Request for Deputation of AFP and PNP for Special Barangay and SK Elections in Negros Occidental and Lanao Del Sur

September 1, 2000 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 1st Indorsement Respectfully referred, thru the City Treasurer, to the City Assessor, Mandaluyong City, the herein letter dated July 22, 1999 of Atty. Crisostomo A. Uribe, Legal Counsel, Semirara Coal Corporation (SCC), in effect requesting confirmation that SCC continues to enjoy exemption from the payment of real property taxes notwithstanding Section 234 and other pertinent provisions of the Local Government Code of 1991 (R.A. No. 7160). Representations are made that SCC has ceded, transferred, and conveyed in favor of the National Bookstore, Inc. (NBS) by way of sale of its properties located in Quad Ayala Centrum Building, Mandaluyong City, identified as units IV-B, IV-C, part of IV-D, and Unit VII covered by Condominium Certificates of Title (CCT) Nos. 3822, 3823, 1885 and 3022, respectively, all registered in the name of SCC. However, because of the alleged arrears in real property taxes as assessed by the City Assessor's Office thereat, a clearance from the City Treasurer's Office on the subject properties could not be issued and consequently the said sale cannot be registered with the Registry of Deeds. The City Assessor allegedly anchors its claim that SCC is liable to pay real property taxes on its properties in view of the provisions of Sections 234 and 534 of the Local Government Code of 1991, which provide as follows: "SEC. 234. Exemptions from Real Property Tax . The following are exempted from payment of the real property tax: "xxx xxx xxx. "Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by, all persons, whether natural or juridical, including all government-owned or -controlled corporations are hereby withdrawn upon the effectivity of this Code. "SEC. 534. Repealing Clause . "xxx xxx xxx. "(e) The following provisions are hereby repealed or amended insofar as they are inconsistent with the provisions of this Code; . . . ; and Section 16 of Presidential Decree No. 972 (the Coal Development Act of 1976), as amended, and "xxx xxx xxx" However, it is SCC's contention that its exemption has not in any way been withdrawn by the passage of the Local Government Code of 1991, notwithstanding the abovecited Sections 234 and 534 thereof, based on the following: 1. SCC's right to be exempt from payment of all taxes except income tax is guaranteed by the Constitutional provision on non-impairment of contracts; 2. The repealing clause of R.A. No. 7160 (Section 534) did not categorically abrogate the tax exemption of SCC. Records show that under a Coal Operating Contract, executed on July 11, 1977, the Government, as represented by the Energy Development Board (EDB), entered into a Coal Operating Contract with Vulcan Industrial and Mineral Exploration Corporation (Vulcan) and Sulu Sea Oil Development Corporation (Sulu), collectively referred to in the Contract as the Coal Operator. On April 7, 1980 by virtue of a Deed of Assignment, the rights and obligations of Vulcan and Sulu were assigned and transferred to Semirara Coal Corporation. The Contract stipulates, among others, for the operator to perform all coal operations and provide all necessary services, technology and financing in the Island of Semirara, Municipality of Caluya, Province of Antique. It is worthwhile to note hereon that the subject Coal Operating Contract was executed pursuant to P.D. No. 972, also known as the "Coal Development Act", which took into consideration the declared policy of the State to accelerate the exploration, development, exploitation, production and utilization of the Country's coal resources. Section 4 thereof, in part, provides: "Sec. 4. Government to Undertake Coal Exploration Development and Production . The Government, through the Bureau of Energy, the successor or assigns, shall undertake by itself the active exploration, development and production of coal resources. It may also execute coal operating contracts as hereafter defined. . . . ." Further, Section 16 of the said Decree (P.D. No. 972) reads: "Sec. 16. Incentives to Operators . The provisions of any law to the contrary notwithstanding, a Contract executed under this Decree may provide that the Operator shall have the following incentives: "(a) Exemption from all taxes except income tax : (Emphasis supplied) xxx xxx xxx." This exemption provision was entirely stipulated in the abovementioned Coal