central board of assessment appeals green core …

Republic of the Philippines

CENTRAL BOARD OF ASSESSMENT APPEALS Manila

GREEN CORE GEOTHERMAL, INC., CBAA CASE NO. V-37 Petitioner-Appellant, LBAA Case No. 2013-001

-versus-

LOCAL BOARD OF ASSESSMENT

APPEALS OF THE PROVINCE OF

NEGROS ORIENTAL,

Appellee,

-and-

DANILO MENDEZ, in his capacity

as the PROVINCIAL TREASURER OF

NEGROS ORIENTAL and

ROLANDO OBANIANA, in his

capacity as the MUNICIPAL

TREASURER OF THE MUNICIPALITY

OF VALENCIA, NEGROS

ORIENTAL,

Respondents-Appellees.

x---------------------------------------------x

R E S O L U T I O N

Before this Board is an Appeal filed by Green Core

Geothermal, Inc. (GCGI), from the decision of the Local Board

of Assessment Appeals, the dispositive portion of which states:

“WHEREFORE, premises considered, let it be

RESOLVED, as it is hereby resolved that the Respondents

are legally correct in imposing a 1% basic real property

tax and another 1% Special Education Fund on the

Palinpinon properties of the petitioner. Let it be RESOLVED

further, as it is hereby resolved, that the Palinpinon 1

properties of the petitioner should no longer avail of a

depreciation allowance, however, the Palinpinon II

properties of the petitioner should be entitled to

depreciation allowance. Accordingly, the respondents

are hereby directed to recompute the basic Real

Property Taxes and the Special Education Fund Levy

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covering only the Palinpinon II properties of the petitioner,

after determining and correspondingly appreciating the

applicable depreciation allowance of the same

properties.

SO ORDERED.”1

The LBAA, in its analysis said:

“Between the opinion of the Bureau of Local

Government Finance (BLGF) and that of the Senate Tax

Study and Research Office (STSRO), it is our considered

view that the opinion of the latter on the issue at hand is

more in accordance with the spirit of the Local

Government Code of 1991, especially in relation to its

declaration of principles quoted hereunder:

‘SEC. 2. Declaration of Policy. – (a) It is hereby

declared the policy of the State that the

territorial and political subdivisions of the State

shall enjoy genuine and meaningful local

autonomy to enable them to attain their fullest

development as self-reliant communities and

make them more effective partners in the

attainment of national goals. Towards this

end, the State shall provide for a more

responsive and accountable local

government structure instituted through a

system of decentralization whereby local

government units shall be given more powers,

authority, responsibilities, and resources. The

process of decentralization shall proceed from

the National Government to the local

government units’ (underscoring supplied)

We cannot agree with the petitioner that the

Senate Tax Study and Research Office (STSRO) does not

have any authority to interpret the law, specifically the

laws involved in the case at bar. On the contrary, we have

to take note that said office is a duly organized body

under the Senate of the Philippines from whom laws

originate. Precisely, its opinion on the issues involved in this

petition was sought by Ormoc City Mayor Eric Codilla in a

letter/request dated June 13, 2011. And the same opinion

was rendered for the Honorable Senator Edgardo J.

Angara, then Chairman of the Congressional Commission

1 LBAA Decision page 10

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on Science and Technology and Engineering (COMSTE)

to whom we presume the letter/request of Mayor Codilla

was addressed. We presume it was Senator Angara who

referred the matter to the STSRO for in-depth study. Mayor

Codilla sought the opinion of the Senate because the law

involved, particularly RA No. 9513, originated from

Congress. Accordingly, it is the Congress who is in the best

position to articulate what the spirit of the law is from the

mind of the framers of the same. The interpretation of

government bodies implementing statutes is only

secondary to that of Congress which is actually the brains

of all the statutes of the land.

In view hereof, we subscribe to the carefully

considered opinion of the STSRO that ‘Any tax exemption,

incentive or relief granted by any local government unit

pursuant to the provisions of this Code shall be construed

strictly against the person claiming it.’ (Section 5(b), LGC).

