Publishing Executive Order No. 72 Dated November 25, 1986

December 1, 1986 REVENUE MEMORANDUM CIRCULAR NO. 49-86 SUBJECT : Publishing Executive Order No. 72 Dated November 25, 1986 TO : All Internal Revenue Officers and Others Concerned For the information and guidance of all concerned, there is published hereunder the full text of Executive Order No. 72: "MALACAANG Manila EXECUTIVE ORDER NO. 72. FURTHER AMENDING SECTION 227 OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER PURPOSES. WHEREAS, there is a need to rationalize the taxes and exemptions on franchises by prescribing a new rate structure on franchise operators and withdrawing income tax exemptions; NOW, THEREFORE, I, CORAZON C. AQUINO, President of the Philippines, do hereby order: Sec. 1. Section 227 of the National Internal Revenue Code, as amended, is hereby further amended to read as follows: cd "Sec. 227. Tax on franchises . Any provision of general or special law to the contrary notwithstanding, there shall be levied, assessed and collected in respect to all franchises, upon the gross receipts from the business covered by the law granting the franchise, a tax in accordance with the schedule prescribed hereunder: (a) On electric utilities, city gas and water supplies Two (2%) per cent (b) On telephone and/or telegraph systems, and radio broadcasting stations Three (3%) per cent (c) On other franchises Five (5%) per cent The grantee shall file the return with, and pay the tax due thereon to, the Commissioner of Internal Revenue or his duly authorized representative in accordance with the provisions of Section 162 of this Code, and the return shall be subject to audit by the Bureau of Internal Revenue, any provision of any existing law to the contrary notwithstanding." Sec. 2. Any provision of general or special law to the contrary notwithstanding, all grantees of franchises shall be subject to income tax levied under Title II of the National Internal Revenue Code, as amended. Sec. 3. Section 1 of Republic Act No. 2889, Section 1 of Presidential Decree No. 551, as amended, Section 15(1) of Presidential Decree No. 1445, the pertinent provisions of the charters of franchise grantees, and all other laws, orders, issuances, rules and regulations or parts thereof, inconsistent with this Executive Order are hereby repealed or modified accordingly. aisa dc Sec. 4. This Executive Order shall take effect immediately. Done in the City of Manila, this 25th day of November in the year of Our Lord, nineteen hundred and eighty-six. (SGD.) CORAZON C. AQUINO President of the Philippines By the President: (SGD.) JOKER P. ARROYO Executive Secretary" Salient Features 1. All franchise holders, upon the gross receipts from the business covered by the law granting the franchise, shall be subject to franchise tax as follows: (a) On electric utilities, city gas and water supplies Two (2%) per cent (b) On telephone and/or telegraph systems, and radio broadcasting stations Three (3%) per cent (c) On other franchises five (5%) per cent The foregoing schedular rates revoke the uniform rate of franchise tax of 5% prescribed by Section 227 of the Tax Code as well as the rates of franchise tax prescribed in the individual franchises but maintains the 2% franchise tax payable by electric utilities and city gas. 2. As provided in Section 227 of the Tax Code, as amended by Executive Order No. 72, the Commissioner of Internal Revenue shall continue receiving the quarterly franchise tax returns to be filed by the franchise grantees as well as the franchise tax due thereon within twenty (20) days after the end of each taxable quarter, as provided in Section 162. Moreover, the Commissioner of Internal Revenue shall continue the audit and examination of said returns, any provision of the individual franchises to the contrary notwithstanding. 3. Upon the effectivity of Executive Order No. 72, all franchise holders are subject to income tax levied under Title II of the Tax Code, notwithstanding the particular provisions in the franchise granting exemption from income tax. 4. Executive Order No. 72, also revokes (1) Republic Act No. 2889 which heretofore exempts radio broadcasting and television stations from the payment of franchise and privilege taxes; (2) Section 1 of P.D. No. 551, as amended by P.D. No. 648, which is Section 227(b) of the Tax Code, prescribing the franchise tax on electric franchise holders before its amendment by Executive Order No. 72; (3) Section 15(1) of P.D. No. 1445 authorizing the Commission on Audit to conduct the audit of financial operations of public utilities and franchises. Considering the above provisions of Section 227 of the Tax Code, as amended by Executive Order No. 72, prescribing that the franchise tax returns of franchise holders shall be subject to audit by the Bureau of Internal Revenue, the authority of the Commission on Audit under Section 38 of P.D. No. 1445 to "examine and audit the books, records and accounts of public utilities in connection with the fixing of rates of every nature, or in relation to the proceedings of the proper regulatory agencies, for purposes determining franchise taxes," is repealed . Such repeal was already effective on January 1, 1986 when Section 227 of the Tax Code was amended by P.D. 1994 providing that the audit shall be conducted by the BIR. 5. Under paragraph (b) of the above-quoted provisions of Section 227 of the Tax Code, as amended by Executive Order No. 72, radio broadcasting stations are subject to the franchise tax at the rate of 3%. Television stations not being included in paragraph (b) are, therefore, subject to the franchise tax at the rate of 5% under paragraph (c). 6. Aside from income and franchise taxes, all franchise grantees are already subject to the annual fixed tax of P2,000.00 in accordance with Section 161 (3) (gg) of the Tax Code, as amended. Effectivity . Executive Order No. 72 which was promulgated on November 25, 1986, provides in Section 4 thereof that "this Executive Order shall take effect immediately." Hence, the effective date of Executive Order No. 72 is November 25, 1986. However, this Office is mindful of the fact that the provisions of the said Executive Order were not known to the taxpayers concerned until its publication in full in newspapers of general circulation. Said publication took place on December 1, 1986. Accordingly, and in fairness to all concerned, this Office is not enforcing strictly the provisions of the Executive Order based on its effectivity date. In other words, the provisions of the Executive Order shall be enforced strictly beginning December 1, 1986 . All concerned are hereby enjoined to give this Circular as wide a publicity as possible. (SGD.) BIENVENIDO A. TAN, JR. Commissioner of Internal Revenue