City SP mulls repeal of 2 tax ordinances

By VEN C. ARIGO

The SangguniangPanlungsod (SP) may finally repeal two city ordinances that provide tax reliefsto the business sector, a city councilor has revealed.

The city councilors “agreed in principle” during their session on Thursdayto scrap the real property and business tax exemption measures, according to city councilor Augustinus“Dodong” Gonzaga.

Gonzaga said the Commission on Audit (COA) has been urging the city government to correct mistakes, adding that “we may be overtaken by an event we never desire,” Gonzaga said, referring to possible Ombudsman charges against any responsible officials.

“Anyway, there is much time to refine policies if Tagbilaran City has to be truly competitive without sacrificing the public accountability of the present city hall dispensation,”the city councilor said in an interview.

Gonzaga even cited city hall’s effort finalizing its Incentive and Investment Code pursuant to the thrust of Mayor John Geesnell Yap II and Vice Mayor Jose Antonio Veloso to encourage the entry and spread of more investors.

MEASURES TO SCRAP

The tax relief measures for repeal are City Ordinance No. IIC-002 (CO IIC-002), Series of 2002, and City Ordinance No. IIC-003 (CO IIC-003) which was passed in 2012.

The first, CO II-0002, grantsa five-year business and real property tax exemption to any investment costing at least P100 million within the periphery of the uptown commercial complex in Dampas-Dao area.

The second, CO IIC-003, provides for an additional five-year tax exemption to investments that have already enjoyed the same under the early ordinance.

Further, the second ordinance grants a 10-year real property tax full exemption to any investor constructing a new building or extending/expanding an existing one for commercial, entertainment or tourism related purposes with a cost of at least P100 million.

Moreover, the same measure provides a 10-year business tax full exemption for the operation of the same.

Ordinance IIC-003 intends to sustain the growth and development of the city uptown commercial complex in Dampas-Dao area.

The measure grants the additional five-year full tax exemption because the same tax relief provided for under Ordinance IIC-002 had long expired.

But CO IIC-003 has at the same time condoned the real property taxes due from the businesses and real properties after the expiration of the five-year exemption period granted by virtue of the CO IIC-002.

In other words, these tax dues had not been collected by or paid to the city government since 2008 until the passage of the CO IIC-003 in 2012.

The tax exemption based on the first ordinance took effect in 2003 until 2007 for a five-year period.

Stopping the exceeding exemption can be done by enacting another ordinance to “stop and correct the effectivity” of CO IIC-003, according to the COA.

According to their explanatory notes, the two ordinances drew their legal bases from Article 282 of the Rules and Regulations Implementing (IRR) the Local Government Code of 1991 and Section 192 of the same Code.

Section 192 states that local government units (LGUs) may, through ordinances duly approved, grant tax exemptions, incentives or reliefs under such terms and conditions as they may deem necessary.

Article 282 is also on the authority to grant tax exemption privileges or incentives.

But the COA found the tax exemption, non-collection and condonation by the city hall questionable.

The COA recommended to “stop” the real property and business tax exemptions because they are “bereft of any legal basis.”

The issue has since split the city council as Gonzaga and Kags. GreggyGatal and Jonas Cacho would have the measures, or even just CO IIC-003, scrapped to comply with the COA.

The rest of the councilors led by Kag. Adam RelsonJala would then go for certain amendments but the condonation of the unpaid taxes should still stay.

THE CONFLICT

In the COA Audit Observation Memorandum or AOM, dated February 9, 2016, addressed to Mayor Yap, city audit team leader and OIC Supervising Auditor JeremiaLagunda said the exemption or grant “shall only be for a period not exceeding 12 months” or one year.

Yap was then a councilor but who happened to be the acting vice mayor and SP presiding officer when the ordinance on the additional five-year exemption and condonation of the unpaid taxes was approved in 2012, during which mayor was Dan Lim.

The first ordinance being approved in 2002 was during the time of then Mayor Jose Torralba and Vice Mayor Jorge Cabalit.

The AOM cited Section 1(i) of Article 282, “Tax exemption or tax relief may be granted in cases of natural calamities, civil disturbances, general failure of crops, or adverse economic conditions such as substantial decrease in the prices of agricultural or agri-based products.”

“Any grant or relief granted to a type or kind of business shall apply to all business similarly situated; and any exemption or relief granted shall take effect only during the next calendar year for a period not exceeding 12 months as may be provided in the ordinance,” Section 1(iii) and (iv) say, respectively.

Granting tax exemption beyond the 12-month period is “bereft of legal basis, thereby casting doubt on the legality and propriety of tax incentives per Ordinance Nos. IIC-002 and IIC-003,” the COA-AOM said.

The regional Bureau of Local Government Finance (BLGF) of the Department of Finance (DOF) said, in an opinion requested by the SP, that Section 192 “pertains solely to local government taxation and not real property taxation,” which is a national taxation.

The exemption from real property tax is specifically enumerated under Section 234 of the Local Government Code, which “clearly does not include exemption to attract investors.”

The BLGF-7 said “as much as we would like to help the city’s undertaking in encouraging investment, it is clear that the real property tax exemptions extended under said ordinances are not in accordance with the Local Government Code.”

The COA said the businesses are, thus, “not legally exempted” from payment of the real property taxes during the periods from calendar years (CY) 2004 to 2012 and 2014 up to the present.

Post audit transactions relative to the audit of real property and business tax collections in the city revealed that the business establishment that “benefited from the said exemption was Alturas Supermarket Corp. – Island City mall (ASC-ICM),” the COA said.

The COA said a five-year tax exemption was granted beginning 2003 and an extension of another five years has been granted since 2013.

The COA Annual Audit Report for Year Ended 2015 of the City of Tagbilaran said the non-payment of the business establishment of its real property taxes from CY 2005 to 2014 up to the present (2015, the year of the audit report)had amounted to P68.377 million, including penalties.

This has deprived the city of revenues due it to finance development projects, according to the COA.

The state audit agency recommended the city treasurer to provide final computation, including penalties, on the unpaid taxes and “demand immediate payment of the same.”

In a memorandum, the regional COA affirmed the city COA audit observation memorandum, saying that the audit team had “reasonable basis for the issuance of the AOM.”

RECOMMITTED

During their session on Thursday, the councilors also agreed to recommit the unresolved legislative issue to the ways and means committee chaired by Kag. Joseph Bompat, according to GonzagaGonzaga said Jala, the acknowledged leader of the SP majority bloc, manifested they would now go for the repeal of not just CO IIC-003 but the two ordinances.

But another SP source said Jala’s camp may first call for a “public hearing” before the controversial twin measures are to be cast into the plenary session for repeal or not.

Gonzaga, former chairman of the public accountability committee, again cautioned that they may face graft charges as the COA must have long submitted its observations, including the city’s inaction, to the central office.

To recall, Gonzaga, Gatal and Cacho were stripped of their committee chairmanships and memberships by the majority bloc for their resolve to comply with the recommendations of the COA.

 

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