While it is true that RA No. 9513 is not an incentive granted

by the local government units but by the national

legislature, said Section 5(b), LGC, should be applied in

this case as a corollary in the same manner. We also

agree with the STSRO that ‘RA No. 9513 never intended to

repeal or amend the law authorizing the SEF.’ As

mentioned by the STSRO in its opinion, while the law

contains a general repealing clause, paragraph 2 of the

repealing clause of RA No. 9513 specifically mentions as

‘repealed, modified or amended accordingly’ only

Section 1 of Presidential Decree No. 1442 or the

Geothermal Resources Exploration and Development Act

and Section 10(1) of Republic Act No. 7156 or the Mini-

Hydro Electric Power Incentive Act. There is no mention at

all of any repeal or modification of Section 235 of the LGC

regarding the additional levy on real property for the

Special Education Fund (SEF). To our mind, if the framers

of RA No. 9513 intended to repeal or amend Section 235

of the LGC, we strongly believe it would have written so

specifically, considering that the matter has in fact been

discussed in the bicameral conference committee

meeting. But the legislature has chosen to be silent on the

matter. Our impression is that the legislature did not even

give any attention at all to the interventions of some

lawmakers during the bicameral conference committee

session where one of them mentioned of the possible loss

of the SEF, precisely because, in the case of Renato V.

Diaz and Aurora Ma. F. Timbol vs. The Secretary of Finance

and Commissioner of Internal Revenue, GR No. 193007,

July 19, 2011, it was ruled that ‘statements made by

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individual members of Congress in the consideration of a

bill do not necessarily reflect the sense of that body and

are, consequently, not controlling in the interpretation of

law.’ Thus, we abide by the maxim that what is not

included is deemed excluded. Besides, Section 235 of the

LGC clearly provides that the Special Education Fund

(SEF) ‘shall be in addition to the basic real property tax.’

This means that the SEF is another tax separate and

distinct from the basic real property tax. The SEF is not an

optional tax but a mandatory tax, pursuant to Article 326

of the Implementing Rules and Regulations, specifically of

Section 235 of the Local Government Code of 1991. The

mandatory character of the SEF was arrived at on

account of the extreme necessity of said tax for the

maintenance and development of our educational

system. It must be mentioned at this point that the SEF was

initially imposed by virtue of RA No. 5447 enacted as early

as on September 25, 1968. From that time on, the SEF has

been imposed and the proceeds thereof were used for

very laudable, noble and indispensable purposes for the

advancement of the vision and mission of the

Department of Education and Culture. And for the sake

of emphasis, RA No. 5447 provides that ‘specifically, the

SEF shall be expended exclusively for the following

activities of the Department of Education: (1) organization

and operation of extension classes; (2) programming of

the construction and repair of elementary school

buildings; (3) payment and adjustment of salaries of

public school teachers; (4) preparation, printing and/or

purchase of textbooks, teachers’ guides, forms and

pamphlets; (5) purchase and/or improvement, repair and

refurbishing of machinery; (6) establishment of a printing

plant; (7) purchase of teaching materials; (8)

implementation of the existing program for citizenship

development; (9) undertaking education research; (10)

granting of government scholarships; and (11) promotion

of physical education.’ Indeed, we agree with the STSRO

that ‘any reduction or diversion of the same could result

in dire consequences on the activities it undertakes and

its allied programs.’ While we cannot support the facts

with figures, it is our belief that even the proceeds of the

SEF alone would not be sufficient to finance the activities

enumerated above.

Precisely, some of these activities have not even

been implemented as yet on account of lack of funds.

Proof is the sad state of our present educational system.

There is lack of school buildings, lack of teachers, lack of

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books and other facilities, to name only a few. Thus, to

remove or just reduce the SEF would be tantamount to

making the objectives of RA No. 5447 a farce. It would be

tantamount to simply admitting the failure of RA No. 5447.

We agree that Section 15(c) of the RE Law is very

attractive to investors and might be a boost to capitalism.

