DOJ Opinion No. 053, s. 1998

DOJ OPINION NO. 053 , s. 1998 May 6, 1998 Messrs. Dionisio C. de la Serna Chairman, Housing and Urban Development Coordinating Council & Wilfredo F. Hernandez President Home Insurance and Guaranty Corporation No. 349 Gil J. Puyat Avenue Makati City Sir : This has reference to your request for a confirmatory opinion that "Building and Loan Associations (BLAs), including their franchises, capital, reserves, surplus, and their loans, receipt and incomes are exempt from all taxation imposed by (the) Government when such associations are insured by the Home Insurance and Guaranty Corporation (HIGC)." The request, it appears, is raised in view of the assertion made by the HIGC's Legal Department, citing Section 16 (f) of Republic Act No. 580, also known as the "Home Financing Act", as amended, that BLAs insured with the HIGC still enjoy tax-exemption privileges notwithstanding Executive Order No. 93 which expressly withdrew the tax exemption privileges of government corporations and private entities. The subject provision of R.A. No. 580, as amended, reads, to wit: "SEC. 16. . . . (f) When insured by the Corporation, such associations, including their franchises, capital, reserves, surplus and their loans, receipts, and incomes, shall be exempt from all taxation now or hereafter imposed by the Government." You state that said assertion is based on this Department's Opinions No. 46, s. 1989 and No. 154, s. 1988, pertinent portion of which you quote as follows: "From the foregoing, it would appear that these tax exemption privileges withdrawn by E.O. No. 93 were direct grants to and/or enjoyed by direct operation of the corresponding statutes to the government corporation or private entity. On the other hand, as previously stated, the tax exemption feature of HIGC bonds is enjoyed by the beneficiaries thereof (not by HIGC) through the exercise by HIGC of a power granted by its Charter the execution of a contract of mortgage insurance. . ." Section 1 of E.O. No. 93, insofar as pertinent, provides: "SEC. 1. The provisions of any general or special law to the contrary notwithstanding, all tax and duty incentives granted to government and private entities are hereby withdrawn except: (a) those covered by the non-impairment clause of the constitution; xxx xxx xxx." Indubitably while E.O. No. 93 withdraws all tax and duty incentives granted to government and private entities, it also provides for exceptions where such privileges may continue to be claimed, such as those cases covered by the non-impairment clause of the Constitution. The Supreme Court had occasion to explain the purpose and meaning of the said constitutional clause, to wit: ". . . The purpose of said clause is to safeguard the integrity of contracts against unwarranted interference by the State. As a rule, contract should not be tampered with by subsequent laws that would change or modify the rights and obligations of the parties. . . . Impairment is anything that diminishes the efficacy of the contract. There is an impairment if a subsequent law changes the terms of a contract between the parties, imposes new conditions, dispenses with those argued upon or withdraws remedies for the enforcement of the rights of the parties (Clemons v. Noeting, 42 Phil. 702 [1992])." (Siska Dev't. Corp. vs. Office of the President of the Phils., 231 SCRA 674, 680). Moreover, it has been said that in order to impair, the law must necessarily be retroactive in application, for if it is prospective in operation, no impairment can result (Ogden vs. Saunders, 12 Wheat. 213). From the foregoing, it appears clear that BLAs, which were insured with the HIGC prior to the issuance of E.O. No. 93 remain exempt from all taxation imposed by the government. Anent those BLAs insured after the issuance of E.O. No. 93, a close perusal of the earlier quoted provision of Section 16 of the HIGC Charter tends to show that said BLAs are also exempt from taxation. Apart from the fact the E.O. No. 93 contains no provision expressly amending/repealing the subject provision of the HIGC Charter, it is evident that the tax exemption privileges granted therein are intended for the benefits of the BLAs not the HIGC through the exercise by HIGC of a power granted by its Charter the power to execute an insurance contract. Once the BLA is insured with the HIGC, it becomes tax-exempt. Otherwise stated, neither the BLAs nor the HIGC was itself granted the tax exemption privileges; rather, by express provision of law, the BLAs become beneficiaries of the exemption upon the execution by the HIGC of the insurance contract. As stated in our Opinion No. 154, s. 1988, "those tax exemption privileges withdrawn by E.O. No. 93 were direct grants to and/or enjoyed by direct operation of the corresponding statutes to the government corporations or entities" which is not true in the case of HIGC. In the same vein, E.O. No. 93 could not have been intended to cover BLAs which were insured after its issuance. Very truly yours, (SGD.) SILVESTRE H. BELLO III Secretary