Legal Service

June 2, 1994 DILG LEGAL OPINION NO. 097-94 LEGAL SERVICE Director Josefino I. Torres Bureau of Rural Workers Department of Labor and Employment Intramuros, Manila Dear Dir. Torres : This has reference to your letter dated April 29, 1994, with enclosures, requesting for clarification on the proper application of Art. 67, Rule XIII, IRR of the LGC (RA 7160), which states, that: "An LGU may, through its chief executive and with the concurrence of the sanggunian concerned, provide assistance, financial or otherwise, to people's organization, NGO's or the private sector for economic, socially oriented, environmental, or cultural projects to be implemented within its territorial jurisdiction. An LGU may likewise grant tax exemptions, tax relief and other tax incentives to the said organizations as provided in these Rules." in relation to Rural Workers Organizations registered with the Bureau. It is stated in your letter that under Executive Order No. 951, the income and properties of the Rural Workers Organizations are exempted from taxes, duties and other assessments, while Executive Order No. 950 reinstates the tax exemptions on donation from fraternal labor organizations under Art. 243 of the Labor Code of the Philippines. Hence, you would like to be clarified/enlightened as to the applicability of the said IRR provision to your clients, the RWOs. The Local Government Code of 1991, specifically Sec. 192, Chapter 5, Book II thereof, provides therein, that: "Local government units may, through ordinances duly approved, grant tax exemptions, incentives or reliefs under such terms and conditions as they may deem necessary. Corollary thereto, of equal importance is Art. 282 of the IRR of RA 7160 (Local Government Code of 1991, which provides, in part, that: "(a) While sanggunians may grant tax exemption, . . . such grant shall not apply to regulatory fees which are levied under the police power of LGUs. Tax exemptions shall be conferred through the issuance of a tax exemption certificate, which shall be non-transferable. (b) The sanggunians granting tax exemptions . . . may be guided by the following: (1) On the grant of tax exemption . . .; (i) Tax exemption . . . may be granted in cases of natural calamities, civil disturbance, general failure of crops, or adverse economic conditions such as substantial decrease in the prices of agricultural or agri-based production; (ii) The grant of exemption . . . shall be through an ordinance; (iii) Any exemption . . . granted to a type of business shall apply to all businessman similarly situated; and (iv) Any exemption . . . shall take effect only during the next calendar year for a period not exceeding twelve (12) months as may be provided in the ordinance . . ." The foregoing notwithstanding, Sec. 5 (b) of the Code provides, in part, that: "(b) . . . (A)ny tax exemption . . . granted by any local government unit pursuant to the provisions of this Code shall be construed strictly against the person claiming it." Additionally, it may be pointed out that the fundamental rule is that exemption from taxation must be clear and unambiguous; and that it is construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception (Commissioner of Internal Revenue vs. Mitsubishi Metal Corp., 181 SCRA 214); and a claim for exemption from payment from tax must be clearly shown and should be based on the language in the law too plain to be mistaken (Government of the Philippines vs. Monte de Piedad, 35 Phil. 42). On the basis of the foregoing provisions of law and jurisprudence on the matter, local government units generally grant tax exemption privileges, subject however to the guidelines enumerated in Art. 282 of the IRR. Thus, in fine, we hold the considered view that, in order for the Rural Worker Organization to avail of any tax exemption privileges, the same must be expressly granted in an ordinance duly enacted and passed by the sanggunian of a local government unit. prcd Hoping that we have clarified you on the matter. Very truly yours, DIR. JACOB F. MONTESA Department Legal Counsel Department of Interior and Local Government