But, if said provision of law is interpreted along the

argument of the petitioner, the educational

maintenance and advancement of many regions in the

country will be adversely affected. Our public

educational system will continue to suffer from its

apparently current deplorable state. The law will become

anti-poor, which we honestly believe is never in the mind

of the legislature. Instead of helping alleviate the plight of

our poor people who can even hardly afford to go to the

public schools on account of extreme poverty, the RE

Law, if interpreted the way the petitioner wants it

understood, will become very detrimental to the poor

people. It will cause retrogression and will be very

detrimental to our educational system. Moreover, the

interpretation of the REMB would run counter to Section 5,

Article X of the 1987 Philippine Constitution which

provides:

‘Section 5. – Each Local Government unit shall

have the power to create its own sources of

revenue, to levy taxes, fees and charges

subject to such guidelines and limitations as

the Congress may provide, consistent with the

basic policy of local autonomy. Such taxes,

fees and charges shall accrue exclusively to

the Local Governments.’

The local government units represented by the

respondents have dutifully exercised this mandate by the

1987 Philippine Constitution. And pursuant to the policy of

local autonomy, the imposition of the questioned taxes by

the LGU’s represented by the respondents must be

protected. Precisely, in the case of National Power Corp.

vs. City of Cabanatuan, G.R. No. 149110, April 9, 2003, the

Supreme Court held that ‘the power to tax is no longer

vested exclusively in Congress; local legislative bodies are

now given direct authority to levy taxes, fees and other

charges pursuant to Article X, Section 5 of the 1987

Constitution.’ (underscoring supplied) This paradigm shift,

the Court said, results from the realization that genuine

development can be achieved only by strengthening

local autonomy and promoting decentralization of

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governance. For a long time, the country’s highly

centralized government structure has bred a culture of

dependence among local government leaders upon the

national leadership. It has also ‘dampened the spirit of

initiative, innovation and imaginative resilience in matters

of local development on the part of local government

leaders.’ The only way to shatter this culture of

dependence, the Court said, is to give the LGUs a wider

role in the delivery of basic services, and confer them

sufficient powers to generate their own sources for the

purpose. To achieve this goal, Section 3 of Article X of the

1987 Constitution mandates Congress to enact a local

government code that will, consistent with the basic

policy of local autonomy, set the guidelines and

limitations to this grant of taxing powers. At this point,

therefore, it may be helpful to note that the Local

Government Code of 1991 is a direct product of the

mandate emanating from said Sections 3 and 5 of Article

X of the 1987 Constitution, while RA No. 9513 does not

enjoy that characteristic. This must be the reason why the

framers of RA No. 9513 did not include or make mention

at all of any amendment or modification of Section 235 of

the Local Government Code which provides for the

‘Additional Levy on Real Property for the Special

Education Fund (SEF).’ It is our impression that it was never

in the mind of our lawmakers to let our educational system

suffer the adverse consequences should the Special

Education Fund be abolished in some jurisdictions or even

just reduced in other jurisdictions. We are sure the

lawmakers are well aware of the necessity of the

collection of the Special Education Fund is one simple but

efficient way of balancing the unequal distribution of

wealth. By the Special Education Fund, taxes are

collected from owners of real properties who are more or

less blessed in life. On the other hand, said taxes are being

used to finance various activities of our public

educational system where the poorest of the poor can

avail of free education and other related benefits.

With respect to the claim for depreciation

allowance of 5%, the petitioner is asking for a refund in the

amount of Php7,277,388.40 and ratiocinates that the

values reflected in its current tax declarations covering its

Palinpinon Properties constitute the ‘Original Cost’ and

that the ‘Net Book Value’ is arrived at by applying the Five

percent (5%) Cumulative Depreciation allowance under

Section 225 of the Local Government Code against the

‘Original Cost’ as stated in the Tax Declarations, as

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already mentioned in the presentation of the theory of the

