. MAGSINO Deputy Executive Director Officer-in-Charge