Tax Exemption Privileges of Japanese Contractors Implementing Japanese-Assisted Projects

January 12, 1994 DILG MEMORANDUM CIRCULAR NO. 007-94 TO : All Provincial Governors, City Mayors, Municipal Mayors, Regional Directors and Others Concerned SUBJECT : Tax Exemption Privileges of Japanese Contractors Implementing Japanese-Assisted Projects Under the Educational Development Projects Implementing Task Force (EDPITAF) of the Department of Education, Culture and Sports (DECS) The EDPITAF of the DECS is currently implementing Japanese-assisted projects for a period of six (6) years, namely: (1) Typhoon-Resistant Schoolbuilding Program (TRSB); and (2) Educational Facilities Improvement Project I (EFIP-I). The project goal is to remedy the chronic lack of primary and secondary school facilities in the country. Both projects are supervised by Japanese consulting firms doing business in the Philippines as required by the Japanese Grant Aid Programs. In this regard, EDPITAF called the attention of the Department with respect to the unnecessary construction delay due to imposition of local taxes against its Japanese contractors. Prosecution of one (1) project under TRSB-Phase IV was even stopped by a local government unit for non-payment of local taxes by the foreign contractors. It is, therefore, of paramount importance to remind the local government units concerned that the Notes Exchange between the Government of the Republic of the Philippines (GRP) and the Government of Japan concerning Japanese economic cooperation for the execution of the Project for Constructing Primary and Secondary Schoolbuildings explicitly provide the following pertinent commitment on the part of the GRP: Under paragraph 6.(1)(d): "(d) to exempt Japanese nationals from customs duties, internal taxes and other fiscal levies which may be imposed in the Republic of the Philippines with respect to the supply of the products and services under the Verified Contracts;" (emphasis supplied) The term Japanese nationals as defined in the Notes Exchange means Japanese physical persons or Japanese juridical persons controlled by Japanese physical persons. It bears emphasis to state that in line with the principle of international commitment enshrined in the Philippine Constitution, the Notes Exchange of two (2) sovereign countries represented by their respective Governments should be respected by both parties and their instrumentalities. In view thereof, all local government units affected in the implementation of the above-mentioned EDPITAF Projects are hereby enjoined to exempt the Japanese contractors, whether natural or juridical, from assessing and collecting local taxes, levies and charges on the supply of the products and services under the verified contracts for the implementation of Japanese-assisted EDPITAF projects. All Regional Directors concerned are hereby directed to monitor compliance of local government units to the intent of this issuance. dctai Please be guided accordingly. RAFAEL M. ALUNAN III Secretary Department of Interior and Local Government