petitioner. First, petitioner argues that the ‘respondents

have no factual basis to conclude that the amount of

Php3,790,306,460.00 represents the remaining value of

GCGI’s machinery which is less than or equal to the 20%

minimum value under Section 225 of the LGC.’ This

assessed value of Php3,790,306,460.00 pertains to

Palinpinon I Power Plant pursuant to the re-assessment/re-

evaluation of its machineries in the year 2010. Second,

pertaining to Palinpinon II Power Plant, petitioner alleged

that ‘there is nothing under any law or administrative

issuance which requires that before depreciation

allowance could be granted, there must first be a general

revision which happens every year.’ There must be a

misquote here because the respondents in their letter

dated April 27, 2013 wrote that the general revision

‘happens every three years,’ not every year. Third, the

petitioner does not also agree with the position of the

respondents that ‘depreciation allowance is not

automatically computed at 5% of the original acquisition

cost, replacement or reproduction costs as this cost of

acquisition or reproduction fluctuates depending on the

strength of our economy.’

The Palinpinon I properties per tax declarations were

acquired in the year 1982 and became operational in the

year 1983. Simply speaking, the properties in question

have been in use for about 30 years already up to the

year 2013. Thus, if the 5% depreciation allowance is

applied every year from 1983, the total depreciation

allowance would already amount to 150%. Thus, it is our

considered opinion that the assessed value computed by

the respondents at Php3,790,306,460.00 is well within the

bounds of law because under Section 225 of the Local

Government ‘the remaining value for all kinds of

machinery shall be fixed at not less than twenty percent

(20%) of such original, replacement, or reproduction cost

for so long as the machinery is useful and in operation.’

The Palinpinon II properties per tax declarations

were acquired in the year 2009 but they were already 16

years old when acquired. They became operational also

in the year 2009. In other words, the machineries in

question were second-hand items and were presumed to

have been bought brand new in the year 1993. However,

as shown in the tax declarations, the assessment level of

said properties has been placed at 80%, or ‘very good

condition,’ pursuant to Section 7, Chapter IV of the

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Manual of Real Property Appraisal and Assessment

Operations. Thus, the minimum ceiling of 20% of the

original, replacement, or reproduction cost so that a

depreciation allowance may no longer be applicable

has not been exhausted yet. Therefore, it is our considered

opinion that the Palinpinon II properties must be entitled

to depreciation allowance. The respondents argue that

the depreciation allowance could not be granted

because ‘depreciation allowance could be granted only

during the general revision which happens every three

years’ and which general revision could not be done in

the absence of an enabling ordinance, but we believe

the grant of a depreciation allowance, the values duly

indicated on the current tax declarations shall be used as

basis. Of course, as soon as a general revision is

accomplished, the basis for computing the depreciation

allowance shall be adjusted accordingly. But, we

reiterate that there is no need of an ordinance so that the

petitioner shall be entitled to a depreciation allowance of

its Palinpinon II properties because the provision of Section

225 of the Local Government Code is very clear and

unequivocal. As regards the proposition of the

respondents that ‘depreciation allowance is not

automatically computed at 5% of the original acquisition

cost, replacement or reproduction cost as this cost of

acquisition, replacement or reproduction fluctuates

depending on the strength of our economy,’ this Board

would like to clarify. It is true that arriving at the appraisal

of the property depends on many economic factors

following the formula provided for. But, the Manual on

Real Property Appraisal Operations has provided for

depreciation benchmarks and depreciation schedules,

which shall be used as a tool in coming up with the

appraised value of the property and the corresponding

depreciation allowance which may be granted. Once

the appraised value of the property is determined, the

depreciation allowance, if warranted, will now be

computed at a rate of ‘not exceeding five percent (5%)

of its original cost of its replacement or reproduction cost,

as the case may be, for each year of use,’ pursuant to

Section 225 of the LGC. Whether the depreciation

allowance is 1%, or 2%, or 3%, or 4% or 5% depends on the

formula provided for in the above-cited Manual. How

much then would be the depreciation allowance to be

granted to the petitioner for its Palinpinon II properties?

