Whether the Philippine Associated Smelting and Refining Company is Exempted from Payment of Wharfage Dues for Its Imported Products

DOJ OPINION NO. 053, s. 2016 August 11, 2016 Acting General Manager JAY DANIEL R. SANTIAGO Philippine Ports Authority Bonifacio Drive, South Harbor Port Area, Manila Dear Acting General Manager Santiago : We write in reference to your letter requesting information on the status of the request of Philippine Associated Smelting and Refining Company (PASAR),for the review or reversal of Opinion No. 139, dated 7 August 2003 of the Office of the Government Corporate Counsel (OGCC),and in its letters dated 12 November 2009 and 29 June 2011, which ruled that PASAR is not exempted from payment of wharfage dues for its imported products. Please be advised that we have declined to rule on the question raised by PASAR considering that the Department, pursuant to law and established, renders opinion and gives legal advice only for and upon request of national government functionaries, such as heads of departments and chiefs of bureaus and offices of equivalent rank, and then only on specific legal questions/issues arising in the performance of their respective powers and functions. Accordingly, he has, in practice, consistently declined to render opinion or give legal advice to other government officials and to private individuals and entities. 1 Also, the issues raised involve the substantive rights of private party, i.e. ,PASAR. Since the opinion of the Secretary of Justice is merely advisory in nature, such opinion would not be binding upon private parties who may be adversely affected thereby and who may, in all probability, take issue therewith and contest the same before the courts. 2 However, taking cognizance of your request to rule on the matter considering that, as you stated, there are other registered enterprises similarly situated with PASAR, which are also claiming the same exemption, please find below our observation on the issue raised, for the guidance of all concerned. It may be recalled that in 1996, the Philippine Ports Authority (PPA) started assessing PASAR for wharfage dues on all its importation and exportations after its 10-year incentive with the Board of Investments (BOI) has expired; that upon PASAR's representation that it is exempted in view of its being a Philippine Economic Zone Authority (PEZA) registered enterprise, your Office stopped assessing wharfage dues on its exportation; that it, however, continued to assess PASAR on its raw materials and coal importations for wharfage dues; and that PASAR disputed said assessment. It may be recalled also that the position of PEZA on the issue raised is that PASAR, as a PEZA registered enterprise, is exempted from wharfage dues both on its exportation and importation. Your Office, on the other hand, and pursuant to the GOCC Opinion No. 139, s. 2003 reiterates that PASAR is not exempted from payment of wharfage dues on its importations. For clarity, we have quoted herein the letter of GOCC to PEZA dated 29 June 2011 reiterating its Opinion No. 139, s. 2003, which resolved the issue raised by PASAR, thus: CAIHTE "After a review of the respective positions of both PPA and PEZA, this Office stands by Opinion 139, Series of 2003, and its clarification letter dated 12 November 2009. In our 12 November 2009 letter, we merely clarified what components shall form part of export products that are exempt from wharfage dues based on the provisions of RA 7916, its IRR and Book VI of Executive Order 226 or the Omnibus Investments Code of 1987. As to the matter of whether wharfage dues can be treated as taxes, we already stated in our Opinion 139, Series of 2003, that we concur with the position of the PPA Legal Department that taxes, duties, wharfage fees or dues are separate and different concepts based on the decision in the case of Procter & Gamble Philippines Manufacturing v. Commissioner of Customs . 3 It must also be emphasized that it is within PPA's mandate to impose wharfage dues and other fees in order for it to exercise its mandate and jurisdiction over all ports all over the country as well as to implement its policies. x x x." xxx xxx xxx. For a clearer understanding on the apparent conflict between the positions of PEZA and PPA relating to the exemption of taxes of PEZA registered companies, it would be relevant to revisit the incentives granted to PEZA registered company and the authority of PPA to collect wharfage dues. Republic Act No. 7916 (Special Economic Zone Act of 1995) provides for the fiscal incentives for companies operating within the economic zones, Section 23 states that: " Section 23. Fiscal Incentives. Business establishments operating within the ECOZONES shall be entitled to the fiscal incentives as provided for under Presidential