Reiteration of Some Policies of Case Rates

January 20, 2000 BIR RULING NO. 018-00 R.A. 6395; FIRB Nos. 10-85 & 1-86 000-00 018-2000 National Power Corporation Cor. Quezon Avenue & Agham Road Diliman, Quezon City Attention: Mr . Federico E . Puno President Gentlemen : This refers to your letter dated July 29, 1999 addressed to the Honorable Secretary of Finance Edgardo B. Espiritu requesting for a confirmatory ruling to the effect that the National Power Corporation (NPC) remains exempt from tax even with the passage of the Tax Reform Act of 1997. It is represented that the issue being posed is the subject of your various communications to this Office which remain unanswered; that the same is being sought in the light of two (2) seemingly irreconcilable positions in the Code, i.e., Sections 27(C) and 32(B)(7) thereof; and that to support your position that NPC indeed remains exempt from tax even with the passage of the Tax Reform Act of 1997, you altogether attached a letter from the principal author of the law and former Chairman of the House Committee on Ways and Means, Hon. Exequiel B. Javier stating that " it was never the intention of the Congress when it passed the Tax Reform Act of 1997 to change the rule on income tax exemption for government-wned and controlled corporations ." cdlex In reply, please be informed that Section 27 (C) of the National Internal Revenue Code, as amended by RA 8424, effective January 1, 1998 provides: "(C) Government-owned or Controlled Corporations, Agencies or Instrumentalities . The provisions of existing special or general laws to the country notwithstanding, all corporations, agencies, or instrumentalities owned or controlled by the Government, except the Government Service Insurance System (GSIS);the Social Security System (SSS),the Philippine Health Insurance Corporation (PHIC),the Philippine Charity Sweepstakes Office (PCSO) and the Philippine Amusement and Gaming Corporation (PAGCOR),shall pay such rate of tax upon their taxable income as are imposed by this Section upon corporations or associations engaged in a similar business, industry, or activity." The repealing clause under Section 7 (B) of RA 8424, in part, further provides: "(B) The provisions of the National Internal Revenue Code, as amended, and all other laws, including charters of government-owned or controlled corporations, decrees, orders or regulations or parts thereof, that are inconsistent with this Act are hereby repealed or amended accordingly." In view of the foregoing, the exemption from income tax of the NPC under Section 13 of its Charter, i.e., RA 6395, as amended, has been further amended by RA 8424, effective January 1, 1998. Hence, in general, the NPC is now subject to corporate income tax under Section 27 of the National Internal Revenue Code of 1997. However, be that as it may, Section 32 (B)(7)(b) of the National Internal Revenue Code, as amended by RA 8424, further provides that the following shall be excluded in computing for the taxable income for income tax purposes: "(B) Exclusions from Gross Income . The following items shall not be included in gross income and shall be exempt from taxation under this Title: xxx xxx xxx "(b) Income derived by the Government or its Political Subdivisions . Income derived from any public utility or from the exercise of any essential governmental function accruing to the Government of the Philippines or to any political subdivision thereof. xxx xxx xxx" The NPC is a wholly owned and controlled government corporation. As such, it is embraced by the word "government" under Section 32 (B)(7)(b) of the said Code: "...the term 'National Government' refers only to the Central Government consisting of the legislative, executive and judicial departments of the government, as distinguished from local governments and other government entities and is not synonymous, therefore, with the terms 'the Government of the Republic of the Philippines' or 'Philippine Government' which are the expression broad enough to include not only the central government but also the provincial and municipal governments, chartered cities and other government-controlled corporations or agencies, like the Central Bank." (CENTRAL BANK OF THE PHILIPPINES vs. COURT OF APPEALS AND ABLAZA CONSTRUCTION & FINANCE CORPORATION, G.R. NO. L-33022, April 22, 1975) cdll In view thereof, pursuant to Section 32 (B)(7)(b) of the Code ( supra ),the income of the NPC from its operations as a public utility shall be exempt from corporate income tax. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered without force and effect. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue