Interpretation of Various Tax Laws Relative to Tax Exemption of PAGCOR

DOJ OPINION NO. 053 , s. 2010 November 22, 2010 Mr. Cristino L. Naguiat, Jr. Chairman Philippine Amusement & Gaming Corporation 1330 Roxas Blvd.,Ermita, Manila Dear Chairman Naguiat : This has reference to your predecessor's request for this Department's legal opinion on the proper interpretation of the various tax laws affecting the Philippine Amusement and Gaming Corporation (PAGCOR),particularly relative to the tax exemption of PAGCOR. Specifically, you would like to seek our opinion on the following: TAacCE 1. Whether the Supreme Court ruling in the Acesite 1 case remains valid and relevant, notwithstanding the issuance of the Bureau of Internal Revenue (BIR) of Revenue Regulations (RR) No. 16-2005. Conversely, whether RR No. 16-2005 has effectively amended or abrogated the ruling of the Court in the Acesite case; and 2. Whether PAGCOR's exemption from the Value-Added Tax (VAT) including its licensees and contractees, as enunciated in the Acesite case remains valid and relevant. You state that the tax exemption of PAGCOR from its gaming income, except a Franchise Tax of five (5%) percent of the gross revenue or earnings derived by PAGCOR from its operation under its Franchise, is provided in Section 13 (2) of Presidential Decree (P.D.) No. 1869, as amended, otherwise known as the PAGCOR Charter. You also cite that in the Acesite case, the Supreme Court ruled and you quote, to wit: "(I)t is undisputed that P.D. 1869, the charter creating PAGCOR, grants the latter an exemption from the payment of taxes. . . . "A close scrutiny of the above provisos clearly gives PAGCOR a blanket exemption to taxes with no distinction on whether the taxes are direct or indirect. We are one with the CA ruling that PAGCOR is also exempt from indirect taxes, like VAT .... "Indeed, by extending the exemption to entities or individuals dealing with PAGCOR, the legislature clearly granted exemption also from indirect taxes. ..." You further state that the Bureau of Internal Revenue (BIR) issued an unnumbered BIR Opinion dated October 25, 2007 which quoted the above Court decision and further declared that: "...the above-cited ruling has clarified all doubts as to the tax exemption of PAGCOR from the VAT including its contractors." aSCHcA On the other hand, Section 14 (5) of PD No. 1869, as amended, provides that: "Section 14. Other conditions. (5) Operation of related services The Corporation is authorized to operate such necessary and related services, shows and entertainment. Any income that may be realized from these related services shall not be included as part of the income of the Corporation (PAGCOR) for the purpose of applying the franchise tax, but the same shall be considered as a separate income of the Corporation and shall be subject to income tax." By the above-quoted provision of Section 14 (5) of PD No. 1869, we take it that it is your position that PAGCOR's income from gaming operations is exempt from all kinds of tax, except for the 5% franchise tax, but that its income from operation of related services is subject to income tax. You also pointed out that in Section 27 (c) of R.A. No. 8424 or the National Internal Revenue Code of 1997, it provides for PAGCOR's exemption upon its taxable income with no distinction as to whether its from gaming operations or from operation of related services. However, in R.A. No. 9337, 2 the said Section 27 (c) of R.A. No. 8424 was amended by removing PAGCOR from the list of GOCC's specifically exempted from income tax and thus, you take it that PAGCOR's income from related services is now subject to tax. Consequently, you state that BIR issued Revenue Regulations (R.R.) No. 16-2005 to implement the provisions of R.A. No. 9337 and one of its provisions now subjects PAGCOR to Value-Added-Tax (VAT). You also state that it is now the BIR's position that PAGCOR's income from both gaming and related services is subject to income tax and the VAT. You mentioned that the Acesite case squarely settled the issue as to PAGCOR's exemption from the VAT. With the foregoing premises, you state that you now have a pending Petition for Certiorari with the Supreme Court specifically questioning PAGCOR's unceremonious omission or removal from the list of GOCC's exempted from income tax as provided in R.A. No. 9337 and BIR issuance (RR No. 16-2005) subjecting PAGCOR to VAT. It is your considered position that PAGCOR's income from gaming operations is not subject to income tax, VAT and any other tax, national or local, except for the 5% franchise tax and that Sec. 13 (2) of P.D. No. 1869, as amended, which provides for this tax exemption, remains undisturbed even with the passage of R.A. No. 9337. You state that the amendment introduced by R.A. No. 9337 to R.A. No. 8424 which effectively removed PAGCOR's exemption from income tax and RR No. 16-2005 are unconstitutional for being repugnant to the equal protection and non-impairment clauses of the Constitution. aCSDIc Hence, this query. At the outset, we regret that we have to decline rendition of a legal opinion on the subject matter of your request considering that the question of validity and the constitutionality of the BIR issuance (RR No. 16-2005) subjecting PAGCOR to VAT and the omission or removal of PAGCOR from the list of GOCCs exempted from income tax under R.A. No. 9337 is now pending before the Supreme Court. By settled policy and practice, the Secretary of Justice does not render opinion or give legal advice on matters which are sub-judice or pending litigation in court. 