Tax rule tweaks sought to boost LGUs’ revenues, capabilities

SENATOR Francis “Chiz” Escudero urged Malacan˜ang to lend its support to a proposed amendment to the situs rule on local business taxes in a bid to raise revenues for local government units (LGUs) and enhance financial capability to execute programs in their respective areas.

“We have a pending bill which seeks to amend the situs of taxation provision in the Local Government Code. Essentially, we want businesses to pay their local taxes in municipalities where the businesses operate, instead of where their main offices are located. LGUs, in effect, should have a bigger share in the revenue from these firms,” Mr. Escudero said in a convention organized by the League of Municipalities of the Philippines (LMP) Visayas Cluster in Iloilo last week.

Mr. Escudero was referring to Section 150 of the Local Government Code or Republic Act No. 7160 which states that “all sales made in a locality where there is a branch or sales office or warehouse should be recorded in said branch or sales office or warehouse and the local business tax due should be paid to the city or municipality where the same is located.”

In 2013, under the 16^th Congress, the senator refiled the proposal, or Senate Bill No. 120. He originally filed the bill in 2010 as SB No. 105.

“A hundred percent share of all sales or transactions to Local Government Units is proposed so long as such sales or transactions occur in the LGU concerned. This practically expunges the present thirty percent share of the LGU where the principal place of business is located,” Mr. Escudero said in the bill’s explanatory note.

Mr. Escudero’s bill also proposes the following sales allocation for manufacturers, assemblers, contractors, producers and exporters with factories, project offices, plants and plantations: 30% of all sales recorded in the principal office shall be taxable by the city or municipality where the principal office is located and 70% percent of all sales shall be taxable by the city or municipality where the factory, project office, plant or plantation is located.

According to Mr. Escudero, most business owners prefer to pay their taxes where their businesses are located to “foster a relationship with the LGU where they operate.” --Elizabeth E. Escaño

source:  Businessworld

Tuguegarao mayor, official dismissed for grave misconduct

Tuguegarao Mayor Jefferson Soriano and City Administrator Ronald Brillantes issued a special permit without the approval of the city council

MANILA, Philippines – The Ombudsman has ordered the dismissal of a city mayor and an official of Tuguegarao in Cagayan, for grave misconduct for issuing a special permit to a businesswoman and closing some streets for a city fiesta without prior approval of the city council.

Tuguegarao Mayor Jefferson Soriano, a member of the of the Nationalist People's Coalition (NPC), and City Administrator Ronald Brillantes were found guilty of grave misconduct, and were criminally charged with two counts of violating Section 3(e) of the Anti-Graft and Corrupt Practices Act.

In a press statement on Tuesday, September 9, the Office of the Ombudsman said that on July 11, 2013, Soriano gave a special permit to Vicky Medina to operate a baratilyo (bargain stalls in streets) for the city's fiesta celebrations from August to September 2013.

Soriano also ordered the closure of parts of Gomez, Del Rosario, and Gonzaga streets for the purpose.

However, Soriano sent to the city council a letter-request for authority to conduct the baratilyo and to close the streets only a week later, on July 18. Ombudsman Conchita Carpio-Morales said that this action "deliberately pre-empted, if not circumvented, the will of the local legislative body."

The respondents also "granted a privilege to a private party without the benefit of negotiations, and without taking into account the safety, operation, and financial conditions that theSangguniang Panlungsod (city council) was able to lay down through a City Resolution [issued] only on July 31, 2013."

"The mere fostering of an uneven playing field in the conferment of a public privilege is, in itself, injurious to public interest," stressed Carpio-Morales.

As for the closure of city roads, Carpio-Morales said that Soriano "has no plenary authority to unilaterally cause the closure of local roads." The act, even on a temporary basis, "must bear legislative, and not simply executive fiat," she added.

In addition to their dismissal and the criminal charges against them, Soriano and Brillantes face the accessory penalties of cancellation of civil service eligibility, forfeiture of retirement benefits, and perpetual disqualification from holding public office, the Ombudsman said. – Rappler.com

LGUs have no power to impose tax on petroleum merchants–SC

THE Supreme Court (SC) declared on Wednesday that local government units (LGUs) have no power to impose business taxes on persons and entities engaged in the manufacturing and distribution of petroleum products.

In a 14-page decision penned by Associate Justice Diosdado Peralta, the Court’s Third Division junked the petition filed by the Batangas City government seeking to collect the amount of P405 million as business taxes from Pilipinas Shell Petroleum, which operates an oil refinery and depot in Tabagao, Batangas City.