Decree No. 66, the law creating the Export Processing Zone Authority, or those provided under Book VI of Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987." xxx xxx xxx. The relevant provisions of Presidential Decree No. 66 (1972), 4 as mentioned above, read as: " Section 17. Tax Treatment of Merchandise in the Zone. (1) Except as otherwise provided in this Decree, foreign and domestic merchandise, raw materials, supplies, articles, equipment, machineries, spare parts and wares of every description, except those prohibited by law, brought into the Zone to be sold, stored, broken up, repacked, assembled, installed, sorted, cleaned, graded, or otherwise processed, manipulated, manufactured, mixed with foreign or domestic merchandise or used whether directly or indirectly in such activity, shall not be subject to Customs and internal revenue laws and regulations nor to local tax ordinances, the provisions of law to the contrary notwithstanding. xxx xxx xxx. Section 18. Additional Incentives. A zone registered enterprise shall also enjoy the following incentives benefits: (c) Exemption from Export Tax. The provisions of law to the contrary notwithstanding, foreign merchandise transshipped through the zone or any article which has been processed, manufactured or manipulated in said zone and exported therefrom, shall be exempt from any export tax, imposts or fee, including the stabilization tax imposed by Republic Act Numbered Sixty-one hundred twenty-five." xxx xxx xxx. Under Executive Order No. 226 (The Omnibus Investment Code of 1987), the relevant provisions read as: " Article 39. Incentives to Registered Enterprises. All registered enterprises shall be granted the following incentives to the extent engaged in a preferred area of investment: (mm) Exemption from Wharfage Dues and any Export Tax, Duty, Impost and Fee. The provisions of law to the contrary notwithstanding, exports by a registered enterprise of its non-traditional export products shall be exempted from any wharfage dues, and any export tax, duty, impost and fee. xxx xxx xxx. Article 77. Tax Treatment of Merchandise in the Zone. (1) Except as otherwise provided in this Code, foreign and domestic merchandise, raw materials, supplies, articles, equipment, machineries, spare parts and wares of every description, except those prohibited by law, brought into the zone to be sold, stored, broken up, repacked, assembled, installed, sorted, cleaned, graded, or otherwise processed, manipulated, manufactured, mixed with foreign or domestic merchandise whether directly or indirectly related in such activity, shall not be subject to customs and internal revenue laws and regulations nor to local tax ordinances, the provisions of law to the contrary notwithstanding. xxx xxx xxx. Article 78. Additional Incentives. A zone registered enterprise shall also enjoy all the incentive benefits provided in Article 39 hereof under the same terms and conditions stated therein. x x x." DETACa xxx xxx xxx. A reading of the provisions relating to the incentives granted to registered enterprises, particularly the above-quoted provisions, would show that they are exempted from payment of taxes on certain transactions, such as exemptions from customs and internal revenue laws and regulations, and local tax ordinances for foreign and domestic merchandise brought into the Zone and from payment of wharfage dues and any export tax, duty, impost and fee on their exportations. As noted, there is no express provision relating to the exemption from wharfage dues on imported products as compared to exemption granted to export products. The closest that P.D. No. 66 and E.O. No. 226 have stated are the phrase "brought into the zone." However, tax exemptions are not presumed and when granted, are strictly construed against the grantees. 5 Time and again, our Supreme Court has stated that taxation is the rule and exemption is the exception. The law does not look with favor on tax exemptions and the entity that would seek to be thus privileged must justify it by words too plain to be mistaken and too categorical to be misinterpreted. 