We leave this matter to the mathematical expertise of the

respondents and the respective assessors’ office following

the guidelines provided for by the Manual. But, our point

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is: the Palinpinon II properties of the petitioner are entitled

to depreciation allowance.2”

ANTECEDENTS

Petitioner Green Core Geothermal, Inc. (GCGI) is a

Renewable Energy (RE) developer, registered with the

Department of Energy. As such, RA 9513 or the Renewable

Energy Act of 2008 provides incentives for registered RE

developers, specifically Section 15 (c) which states:

(c) Special Realty Tax Rates on Equipment and

Machinery – Any law to the contrary notwithstanding,

realty and other taxes on civil works, equipment,

machinery and other improvements of a registered RE

Developer actually and exclusively used for RE facilities,

shall not exceed one and a half percent (1.5%) of their

original cost less accumulated normal depreciation or net

book value. Provided, that in case of integrated resource

development and generation facility as provided under

Republic Act No. 9136, the real property tax shall only be

imposed on the power plant.”3

The above-quoted section is the basis for the Appeal filed

by Petitioner after Respondents assessed and collected tax on

its real property, one percent representing real property tax and

an additional one percent representing the Special Education

Fund for taxable year 2013.

The properties included in Palinpinon 1 and II, subject of this

protest, all pertain to machinery, used to generate renewable

energy.

Petitioner was also disallowed a depreciation allowance of

five (5) percent on its Palinpinon 1 properties. No depreciation

allowance was likewise allowed for its Palinpinon II properties

because of the claim of Respondents that “depreciation

allowance could be granted only during the General Revision

which happens every 3 years, but which could not yet be

conducted for lack of an enabling ordinance to do the same.”4

Petitioner asserts that under RA 9513, as part of its tax

incentives, it should only be assessed 1.5 percent in realty taxes.

2 LBAA Decision page 8 - 10 3 R.A. 9513, Section 15 (c) 4 LBAA Decision page 2

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The disallowance of the depreciation cost of five percent for the

machineries in Palimpinon 1 and the failure to grant

depreciation allowance for Palimpinon 2 also resulted to an

alleged overpayment of real property tax.

Thus, GCGI claims it paid under protest the amount of

SEVENTEEN MILLION EIGHT HUNDRED TWENTYONE THOUSAND

ONE HUNDRED EIGHTYTHREE AND 30/100 PESOS (PhP

17,821,183.30) broken down as follows:

Ten Million Five Hundred Forty Three Thousand Seven

Hundred Ninety Four and 90/100 (PhP10,543,794.90) as

overpayment of .5 percent in realty taxes and Seven Million Two

Hundred Seventy Seven Thousand Three Hundred Eighty Eight

and 40/100 (PhP7,277,388.40).

ISSUES

Both Petitioner and Respondents raised basically the same

issue for resolution:

Petitioner in its Position Paper states:

“The sole issue presented for the resolution of this

Honorable Board is whether GCGI is entitled to a tax

refund or credit of realty taxes on the Properties for TY

2013, in the total amount of SEVENTEEN MILLION EIGHT

HUNDRED TWENTYONE THOUSAND ONE HUNDRED EIGHTY

THREE AND 30/100 PESOS (PhP17,821,183.30) consisting of:

(a) overpaid realty tax of PhP10, 543,794.90 in excess of

the special realty tax of one and a half percent (1.5%)

under Section 15(c) of the RE Law and (b) overpaid realty

tax of PhP7,277,388.40 of disallowed depreciation

allowance granted under Section 225 of the LGC and

Section 15(c) of the RE Law.”5

Exactly the same issues were posited by the Respondents.

In fine, the issues to be resolved are:

A: Whether or not the maximum rate of one and half (1.5%)

percent special realty tax rate on civil works, equipment,

machinery, and other improvements of a Registered

Renewable Energy (RE) Developer includes

5 Position Paper of Petitioner, page 5

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the additional levy of the Special Educational Fund

under Section 235 of the Local Government Code of

1991.

B: Whether or not Petitioners are entitled to depreciation

allowance for its Palinpinon 1 properties;

ARGUMENTS OF PARTIES

I: Imposition of one percent Special Education Fund:

Petitioner GCGI claims that as a registered Renewable

Energy Developer, it is entitled to a special realty tax rate of one

and a half percent (1.5%) of its properties.

