DOJ Opinion No. 063, s. 1993

DOJ OPINION NO. 063 , s. 1993 May 13, 1993 Mr. Benjamin S. Lim General Manager Duty Free Philippines Fiesta Shopping Center Ninoy Aquino Avenue Paraaque, Metro Manila Sir : This has reference to your request for opinion on "whether or not the business operations of Duty Free Philippines is subject to any tax, fees or charges of any kind or nature which local government units may impose." You state that Duty Free Philippines ("DFP") is a governmental agency or instrumentality which manages and operates a tax and duty-free merchandising system in the country pursuant to E.O. No. 46; that since its inception, it functions as a division of the Philippine Tourism Authority ("PTA"), the governing board of which is likewise that of the DFP; that as a result of the enactment of the Local Government Code of 1991 (the "Code"), mayors and treasurers of cities and municipalities where tax-and duty-fee stores and outlets operate required DFP to pay certain fees and charges, e.g., business tax on gross sales, municipal license fees and other permit charges on the operation and management of such stores and outlets; and that foremost among the restrictions upon the local government's taxing powers is Section 23 of the Code which reads: prcd "SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless other wise provided herein, the exercise of taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: xxx xxx xxx (o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local government units." It is believed that the business operations of DFP is not subject to any form of local government taxation. cdlex DFP was established by the PTA pursuant to its exclusive authority to operate tax-and duty-free stores and shops under E.O. No. 46, dated September 4, 1986, Section 1 of which in part reads: "SECTION 1. The Ministry of Tourism, through the Philippine Tourism Authority (PTA) is hereby authorized to establish a duty and tax free merchandising system in the Philippines to augment the service facilities for tourists and to generate foreign exchange and revenue for the government. Under the system, the Philippine Tourism Authority shall have the exclusive authority to operate stores and shops that would sell among others, tax and duty free merchandise, goods and articles in international airports and sea ports throughout the country in accordance with the rules and regulations issued by the Ministry of Tourism ..." PTA was, in turn, created under P.D. No. 189 to implement the policies and programs of the Department of Tourism relative to the development of the country's tourism industry (Secs. 9 and 10[a]). This decree expressly declares the functions of the PTA to be "governmental" in character ( Id. ) In addition, P.D. No. 564, which modified P.D. No. 189, revised the PTA charter and transformed it into a body corporate (Sec. 2), but confirmed its role as implementing arm of the Department of Tourism as regards the development, promotion and supervision of tourism (Sec. 4[a]). There is no doubt, therefore, that the PTA is an instrumentality of the Philippine Government. The term "instrumentality" is defined as "any agency of National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying autonomy, usually through a charter." (Sec. 2[10],Introductory Provisions, Adm. Code of 1987).And because the operation of the DFP is merely one of the public functions of the PTA, any tax or charge imposed on its business operations is actually a tax upon PTA. But since the PTA is an instrumentality of the National Government, it does not fall within the scope of local government taxing powers, as provided in the abovequoted provision of the Code, and therefore its business operations cannot be subject to the payment of local taxes. It is relevant to observe that under P.D. No. 564, as amended by P.D. 1400, the PTA enjoys certain incentives in the form of tax exemption privileges, the pertinent provision of which reads: "Section 11-A. Authority's Exemption from Taxes . In furtherance and effective implementation of the policy enumerated in Section 1 of the Decree, the Authority is hereby declared exempts: (a) From the payment of all taxes, duties, fees, charges, costs and service fees in any court or administrative proceedings in which it may be a party, to the Republic of the Philippines, its provinces, cities, municipalities and other government agencies and instrumentalities; (b) From all income taxes, franchise taxes, realty taxes and all other kinds of taxes and licenses imposed by the National Government, or its political subdivisions, instrumentalities or agencies; and (c) From all tariff and customs duties, advance sales tax on importation of capital equipment required for its operations." True, Section 193 of the Code withdraws the tax exemption privileges presently enjoyed by any person, whether natural or juridical, including government-owned controlled corporations, save in those cases specifically enumerated therein. It bears emphasis, however, that said section is qualified by the phrase "Unless otherwise provided in this Code".This qualifying phrase should be interpreted as referring to Section 133 of the Code, which exempts, among others, national government instrumentalities from the taxing powers of local government units. cdll Your query is resolved accordingly. Very truly yours, (SGD.) FRANKLIN M. DRILON Secretary