6 Thus, it is our considered view that, if the intent of the law is to exempt the importations by registered enterprise, it could have expressly state so like that of Section 39 of E.O. No. 226, which expressly exempts exports by the registered enterprise from wharfage dues and any export tax, duty, impost and fee. In addition thereto, this Department had the occasion to discuss the issue on the exemption of registered enterprises from wharfage dues on their exportations only. In Opinion No. 162 (1973),reiterated in Opinion No. 144 (1974),and further clarified in Opinion No. 281 (1982),provide the following, thus: Opinion No. 162 (November 20, 1973)/Opinion No. 144 (September 12, 1974) "Firstly, the law expressly says that exports by a registered producer of its registered export product shall be exempt from the "export tax, impost or fee," a clause which, as I see it, was intentionally made so broad in scope to cover any levy whether in the nature of a tax, an impost or a fee on any registered export product exported by its registered producer. So, for the purpose of the application of this exemption, it matters not whether the charge, such as that imposed in section 2802 of the Tariff and Customs Code, is a tax, an impost, or a fee. What matters and it is this which is the subject of exemption is that a registered producer exports its registered export product. Furthermore, the wharfage dues in question are "assessed against the cargo" (in the present case, the product being exported) of a vessel engaged in foreign trade ( Procter and Gamble, P.M.C. vs. Commissioner of Customs ,19 SCRA 883 [1967]),"collectible upon goods exported from or imported into the Philippines regardless of whether government or private wharves or neither are utilized" (Opinion, Secretary of Justice, No. 194, s. 1963, citing Sugar Centrals Agency vs. Insular Collector ,51 Phil. 134 [1927]).It necessarily follows that such wharfage due may be considered an "export tax, impost, or fee" within the contemplation of section 7(o) of R.A. No. 6135, supra ." xxx xxx xxx. Opinion No. 281 (December 14, 1982) "The foregoing observations notwithstanding, we find strong merit in your contention that EPZA-bound cargoes may still be exempted from the payment of wharfage dues in view of Section 18(c) of P.D. No. 66, which states: (c) Exemption from Export Tax. The provisions of law to the contrary notwithstanding, foreign merchandise transshipped through the zone of any article which has been processed, manufactured or manipulated in said zone and exported therefrom, shall be exempt from any export tax, impost or fees, including the stabilization tax impost by Republic Act Numbered Sixty one hundred thirty five. In Opinion No. 162, s. 1973, this Ministry ruled that wharfage dues may be considered an "export tax, impost or fee" within the contemplation of Section 7(e) of Republic Act No. 6135, which is identically worded as Section 18(c), supra .The ruling was predicated on the finding that the exemption is so broad in scope as to cover any levy, and that since the wharfage dues in question are assessed against the cargo regardless of whether or not government or private wharves are utilized, wharfage dues may be considered an export tax, impost or fee within the contemplation of the tax exemption. (Citing Op.,Sec. of Justice, No. 194, s. 1963; Procter and Gamble, PMC v. Commissioner of Customs , 19 SCRA 883 n (1967]). Since there is no difference in the language of the tax exemption provision, and the basis for the assessment of the wharfage dues in question is the same provision of the Tariff and Customs Code, our ruling in Op. No. 162, s. 1973 to the effect that the wharfage dues fall within the purview of the exemption from "any export tax, impost or fee" is squarely in point." aDSIHc xxx xxx xxx. As explained in the above-stated opinions, wharfage dues whether categorized as a national tax or an impost or fee cannot be collected on export products as the term wharfage dues "may be considered an export tax, impost or fee," within the contemplation of law. Stated otherwise, wharfage dues may be collected on import products but not on export products. To further resolve the herein issue it may be useful to revisit the authority of, and the nature of wharfage dues being collected by the PPA. The PPA's authority to collect wharfage dues can be found in the P.D. No. 505 (1974), 7 which was later amended by P.D. No. 857 (1975). 8 The PPA is primarily entrusted with the function of carrying out an integrated program for the planning, development, financing and operation of ports and port districts throughout the country. Section 6 (b) (ix) of P.D. No. 857 authorizes PPA to collect dues, rates or charges for the use of its premises or facilities, thus: " Section 6. Corporate Powers and Duties. (b) The corporate powers of the Authority shall be as follows: ix. To levy dues, rates, or charges for the use of the premises, works, appliances, facilities, or for services provided by or belonging to the Authority, or any other organization concerned with port operations." xxx xxx xxx. P.D. No. 857 was further amended by Executive Order No. 513 (1978), 9 transferring to the PPA the powers, duties and jurisdictions of the Bureau of Customs (BOC) concerning the collection of fees, dues and charges on vessels and cargoes. Section 8 of E.O. No. 513 provides that: " Sec. 8. Section 39 of the decree is hereby amended to read as follows: "Sec. 39. Bureau of Customs. The Tariff