DOJ Opinion No. 070, s. 1997

DOJ OPINION NO. 070 , s. 1997 October 3, 1997 Brig. Gen. Benito P. Diamos General Manager Mactan-Cebu International Airport Authority Mactan International Airport Lapu-Lapu City Sir : This has reference to your request for opinion as to whether or not the refusal of Philippine Airlines (PAL) to pay the 10% Expanded Value-Added Tax (E-VAT) imposed by the Mactan Cebu International Airport Authority (MCIAA) is valid. The request, it appears, was precipitated by PAL's letter dated April 25, 1997 informing the MCIAA, that it cannot pay the 10% E-VAT on the ground that under its franchise (P.D. No 1590), PAL is exempted from all taxes of any kind, nature, or description, except income tax or franchise tax, whichever is lower, and real property tax. You state that PAL, being a concessionaire or lessee of MCIAA, was imposed the 10% E-VAT, which took effect on January 1, 1996, and added the amount of tax to its monthly rentals for the year 1996. You also state that the said imposition was a consequence of a shift of tax burden based on a provision under Section 99 of the National Internal Revenue Code (NIRC)which states: "SEC. 99. Persons liable . Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be liable to the value-added tax (VAT) imposed in Section 100 to 102 of this Code. The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. This rule shall likewise apply to existing contracts of sale or lease of goods, properties or services at the time of the effectivity of this Act." (Emphasis supplied.) The issue as to whether or not PAL is exempt from the payment of the E-VAT has already been settled by no less than the Supreme Court in the case of Tolentino vs. Secretary of Finance (235 SCRA 630). The Supreme Court in said case ruled that in view of the amendment introduced by R.A. No. 7716 to Section 103 of the National Internal Revenue Code, PAL is no longer exempt from the VAT .Hereunder quoted is the pertinent portion of the aforesaid decision for your guidance: " Fifth .An additional attack on the formal validity of Republic Act No. 7716 is made by the Philippine Airlines, Inc. petitioner in G R. No 11582, namely, that it violates Art VI, & 26(1) which provides that "Every bill passed by Congress shall embrace only one subject which shall be expressed in the title thereof." It is contended that neither H. No. 11197 nor S. No. 1630 provided for removal of exemption of PAL transactions from the payment of the VAT and that this was made only in the Conference Committee bill which became Republic Act No. 7716 without reflecting this fact in its title. The title of Republic Act No. 7716 is: AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM, WIDENING ITS TAX BASE AND ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES AMENDING AND REPEALING THE RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER PURPOSES. Among the provisions of the NIRC amended is 103, which originally read: 103. Exempt transactions . The following shall be exempt from the value-added tax: xxx xxx xxx (q) Transactions which are exempt under special laws or international agreements to which the Philippines is a signatory. Among the transactions exempted from the VAT were those of PAL because it was exempted under its franchise (P.D. No. 1590) from the payment of all 'other taxes . . . now or in the near future,' in consideration of the payment by it either of the corporate income tax or a franchise tax of 2%. As a result of its amendment by Republic Act No. 7716, 103 of the NIRC now provides: 103. Exempt transactions . The following shall be exempt from the value-added tax: xxx xxx xxx (q) Transactions which are exempt under special laws, except those granted under Presidential Decree Nos . 66, 529, 972, 1491, 1590 .... The effect of the amendment is to remove the exemption granted to PAL, as far as the VAT is concerned, The question is whether this amendment of 103 of the NIRC is fairly embraced in the title of Republic Act No. 7716, although no mention is made therein of P.D. No 1590 as among those which the statute amends. We think it is, since the title states that the purpose of the statute is to expand the VAT system, and one way of doing this is to widen its base by withdrawing some of the exemptions granted before. To insist that P D No. 1590 be mentioned in the title of the law, in addition to 103 of the NIRC, in which it is specifically referred to, would be to insist that the title of a bill should be a complete index of its content . . ." (Emphasis supplied.) Please be guided accordingly. Very truly yours, (SGD.) TEOFISTO T. GUINGONA, JR. Secretary