The Court upheld the January 22, 2009, and April 13, 2009, resolutions of the Court of Tax Appeals (CTA), which reversed and set aside the ruling issued by the Regional Trial Court (RTC) of Batangas City on October 29, 2004, that sustained the imposition of business taxes against Pilipinas Shell.

In seeking the reversal of the CTA decision, the Batangas City government argued that any activity that involves the production or manufacture and the distribution or selling of any kind or nature as a means of livelihood or with a view to profit can be taxed by LGUs.

The petitioner stressed that such authority emanates from Section 143 (h) of the Local Government Code (LGC), which states that   “The municipality may impose taxes on  any business…which the sanggunian concerned may deem proper to tax; provided that on any business subject to the excise, value-added or percentage tax under the National Internal Revenue Code (NIRC), as amended, the rate of tax shall not exceed 2 percent  of gross sales or receipts of the preceding calendar year.”

Furthermore, the petitioner said the CTA erred in ruling that the word “taxes” in Section 133 (h) of the LGC does not include business taxes.

In denying the petition of the Batangas City government, the Court pointed out that  although the power to tax is inherent in the State, the same cannot be said for LGUs.

It explained that LGUs’ mandate to impose taxes is not encompassing as it is subject to limitations as stated in Section 5, Article X of the 1987 Constitution.

The said constitutional provision states:  “Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees, and charges subject to such guidelines and limitations as Congress may provide, consistent with the basic policy of local autonomy.”

The SC added that under Section 133 (h) of the LGC, LGUs cannot impose excise taxes on articles enumerated under the NIRC and taxes, fees or charges on petroleum products.

The Court further explained that, while the LGU’s power to impose business taxes is derived from Section 143 of the LGC, the same is subject to the restrictions provided for under Section 133 (h).

“Thus, the omnibus grant of power to LGUs under Section 143 [h] of the LGC cannot overcome the specific exception or exemption in Section 133 [h] of the same Code,” the SC stressed.

“When there is in the same statute a particular enactment and also a general one, which in its most comprehensive sense would include what is embraced in the former, the particular enactment must be operative, and the general enactment must be taken to affect only such cases within its general language as are not within the provisions of the particular enactment,” the decision read.

Concurring with the ruling were Associate Justices Teresita Leonardo-de Castro, Martin Villarama, Jose Portugal Perez and Estela Perlas-Bernabe.

The case stemmed from the notice of assessment issued on February 20, 2001, by Batangas City through its City Legal Officer Teodulfo Deguito and City Treasurer Teresa Geron demanding  payment of P92.37 million and P312.65 million as business taxes for its manufacture and distribution of petroleum products.

In 2002 the respondent was only paying the amount of P98,964.71 for fees and other charges which include the amount of P1,180.34 as mayor’s permit.

Pilipinas Shell, however, filed a protest on April 17, 2002, contending among others that it is not liable for the payment of the local business tax either as a manufacturer or distributor of petroleum products.

It argued that the mayor’s permit fees are exorbitant, confiscatory, arbitrary, unreasonable and not commensurable with the cost of issuing a license.

On May 13, 2002, petitioners denied respondent’s protest and declared that under Section 14 of the Batangas City Tax Code of 2002, they are empowered to withhold the issuance of the mayor’s permit for failure of respondent to pay the business taxes on its manufacture and distribution of petroleum products.

On June 17, 2002, respondent filed a petition for review pursuant to Section 195 of the LGC of 1991 before the Regional Trial Court (RTC) of Batangas City.

In its petition, respondent maintained that petitioners have no authority to impose the said taxes and fees, and argued that the levy of local business taxes on the business of manufacturing and distributing gasoline and other petroleum products is contrary to law and against national policy.

On October 29, 2004, the Batangas Regional Trial court rendered a decision which upheld the imposition of business taxes by Batangas City upon the manufacture and distribution of petroleum products by respondent.

Then Pilipinas Shell elevated the case before the CTA which ruled in its favor, prompting the Batangas City government to bring the matter before the SC.

source:  Business Mirror

Aquino creates Negros Island Region

Executive Order 183, signed May 29, effectively carves Negros Occidental from Western Visayas, and Negros Oriental from Central Visayas

AS PROMISED. President Benigno Aquino III signs on May 29, 2015, the executive order creating the Negros Island Region, almost exactly a month after he promised Negrenses during this Bacolod City visit that he would do so. Photo by Marchel P. Espina/Rappler

MANILA, Philippines – As promised to leaders and residents of the two Negros provinces in the Visayas, President Aquino on May 29 signed the executive order that pulls them out of their respective regions and puts them together as the Negros Island Region (NIR).

Effective immediately, Executive Order 183 will carve Negros Occidental from Western Visayas (Region VI), and Negros Oriental from Central Visayas (Region VII).