3 To rule on the query would be an unwarranted intrusion into the exercise of the judicial powers and functions pertaining to the Supreme Court or a separate and coordinate branch of government and could subject this Office to criticism for violation of the independence of the judiciary. 4 Secondly, on whether the Supreme Court ruling in the Acesite case exempting PAGCOR from VAT is still valid and relevant notwithstanding the BIR issuance of RR No. 16-2005, any ruling/position that this Department would render thereon would be tantamount to a review of the Supreme Court ruling/decision in the above-mentioned case. The Secretary of Justice has no revisory or appellate authority over the courts. 5 Moreover, by explicit provisions of law, the Office of the Government Corporate Counsel (OGCC) is "the principal law office of all the government-owned or controlled corporations" and "to enable it to discharge its functions as such, it shall be the duty of all said corporations to refer to it all important legal questions for opinion, advice and determination, all proposed contracts and all important court cases for his services. 6 Section 1 of Administrative Order No. 130, dated May 19, 1994 also provides, to wit: "Section 1. All legal matters pertaining to government-owned or controlled corporations, their subsidiaries, other corporate offsprings and government acquired asset corporations (hereinafter collectively referred to as "GOCCs"),shall be exclusively referred to and handled by the Office of the Government Corporate Counsel (hereinafter referred to as "OGCC"),unless their respective charters expressly name the Office of the Solicitor General (hereinafter referred to as "OSG") as their legal counsel. When authorized by the President, or by the head of the office concerned and approved by the President, the OSG shall also represent GOCCs." In consonance with the foregoing legal provisions, this Office cannot also act with propriety on your request. The Secretary of Justice, pursuant to settled policy and precedents, has refrained from passing upon matters over which another office or agency has primary jurisdiction. 7 Nonetheless, for your information and guidance only ,we would like to state the following comments and observations: In DOJ P.D. 242 Case No. 2004-1 (PAGCOR vs. BIR) , 8 this Department had occasion to resolve that: "There is nothing in RA No. 7716 (otherwise known as the Expanded Value Added Tax Law) that clearly shows the legislative intent to repeal or supersede, much less to modify, the pertinent provisions of the presidential edict upon which the petitioner's tax exemption privileges are made to rest. The repealing clause to the contrary, notwithstanding, there is no mention of P.D. No. 1869 as among those repealed by the Republic Act. Consequently, neither can this Office support respondent's view that P.D. No. 1869 has been validly and expressly repealed by R.A. No. 7716 such that petitioner has become liable for the claimed VAT." On the issue of the jurisdiction of this Department to resolve the matter, it is our observation that disputes, claims and controversies, falling under Section 7 of Republic Act (RA) No. 1125, 9 even though solely among government offices, agencies, and instrumentalities, including government-owned and controlled corporations, remain within the exclusive appellate jurisdiction of the Court of Tax Appeals. Such a construction resolves the alleged inconsistency or conflict between P.D. No. 242 10 and RA No. 1125, and the fact that PD No. 242 is the more recent law is no longer significant. Section 7 of Republic Act (RA) No. 1125, pertinently provides, to wit: "Section 7. Jurisdiction. The Court of Tax Appeals shall exercise: a.) Exclusive appellate jurisdiction to review by appeal, as herein provided: 1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue;" EADCHS However, we note that even the Court of Tax Appeals may no longer take jurisdiction of this matter since the same is already pending before the Supreme Court. Please be guided accordingly. Very truly yours, (SGD.) LEILA M. DE LIMA Secretary Footnotes 1. The Commissioner of Internal Revenue vs. Acesite (Philippines) Hotel Corporation ,G.R. No. 147295 dated February 16, 2007. 2. The long title reads: An Act Amending Sections 27-28, 34, 106-114, 116-117, 119, 121, 148, 151, 236, 237 and 288 of the National Internal Revenue Code (NIRC) of 1997 and for Other Purposes. 3. Secretary of Justice Opn. No. 9, s. 2005, citing other DOJ opinions. 4. Ibid. , citing Opn. No. 14, s. 1989. 5. Ibid. , Opn. No. 28, s. 2005, citing Op. Nos. 19, s. 1981 and 72, s. 1998. 6. Ibid. , Opn. No. 19, s. 2001 citing Sec. 1, R.A. No. 2327, as amended; Sec. 1, P.D. No. 1414; Sec. 10, Chap. 3, Title III, Book IV of Executive Order No. 292, otherwise known as the Administrative Code of 1987. 7. Secretary of Justice Opn. No. 66, s. 2007, citing other DOJ opinions. 8. DOJ Resolution dated March 12, 2007. 9. An Act Creating the Court of Tax Appeals. 10. The long title reads: "Prescribing the Procedure for Administrative Settlement or Adjudication of Disputes, Claims and Controversies Between or Among Government Offices, Agencies and Instrumentalities, Including Government-Owned or Controlled Corporations, and for Other Purposes."