In its Position Paper, GCGI states:

“xxx.

27. Well aware of the above provisions of the LGC that

may conflict with Section 15(c) of the RE Law, Congress

expressed its legislative will in Section 15(c) of the RE Law

that ‘[a]ny law to the contrary notwithstanding,’ the

prevailing law when it comes to the imposition of ‘realty

and other taxes’ on real properties of Registered RE

Developers shall be Section 15(c) of the RE Law.

28. The import of the opening phrase of Section 15(c) is

further emphasized in light of the general repealing clause

in the RE Law, which is clear on its effect on any conflicting

or inconsistent legislative or executive act. Section 39 of

the RE Law provides:

SECTION 39. Repealing Clause. – Any law,

presidential decree or issuance, executive

order, letter of instruction, administrative rule

or regulation contrary to or inconsistent with

the provisions of this Act is hereby repealed,

modified or amended accordingly. (Emphasis

supplied.)

29. Moreover, it is a settled rule of statutory construction

that, as between two laws on the same subject matter

which are irreconcilably inconsistent, the one of later

enactment, being the latest expression of the legislative

will, should prevail over the other which is of earlier

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enactment – legis posteriors priores contrarias

abrogant…..”6

In effect, Petitioner-Appellant claims that the provisions of

the RE Law “prevails over the earlier relevant provisions of the

Local Government Code as far as the imposition of ‘realty and

other taxes’ on real properties of registered RE Developers since

the RE law is the latest expression of the legislative will.”

On the other hand, Respondents-Appellees aver that the

Renewable Energy Act was never intended to repeal the

provisions of the Local Government Code which provides the

imposition of a one percent Special Education Fund.

In its position paper, Respondents-Appellees said:

“ …25. The Senate Tax Study and Research Office (STSRO)

is in the best position to articulate what the spirit of the law

is from the mind of the framers of the Congress. As pointed

out by the LBAA the said office is duly organized body

under the Senate of the Philippines from whom laws

originate. In addition, the letter/request dated June 13,

2011 sought by City Mayor Eric Codilla involving the issue

involved in this position was rendered based on the

opinion of the Senate because the law involved,

particularly RA No. 9513, originated from Congress. In

contrast with the interpretations of government bodies in

between with the STSRO, the former is only secondary to

that of the congress to which is actually the brain of all the

statutes of the land.

26. As mentioned by STSRO, ‘RA No. 9513 never intended

to repeal or amend the law authorizing the SEF’, while the

law contains a general repealing clause, paragraph 2 of

the repealing clause of RA No. 9513 specifically mentions

as ‘repealed, modified or amended accordingly’ only

Section 1 of P.D. No. 1442 or the Geothermal Resources

Exploration and Development Act. There is no mention at

all of any repeal or modification of Section 235 of the LGC

regarding the additional levy on real property for the

Special Education Fund.

27. Thus under the principle of the maxim ‘expressio unius

est exclusio alterius’, what is not included is deemed

excluded. RA No. 9513 never intended to repeal or

amend Section 235 of Republic Act 7160. Furthermore, the

6 Position Paper of Petitioner, page 8

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discussion in the bicameral conference committee

meeting cannot be given credence, because, as in the

case of Renato V. Diaz and Aurora Ma. F. Timbol vs. The

Secretary of Finance and Commissioner of Internal

Revenue, GR No. 193007, July 19, 2011, it was ruled that

‘statements made by individual members of Congress in

the consideration of a bill do not necessarily reflect the

sense of that body and are, consequently, not controlling

in the interpretation of law.

28. Taking into account the nature of the Special

Education Fund of being mandatory, separate and

distinct from other taxes. Section 235 of the LGC, provides

that the Special Education Fund (SEF) ‘shall be in addition

to the basic real property tax’, and also Article 326 of the

IRR mandating its mandatory character. Furthermore, the

mandatory character of the SEF as mentioned by the

LBAA, was arrived at an account of the extreme necessity

of the said tax for the maintenance and development of

our educational system. It is true that as the STSRO stated,

that ‘any reduction or diversion of the same could result

in dire consequences on the activities it undertakes and

its allied programs’. But if the RE law be interpreted in the

way petitioner wanted it to be understood, it will be

detrimental to the poor people because it would hamper

the revenue capacity of the local government especially

in the implementation and development of our present

educational system. Thus, such would result to a bad

precedent, this we cannot allow.”