and Customs Code is hereby modified or amended to the extent that all the powers, duties and jurisdictions of the Bureau of Customs concerning the following matters shall be transferred to and be vested in the Authority [PPA]: a) All dues, fees and rates collectible on vessels and cargoes under Title VII but excluding Part VII of the Code, as amended by P.D. 34, regardless of the port or place of call of the vessel, whether on government or private port." xxx xxx xxx. For clarity, the fees, dues and charges on vessels and cargoes referred to by Title VII of the Tariff and Custom Code, the collection of which were transferred to PPA, are harbor fees, wharfage dues, berthing charge, storage charge arrastre charge and tonnage dues. Anent the collection of wharfage due, Part 2 of Title VII of the Tariff and Customs Code provides that: " Sec. 2801. Definition. Wharfage due is the amount assessed against the cargo of a vessel engaged in the foreign trade, based on the quantity, weight or measure received and/or discharged by such vessel. The owner, consignee, or agent of either, of the article is the person liable for such charge. Sec. 2802. Schedule of Dues. There shall be levied, collected and paid on all articles imported or brought into the Philippines, and on products of the Philippines except coal, lumber, creosoted and other pressure treated materials as well as other minor forest products, cement, guano, natural rock asphalt, the minerals and ores of base metals ( e.g. ,copper, lead, zinc, iron, chromite, manganese, magnesite and steel),and sugar molasses, exported from the Philippines, a charge of two pesos per gross metric ton as a fee for wharfage: Provided, That in the case of logs, or flitches twelve inches square or equivalent cross-sectional area, or over, a charge of sixty centavos per cubic meter shall be collected." xxx xxx xxx. With the transfer of collection of port charges from the Bureau of Customs (BOC) to the PPA, it is our considered view that such charges are not taxes in a strict sense but charges for the use of port facilities or services. We are of the view that the fiscal incentives under R.A. No. 7916, P.D. No. 66 and E.O. No. 226 generally refer to tax provisions granted to registered enterprises or preferred investment. As noted, BOC, like the Bureau of Internal Revenue, which are both under the Department of Finance, performs a critical role in government revenue collection. On the other hand, the PPA, which is attached to the Department of Transportation and Communication, is primarily entrusted with the financing, management, and operations of public ports throughout the Philippines. The PPA has the duty, among others, to supervise, control, regulate, construct, maintain, operate, and provide facilities or services which are necessary in the ports vested in, or belonging to it, and levy dues, rates, or charges for services provided by it. ETHIDa In view of the foregoing, and in the absence of provisions of law expressly exempting products imported by a PEZA registered enterprise from payment of wharfage dues, we see no reason to disturb the ruling of the GOCC. Moreover, the issue raised herein is practically the same as those raised in the Opinion sought to be reviewed or reversed which had already been duly considered and clarified by the GOCC, and clarified as well by the above-mentioned DOJ Opinions. Please be guided accordingly. Very truly yours, (SGD.) VITALIANO N. AGUIRRE II Secretary Footnotes 1. Secretary of Justice Op. No. 038, s. 2015; Nos. 28 & 4, s. 2012; and Nos. 57, 38 & 15, s. 2011. 2. Secretary of Justice Op. No. 003, s. 2012; and Nos. 55, 51 & 50, s. 2010. 3. Citing therein Philippine Iron Mines, Inc. v. The Commissioner of Customs and Court of Tax Appeals ,G.R. L-23359, 31 October 1969. 4. Creating the Export Processing Zone Authority and Revising Republic Act No. 5490 (An Act Making Mariveles, Province of Bataan, a Port of Entry by Amending Section Seven Hundred One of the Tariff and Customs Code of the Philippines, as Amended, Providing for the Establishment, Operation and Maintenance of a Foreign Trade Zone Therein; Creating a Foreign Trade Zone Authority; and Authorizing the Appropriation of the Necessary Funds Therefor). 5. Floro Cement vs. Gorospe (200 SCRA 480);and Luzon Stevedoring Co. vs. Court of Tax Appeals ,G.R. No. 30232, 29 July 1988. 6. Camp John Hay Development Corporation vs. Central Board of Assessment Appeals ,G.R. No. 169234, October 2, 2013; and National Power Corporation vs. Local Board of Assessment Appeals of Batangas , G.R. No. 170628, February 16, 2007. 7. Philippine Port Authority Decree of 1974. 8. Revised Charter of the Philippine Ports Authority. 9. Reorganizing the Philippine Ports Authority. n Note from the Publisher: Written as "803" in the official document.