The proposed region has a population of 4,194,525, as of 2010.

An idea 20 years in the making, the creation of a unified Negros region was initially opposed by Negros Oriental Governor Roel Degamo, but unanimously supported by officials in Negros Occidental, according to Interior and Local Government Secretary Manuel Roxas II.

His department endorsed the unified region to Malacañanganyway. President Aquino on April 30 said he would sign the EO anytime all issues were settled by local officials and national agencies.

EO 183 says creating a region for the two adjacent provinces is needed “to further accelerate the social and economic development of the cities and municipalities comprising the provinces of Negros Occidental and Negros Oriental and improve the delivery of public services in the aforementioned provinces.”

Negros Occidental and Negros Oriental are both 1st class provinces. Their respective capitals, however, have different income classifications: Bacolod is a 1st class city, while Dumaguete is a 3rd class city.

Local officials have cited the disparity in funding that their provinces get compared to their other provinces in their current regions.

Transition work

A technical working group (TWG) has been created, composed of the Office of the President, the budget department, the National Economic Development Authority, the Department of the Interior and Local Government, and representatives of the two provinces.

Aside from drawing up a roadmap for “institutional arrangements” for the new region, the TWG will recommend the regional center. It will also arrange for organizational development, staffing, and budgeting of regional line agencies and regulatory agencies.

While the TWG is still working on development plans and investment programs for the NIR, the following agencies will serve as interim secretariats:

• NEDA for the Negros Island Development Council
• DILG for the Negros Island Peace and Order Council
• Office of Civil Defense for the Negros Island Disaster Risk Response Management Council

The funding for technical working group will be sourced from the implementing agencies and the two Negros provinces, the EO says.

Here are fast facts on the Negros Island Region. –Rappler.com

IPPs under BOT contracts need to pay real-property tax

The Court of Tax Appeals (CTA) has ruled that independent power producers (IPPs) under the build-operate-transfer (BOT) contract with the National Power Corp. (Napocor) are not exempt from real-property taxes, and are not entitled to the special assessment level of 10 percent imposed on real properties used by government-owned and -controlled corporations (GOCCs) in generating electric power.

In the case of Luzon Hydro Corp. (LHC) and NPC v. Provincial Assessor of Ilocos Sur, the CTA dismissed the appeal of the petitioners, in which they questioned the real-property tax assessment on real properties and machineries in the province used by LHC in generating electricity.

LHC and Napocor argued that the Napocor was the “owner and actual, direct and exclusive user of the subject properties,” and that the Napocor, being a GOCC engaged in the generation and distribution of power, was exempt from real-property tax as provided for by Section 234 of the Local Government Code.

But the CTA, however, ruled that real-property tax is imposed on the beneficial user of the real property, and that Napocor must prove that it is the actual and beneficial user of such properties to exempt such properties from real-property tax.

In this case, the CTA said that the Napocor was “not the actual, direct and exclusive user of the subject machineries and equipment,” although it might be the exclusive buyer and user of all the power generated by the power plant.

The CTA also dismissed the argument of LHC and Napocor that the BOT law allows the GOCCs to shield IPPs from real-estate taxes imposed by local government units (LGUs). Instead, the implementing rules of the BOT law allows LGUs to “waive or grant special rates on real-property taxes” on the BOT project as a direct subsidy for such project.

“To the Court’s mind, the above-cited provisions in the revised implementing rules and regulations of the BOT law, as amended, recognize, rather than impair the power of LGUs under the Local Government Code to impose real-property taxes, and to grant reliefs therefrom,” the CTA said.

The CTA said that IPPs are not entitled to the 10-percent special assessment levels on real properties used by GOCCs in the generation or transmission of electric power, and should be subjected instead to the regular assessment levels. The assessment level is the percentage of the fair market value of a real-property on which the real property tax rate shall be imposed to arrive at the actual tax due.

David Cagahastian

source:  Business Mirror

The economics of the BBL

WHEN we talk about the Autonomous Region in Muslim Mindanao (ARMM), the discussion about the past, present, and the future seems circular. The peace and order problem is because of the economic problems which are caused in part by the peace and order problem.

Because you can have peace and order without the ‘money’, but you can rarely have the money without peace and order, perhaps the best place to break the circular chain is by looking closely at the economic provisions contained in the Bangsamoro basic law (BBL). Granted that the BBL is only a framework, the terms and conditions embodied in the BBL are what the parties have initially agreed to and will form the basis of the actual law moving forward.

The newly established Bangsamoro Territory (BT) from the present geographical area of the ARMM has been considered a first step to the federalization of the other Philippine provinces. Others have said that the BT will function as an independent state. The truth probably lies somewhere in between. However, the current specific provisions of the BBL clearly show that the BBL is fully a part of the Philippines and under the national government and in other cases is, for all intent and purposes, completely independent from the Philippines.

