Bureau of Local Government Finance Opinion

July 23, 2004 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Mr. Eugene L. Lim President & Chief Executive Officer Philippine Compak Boards, Inc. Daily Foods, Cor. Cebedo-Zamora Sts. Ozamis City S i r : This has reference to your letter dated January 28, 2004, addressed to Her Excellency, the President of the Philippines, which was forwarded to the Department of Finance for appropriate action, appealing for executive exemption/condonation of real property taxes and the penalties due thereon for the years 1996-2002, covering the real properties owned by the Philippine Compak Boards, Inc. (PCBI), on its land, buildings and machineries located in Lapasan, Clarin, Misamis Occidental. A perusal of the within set of papers reveals the following grounds for the abovementioned appeal, to wit: 1. PCBI was inaugurated on August 24, 1996 and was allegedly in operation for only one (1) year and three (3) months due to heavy losses; 2. Apparently, in the second quarter of 1999 the company pursued the development of a new product line and the reengineering of its plant facilities to produce panel boards; 3. However, the company's operations was hampered anew by a typhoon which hit the Province of Misamis Occidental on November 28-29, 1999, destroying its machineries/equipment, rendering the plant operations to shut down from November 29, 1999 up to February 5, 2002; HTDAac 4. Only on March 8, 2002, that the company started its limited operations and shortly began market testing/promotion of its new Marine Grade Compakboards Premium HDF products; 5. Since January 16, 2003, the plant operated on the average of four (4) days per week, eight (8) hours basis or approximately at thirty-five percent (35%) plant capacity; 6. As alleged, the company was given a 6-year Income Tax Holiday and a 6-year Local Business Tax exemption; and 7. The Municipal Treasurer of Clarin is demanding payment of the real property taxes due on the subject properties including the penalties due thereon. Clearly from the foregoing, your subject appeal is basically due to the company's (a) heavy losses suffered; (b) destruction of its machineries/equipment caused by typhoon; and (c) temporary cessation/shutdown of operations. In this regard, attention is invited to Sections 276 and 277 of R.A. No. 7160, also known as the Local Government Code of 1991, which are quoted below: "SEC. 276. Condonation or Reduction of Real Property Tax and Interest . In case of a general failure of crops or substantial decrease in the price of agricultural or agribased products, or calamity in any province, city or municipality, the sanggunian concerned, by ordinance passed prior to the first (1st) day of January of any year and upon recommendation of the Local Disaster Coordinating Council, may condone or reduce, wholly or partially, the taxes and interest thereon for the succeeding year or years in the city or municipality affected by the calamity." HaECDI "SEC. 277. Condonation or Reduction of Tax by the President of the Philippines . The President of the Philippines may, when public interest so requires, condone or reduce the real property tax and interest for any year in any province or city or a municipality within Metropolitan Manila Area." Evidently, condonation under Section 276 of the Code is within the discretion of the Sanggunian in cases of calamitous events; and the substantial decrease in agribased products in a given province, city or municipality for the succeeding year/years. On the other hand, condonation under Section 277 thereof shall be, with the approval of the President of the Philippines affecting not just one individual or entity but all persons, businesses and transactions similarly situated. It is also clear that condonation or reduction of real property taxes and interests due thereon is not applicable to a single or a particular person or enterprise only, like the PCBI. Hence, your abovementioned basis for the subject appeal covering a 7-year period (1996-2002) would not qualify for consideration under the aforequoted provisions of the said Code. Likewise, the exemption proviso (Section 234) of R.A. No. 7160 is very specific as to what real properties are considered exempt from the payment of real property taxes. Therefore, the principle " inclusio unius est exclusio alterius " (what is not included is deemed excluded) applies. In view hereof, we regret that your abovementioned appeal cannot be given due course for lack of legal basis. However, machineries/equipment which are not used for reason of closure or cessation of production are no longer subject to real property taxes. In this connection, enclosed is a copy of our 1st Indorsement of same date, addressed to the Provincial Assessor and the Provincial Treasurer, both of Misamis Occidental, with the following instructions, to wit: The Provincial Assessor : "1. To conduct an investigation/ocular inspection on the subject real properties (machineries) of PCBI in order to determine the following: "a) the veracity of the allegation that the said company was in operation for only a year and 3 months after its inauguration on August 24, 1996; and/or the actual period of its closure; and/or when it actually re-started anew its operations; and the machineries that actually stopped from operations in the duration of the said period; SIAEHC "b) the machineries that were destroyed by the typhoon on November 28-29, 1999; "c) the veracity of the shut-down of the plant's operations from November 29, 1999 up to February 5, 2002 and the affected machineries thereon; and "d) the machineries that remain in operation. "2. Thereafter, if findings warrant: "a) Cancel the assessment of machineries already destroyed; "b) Drop the particular machineries of PCBI from the "Taxable Roll" of real properties for the year/s of closure/cessation of its production. The same should then be assessed as taxable real properties effective on the first day of January of the year immediately following the resumption of its operations." The Provincial Treasurer : "1. To hold in abeyance the further demand for payment of real property taxes including the penalties due the subject real properties of PCBI pending the result of the said investigation/ocular inspection to be conducted by the Office of the said Provincial Assessor; "2. To recompute the real property taxes due the PCBI including the penalties due thereon based on the outcome of the said investigation/ocular inspection; and "3. To consider, if necessary and/or appropriate, a compromise agreement as provided under Assessment Regulations No. 2-83 dated January 19, 1983, copy also enclosed, of the Department of Finance, between PCBI and the local government unit, the staggered payment of the real property taxes due including penalties of the said company." ICAcHE We trust that we have addressed your concerns. And your cooperation is likewise anticipated. Very truly yours, (SGD.) MA. PRESENTACION R. MONTESA Executive Director