II: Depreciation Allowance:

Petitioner-Appellant GCGI claims that the LBAA has no

factual basis to disallow GCGI’s depreciation allowance

especially for the Palinpinon 1 properties. In its Position Paper,

GCGI states:

“Based on the tax declarations issued to GCGI in

2010, the market value of the Palimpinon 1 properties

amounts to only PhP1,023,182,460.00. On the other hand,

based on the tax declarations issued to GCGI IN 2010, the

market value of the Palimpinon II properties amounts to

PhP 2,767,124.00.

Thus, the amount to which the depreciation

allowance is under contention for the Palinpinon 1

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properties is limited to PhP1, 023, 182, 460 and not PhP 3,

790, 306, 460 as erroneously found by the LBAA.”7

GCGI also claims that the consistent increase in the market

value of the Palinpinon 1 properties “runs counter to the concept

of depreciation that the value of the property decreases over

time, citing the Judicial Affidavit of Charles Remy Capaque, Tax

Compliance Officer for the Energy Development Corporation,

an affiliate of GCGI, dated April 11, 2017:

“Thus, it cannot be stated that such assets have

been fully depreciated. Rather, it seems to indicate that

the Palinpinon 1 properties are actually appreciating in

value over time. The LBAA’s erroneous finding that the

Palinpinon 1 properties are fully depreciated, therefore,

cannot serve as a valid basis for denying GCGI’s claim for

depreciation.”

In his Judicial Affidavit, Capaque explained the alleged

error of the LBAA:

“Q.26. What is GCGI’s position with regard to the

disallowance of its depreciation allowance on the

Palinpinon I Properties?

A: First, the assessed value of Php3,790,306,460.00 is

incorrect. This value actually pertains to the market

value, and not the assessed value, of both the

Palinpinon I and Palinpinon II Properties.

Second, the indicated market value of

Php3,790,306,460.00 is not the fully depreciated

value of the Palinpinon I Properties.

Q.27. Are you aware of the market values of the

Palinpinon I and Palinpinon II Properties?

A: Based on the Tax Declarations (“TD”) issued to

GCGI in 2010, the market value of the Palinpinon I

Properties amounts to only One Billion Twenty

Three Million One Hundred Eighty Two Thousand

Four Hundred Sixty Pesos (Php1,023,182,460.00)

broken down as follows:

7 Position Paper of Petitioner-Appellant

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Tax Declaration No. Property

Identification No.

Market Value

(in Php)

2010-18-022-00931 046-18-022-01-011 M1 731,322,170.00

2010-18-022-00932 046-18-022-01-011 M2 124,570,830.00

2010-18-022-00933 046-18-022-01-011 M3 84,706,000.00

2010-18-022-00934 046-18-022-01-011 M4 82,583,460.00

PHP1,023,182,460.00

On the other hand, based on the TDs issued to GCGI in

2010, the market value of the Palinpinon II Properties

amounts to Two Billion Seven Hundred Sixty Seven Million

One Hundred Twenty Four Million Pesos

(Php2,767,124,000.00), broken down as follows:

Tax Declaration

No.

Property

Identification No.

Market Value

(in Php)