In Section 3, “Exclusive Powers” of the BBL, we find the following: “Exclusive powers are matters over which authority and jurisdiction shall pertain to the Bangsamoro Government. The Bangsamoro government shall exercise these powers over the following matters within the Bangsamoro.” Sub-section 5 reads “Labor, employment, and occupation.”

Wages are obviously a part of “Labor, employment, and occupation.” Would workers in the BT be subject to the minimum wage laws passed by the national government? In the US federal system, the national government sets the minimum wage and state government can set a higher wage but not lower. In this regard, the BT might as well be an independent country.

Subsection 4 under these Exclusive Powers reads, “Trade, industry, investment, enterprises and regulation of businesses taking into consideration relevant laws.” Now we have a grey area. What exactly is going to be the definition of “consideration”? The legal definition deals with contract law-something given in return for payment. Otherwise, consider means only to take into account when making a decision. Therefore, there is not a legal reason why the BT government needs to follow Philippine national law in this regard.

The BT could conceivably pass investment laws which would give it a greater advantage in attracting investment than other provinces have under current national law. This includes foreign investment.

Section 13 allows the BT government full and complete control and jurisdiction over the exploration, development, and utilization of mines and minerals in its territory. There is not any provision in the BBL that requires the BT government to adhere existing PHL government environmental regulations regarding mining. “The Bangsamoro Government shall have the authority to protect and manage the environment.” Further, “Permits and licenses and the granting of contracts for this purpose shall be within the powers of the Bangsamoro Government.”

Yet in Section 10: “The Bangsamoro Government and the Central Government shall jointly exercise the power to grant rights, privileges and concessions over the exploration, development and utilization of fossil fuels (petroleum, natural gas, and coal) and uranium in the Bangsamoro.” That sounds like Federalism.

Also under its “Exclusive Powers” (Section 15), “The Bangsamoro Government shall have authority to regulate power generation, transmission, and distribution operating exclusively in the Bangsamoro and not connected to the national transmission grid.” The BT may have cheap nuclear generated power before the rest of the country.

However, “The Bangsamoro shall be able to interconnect and sell power over the national transmission grid to electric consumers.” With interconnection, “the Central Government and the Bangsamoro Government shall cooperate and coordinate” whatever that might mean.

The most important economic provision comes in Section 6: Revenue Sources. “The Bangsamoro Government shall have the power to create its own sources of revenues and to levy taxes, fees, and charges. Such taxes, fees, and charges shall accrue exclusively to the Bangsamoro Government.”

That may ultimately be what the BBL is all about. For better or worse and notwithstanding other considerations like the constitutionality, if the BBL is enacted into law as currently written, the future of the Bangsamoro people will be solely in the hands of its own government.

Lost in the dust of history is the name of the person who once said, “Be careful what you ask for; you may get it.

****

E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter
@mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.

source:  Business Mirror

Government waives penalties, cuts taxes on facilities of IPPs

MANILA, Philippines - With the country facing imminent power crisis, the government has reduced the real property taxes and waived the penalties imposed on the facilities  of independent power producers (IPPs) under build-operate-transfer contracts with government-owned or controlled corporations.

The Bureau of Internal Revenue issued memorandum circular 6-2015 stating President Aquino’s directive that all liabilities for real property tax on property, machinery and equipment of IPPs are reduced to an amount equivalent to the tax due if computed based on an assessment level of 15 percent of the fair market value of the property, machinery and equipment depreciated at the rate of two percent per annum.

The same order states that all fines, penalties and interest on such deficiency real property tax liabilities are also condoned and the concerned IPPs are relieved from payment thereof.

The directive was issued after various LGUs threatened to seize the assets of delinquent IPPs and sell them at a public auction to settle their tax obligations.

According to the BIR, various LGUs have taken the position that IPPs operating within their territories which are not GOCCs are not entitled to the exemptions/privileges of GOCCs with respect to real property taxes on their property, machinery and equipment used in the generation and distribution of electric power.

“The payment of said real property taxes affected by the IPPs , some of which obligation have been contractually assumed by the GOCCs and carries the full faith of the national government, threatens the financial stability of the GOCCs, the government’s fiscal consolidation efforts and the stability of energy prices,” Henares said.

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Henares said the forcible collection of real property taxes would  trigger massive direct liabilities on the part of the National Power Corp./Power Sector Assets and Liabilities Management Corp.

She noted this may increase the cost of electricity and trigger further cross-defaults and significant economic losses across all sectors.

source:  Philippine Star