DOJ Opinion No. 080, s. 1996

DOJ OPINION NO. 080 , s. 1996 August 8, 1996 The Administrator Maritime Industry Authority PPL Building, U.N. Avenue Metro Manila Sir : This had reference to your request for opinion concerning Republic Act No. 7471 ("Philippine Overseas Shipping Development Act") which was approved on May 5, 1992. LLjur You state that on November 17, 1992, the Maritime Industry Authority, in consultation with the Monetary Authority and the Department of Finance, issued the implementing rules and regulations (IRR) of the subject law in conformity with Section 10 thereof; that under Section 3(a) of the law the term "Philippine overseas shipping" is defined as the "transport of goods and/or passengers by a ship owned and operated under the Philippine flag by a Philippine shipping enterprise, except when the ship is operated solely between ports in the Philippines"; and that under Revenue Regulations No. 15-93 which was issued on September 1, 1993 to provide guidelines for availment of the tax incentives granted under R.A. No. 7471, the same term is, however, defined as the "transport of goods and/or passengers by a Philippine-registered vessel beneficially/disponently owned and operated by a Philippine shipping enterprise, except when the ship is operated solely between ports in the Philippines". You also state that with respect to income tax exemption, Section 4.05(d) of the IRR provides that: "The income derived from Philippine Overseas Shipping entitled to exemption from the payment of income tax hereunder, is limited to income from the transport of goods and/or passengers overseas. It does not include income not directly related to transport of goods and passengers overseas". On the other hand, Section 6(b) of Revenue Regulation No. 15-93 states that "the income derived from income tax hereunder is limited to income from the transport of goods/or passengers overseas. It does not include income not directly related to transport of goods and passengers overseas, such as, but not limited to, interest income, gain from sale of vessels or charter, fee/lease income". It is your observation that the abovecited provisions limit and restrict the essence and definition of Philippine overseas shipping since in the Philippine context, a Filipino shipowner has several options by which to generate business for his vessels, viz: "1. Operate his vessel and book its cargo wherein, in liner terms, he shoulders all the operating costs such as fuel, port charges and stevedoring for the loading and unloading of cargo; 2. Operate on a time charter agreement where he charters out the vessel but remains in control of ship's operations. The charterer determines the cargo which is to be transported and shoulders the cost of fuel as well as cargo expenses. 3. Operate on a voyage charter basis where he remains in full control of the ship's operations and may agree to liner terms or may opt to have the charterer to pay for only the stevedoring." and R.A. No. 7471 limits income tax exemption only to operations under the first option contrary to your opinion that whether a vessel is directly operated or chartered in/out on bareboat/time/voyage charter basis, the vessel will invariably be used for transport of goods and/or passengers which is then in keeping with the spirit and intent of the law. Hence, you want to be clarified on what you perceive to be a "seeming contradiction in the provision of law and rules." Based on the premises, we cannot with propriety render the desired opinion for the following reasons: 1. The issue involves a review of Revenue Regulations issued by the Secretary of Finance pursuant to the authority granted him under Section 245 of the National Internal Revenue Code (NIRC). By established precedents, this Department has consistently abided by the rule that it cannot render opinion on matters which fall within the primary jurisdiction of another office, unless the head of such office or agency requests this Department for opinion on matters in connection with a question of law arising in the performance of the assigned functions of said office or agency (Sec. of Jus. Opn. No. 5, s. 1983 citing other opinions). 2. Moreover, Section 10 of R.A. No. 7471 provides that the "MARINA, in consultation with the monetary authority and the Department of Finance, shall jointly formulate and promulgate the rules and regulations necessary for the implementation of this Act taking into consideration the policies and programs of the Government for the development of the Philippine overseas shipping". Thus, if, in your opinion, the implementing rules and revenue guidelines of R.A. No. 7471 does not conform to the existing Philippine overseas shipping business practices, you may pursuant to the aforementioned Section 10 consult with the Bangko Sentral ng Pilipinas and the Department of Finance. Again, as a matter of policy and official courtesy, this Department cannot pre-empt the rulings/actuations of the officials of a coordinate department or instrumentality over whom it has no revisory authority, and who, by reason of their expertise on the subject matter and familiarity with the policy repercussions of the question might be in a better position to resolve the problem. Therefore, it is suggested that the matter be threshed out with the officials concerned. Very truly yours, (SGD.) TEOFISTO T. GUINGONA, JR. Secretary