Operating Contract executed on July 11, 1977 by the Government on the one hand and the SCC's predecessors-in-interest, Vulcan and Sulu, on the other hand. This Department in resolving a number of related cases involving the withdrawal of exemptions of Government-owned and controlled corporations (GOCC's), has consistently cited Sections 234 and 534 of the Local Government Code of 1991 (R.A. No. 7160). However, this Department takes particular attention to queries or requests for opinions/rulings concerning the abovecited withdrawal of exemption provisions of the Local Government Code of 1991, specifically in cases where such exemptions previously enjoyed were based of contracts entered into by the government. SCC submits that there is authority to support the view that where the exemption is based on contract, such an exemption is irrevocable. "An exemption granted from motives of state policy merely, and where the state and the citizen do not meet on a basis of bargain and consideration, the same is revocable or subject to repeal or modification; as such an exemption is merely expressive of the present will of the state. However, it becomes irrevocable, where an exemption constitutes a contract, in which case the repeal or modification thereof would impair the obligation of a contract ." (2 Cooley on Taxation, 4th Ed., Emphasis supplied) We find the claim of SCC meritorious. Section 10 of the 1987 Constitution provides as follows: "Sec. 10. No law impairing the Obligation of Contracts shall be passed." Admittedly and although the Local Government Code of 1991, specifically paragraph (e) of Section 534 thereof, expressly repealed Section 16 of P.D. No. 972, as amended, such repeal could not rescind the tax-exemption privilege already stipulated in the Coal Operating Contract in favor of SCC, which contract was executed prior to R.A. No. 7160. Relatedly, and although, Sections 234 and 534 of the Local Government Code of 1991 made a sweeping withdrawal of really tax exemption privileges, the Code nevertheless recognizes also the Constitutional mandate on the non-impairment of contracts. Section 5(d) of the Code provides: "Section 5. Rules of Interpretation . In the interpretation of the provisions of this Code the following rules shall apply: "xxx xxx xxx. "(d) Rights and obligations existing on the date of effectivity of this Code and arising out of contracts or any other source of prestation involving a local government unit shall be governed by the original terms and conditions of said contracts or the law in force at the time such rights were vested." (Emphasis ours) Finally, it is important to mention hereon Opinion No. 209, (copy enclosed) November 9, 1992 of the Office of the Government Corporate Counsel (OGCC), Department of Justice, the resolving portion thereof reads as follow: "xxx xxx xxx. "Be that as it may, under the present facts; it is not material that Section 534, paragraph e of R.A. No. 7160 rendered Section 16 of P.D. No. 972, as amended, nugatory. Following the general rule on the prospective operation of laws, the repeal of the tax-exemption provision should operate prospectively. Hence, applying the same to the instant case, said repeal does not negate nor abrogate the tax-exemption in the coal operating contract in favour of SCC which contract was executed prior to R.A. 7160. "xxx xxx xxx. "The foregoing premises considered, it is opined that Semirara Coal Corporation is not liable to pay real estate taxes . . . as its right to be exempt from payment of all taxes except income tax as embodied in the contract executed July 11, 1977, is for a valuable consideration and is guaranteed by the constitutional provision, on non-impairment of obligation of contracts ." (Emphasis supplied) In conclusion, considering the pertinent provisions of the Constitution and the Local Government Code of 1991, and considering further the opinions rendered by the OGCC on the matter, this Department believes and so holds that Semirara Coal Corporation (SCC), continues to enjoy exemption from the payment of real property taxes notwithstanding the last paragraph of Section 234 and paragraph (e) of Section 534 of the Local Government Code of 1991 (R.A. No. 7160). TCaADS Accordingly, the arrears in real property taxes as assessed by that municipality is unfounded and, therefore, the request before the Office of the City Treasurer for the issuance of realty tax clearance should be acted upon favorably. Be guided accordingly. (SGD.) JOSE T. PARDO Secretary