DOJ Opinion No. 141, s. 1988

DOJ OPINION NO. 141 , s. 1988 July 12, 1988 The Acting Executive Director The Secretariat Economic Support Fund Council Strata 100 Building, Emerald Ave. Pasig, Metro Manila Sir : This refers to your request for legal opinion as to extent of the "tax exemption of the Economic Support Fund (ESF), the economic portion of the Military Bases Agreement proceeds", in the light of Executive Order No. 273 (Adopting a Value-Added Tax, amending For This Purpose Certain Provisions Of The National Internal Revenue Code, And For Other Purposes) dated July 24, 1987. The tax exemption submitted for consideration is found in Section B. 4., Article B of Annex II (Project Grant Standard Provisions Annex For Economic Support Fund Projects) of the pertinent Project Grant Agreement between the Philippine Government and the U.S. Agency for international Development, which reads; "Section B. 4. Taxation . (a) This Agreement and that Grant will be free from any taxation or fees imposed under the laws in effect in the territory of the Grantee. (b) To the extent that (1) any contractor, including any consulting firm, any personnel of such contractor financed under the Grant, and any property of transaction relating to such contracts; and (2) any commodity procurement transaction financed under the Grant are not exempt from identifiable taxes, tariffs, duties or other levies imposed under laws in effect in the territory of the Grantee, the Grantee, will, be and to the extent provided in and pursuant to Project Implementation Letters, pay or reimburse the same with funds other that those provided under the Grant." In particular, you pose the following queries: "1. Are transactions entered into by the ESF Secretariat for the implementation of infrastructure projects totally funded out of ESF proceeds such as civil works construction contracts and professional and technical services contracts exempt from the VAT, in view of Sec. 103(u) of the National Internal Revenue Code, as amended by E.O. No. 273 which expressly exempts "transactions which are exempt under special laws or international agreements to which the Philippines is a signatory". If in the affirmative, could the exemption be claimed by ESFS contractors and consultants? prcd "2. Are professional and technical consultants of the Secretariat paid out of ESF proceeds subject only to zero (0%) per cent tax rate in conformity with Sec. 102(3) of the said Tax Code?" With regret, I am constrained to decline rendition of opinion of the instant request since the resolution of the issues involved therein would inevitable require an interpretation and/or examination of provisions on the value-added tax (VAT) incorporated in the National Internal Revenue Code. Under Section 27 of E.O. No. 273, it is the Secretary of Finance who is mandated to promulgate the rules and regulations, upon recommendation of the Commissioner of Internal Revenue, to effectively implement the VAT law, and therefore, the task of interpreting the same appropriately pertains to the office of the said officials. By established precedents, the Secretary of Justice has consistently refrained from expressing his views on matters that fall within the primary jurisdiction of another office (Sec. of Justice Ops. No. 39, s. 1986; No. 1, s. 1983; No. 123, s. 1980; No. 194, s. 1976). This rule has evolved not only from practical considerations but also out of respect and deference for the competence and expertise of the office having primary jurisdiction to resolve the matter and for its familiarity with the policy repercussions of the resolution of the question as well as from a logical recognition of the lawful exercise of an authority conferred by law (Id., No. 1, s. 1983). LLphil Moreover, it is noted that the Bureau of Internal Revenue has already issued some rules and regulations implementing the VAT law (Revenue Memorandum Order No. 21-87, No. 38-87; Bureau of Internal Revenue Primer on Value-Added Tax). The Secretary of Justice also refrains from rendering opinion on queries where to do so would mean passing upon the administrative issues of the office or agency tasked with the enforcement of the law involved, such as the Bureau of Internal Revenue in the instant case, over which this Department has no revisory authority (Id., No. 208, s. 1961; NO. 56, s. 1973; No. 45, s. 1973 ; No. 9, s. 1987). Finally, it appears that the opinion that I may issue on the present matter would have direct bearing upon the resolution of the "numerous claims incorporating the VAT amount" now pending with you Office. Also, pursuant to well-settled precedents, this Department refrains from rendering opinion, being merely advisory in character, has no binding effect upon private parties, who may contest the same in court if it turns out to be adverse to their interests (Id., No. 34, s. 1982; No. s. 46, s. 1985; Nos. 43 and 125, s. 1979; No. 73, s. 1983 and No. 36, s. 1984). It is thus suggested that the present matter be addressed at the first instance to the Department of Finance and/or the Bureau of Internal Revenue. The foregoing notwithstanding, I would like to add, by way of comment, that the abovequoted provisions of the Grant Agreement exempts from taxes and fees imposed by Philippine law only the financial grant itself and the document evidencing the same. Very truly yours, (SGD.) SEDFREY A. ORDOEZ Secretary of Justice