2010-18-022-00970 046-18-022-20-003 M1 479,387,000.00

2010-18-022-00971 046-18-022-20-003 M2 130,312,000.00

2010-18-022-00972 046-18-022-20-003 M3 19,234,000.00

2010-18-022-00973 046-18-022-20-003 M4 116,439,000.00

2010-18-022-00974 046-18-022-20-003 M5 163,000.00

2010-18-022-00980 046-18-022-27-009 M1 483,601,000.00

2010-18-022-00981 046-18-022-27-009 M2 129,924,000.00

2010-18-022-00982 046-18-022-27-009 M3 20,244,000.00

2010-18-022-00983 046-18-022-27-009 M4 39,900,000.00

2010-18-022-00984 046-18-022-27-009 M5 467,000.00

2010-18-019-01438 046-18-019-09-040 M1 960,049,000.00

2010-18-019-01439 046-18-019-09-040 M2 263,399,000.00

2010-18-019-01440 046-18-019-09-040 M3 30,008,000.00

2010-18-019-01441 046-18-019-09-040 M4 92,752,000.00

2010-18-019-01442 046-18-019-09-040 M5 1,245,000.00

PHP2,767,124,000.00

“8

On the other hand, Respondents-Appellees, quoting the

LBAA decision emphasized that the Palinpinon 1 properties had

been in use for about 30 years and thus can no longer be given

a depreciation allowance, citing Sec. 225 of the Local

Government Code, ‘the remaining value for all kinds of

machinery shall be fixed at not less than 20 percent of such

original, replacement or reproduction cost for so long as the

machinery is useful and in operation.

“… The assessed value computed by Respondents

in this case is less than 20 percent of the original,

replacement or production cost. Hence, further

depreciation allowance could no longer be allowed.”9

8 Judicial Affidavit of Charles Remy Capaque, question 26 - 27 9 Position Paper of Respondent-Appellees page 9

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In determining the formula for computing the depreciation

allowance, Respondents said “existing rules and regulations

promulgated by the Bureau of Local Government Finance

(BLGF), under the Department of Finance, to wit, Local

Assessment Regulations No. 1-04 dated Oct. 1.2004 – the Manual

of Real Property Appraisal and Assessment Operations and

Department Order No. 10-2010 dated April 28, 2010 prescribing

the “Mass Appraisal Guidebook”, a supplement to the Manual

of Real Property Appraisal and Assessment Operations.”

In her Judicial Affidavit, Annabelle S. Dante, Municipal

Assessor of Valencia, Negros Occidental admitted that the

amount of P3, 790. 306, 460.00 represents the total depreciated

value of the Palinpinon 1 and Palinpinon II machineries and that

of Palinpinon 1 only amounts to P1, 023. 182, 460.00.

She also stated that the valuation of machinery for taxation

purposes is governed by Sec. 224 of RA 7160 – Appraisal and

Assessment of Machinery which states:

“The fair market value of a brand new machinery

shall be the acquisition cost. In all other cases, the fair

market value shall be determined by dividing the

remaining economic life and multiplied by the

replacement or reproduction cost.”10

According to Dante, GCGI should no longer be entitled to

the five percent depreciation of its Palinpinon 1 machineries

because the remaining value is already considered ‘residual

value.’

“… Moreover, the Palinpinon 1 properties were acquired

in 1982 and became operational in 1983 therefore said

properties have exhausted their depreciation allowance

by 2013.”11

RULING

The bone of contention in this instant case is whether or not

the 1.5 percent tax incentive for registered renewable energy

developers would still allow an additional levy of the Special

Education Fund as Section 15 of the Renewable Energy Act.

10 Sec. 224 (a) Local Government Code 11 Judicial Affidavit of Annabelle Dante question, 9 page 3

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“Section 15. Incentives for Renewable Energy Projects

and Activities. - RE developers of renewable energy

facilities, including hybrid systems, in proportion to and to

the extent of the RE component, for both power and non-

power applications, as duly certified by the DOE, in

consultation with the BOI, shall be entitled to the following

incentives:

xxx

c) Special Realty Tax Rates on Equipment and Machinery.

- Any law to the contrary notwithstanding, realty and

other taxes on civil works, equipment, machinery, and

other improvements of a Registered RE Developer

actually and exclusively used for RE facilities shall not

exceed one and a half percent (1.5%) of their original cost

less accumulated normal depreciation or net book value:

Provided, That in case of an integrated resource

development and generation facility as provided under

Republic Act No. 97136, the real property fax shall only be

imposed on the power plant; (Emphasis supplied)

xxx"12

It is important to consider the intention of Congress in the

passage of the law and go back to the deliberations to glean

the purpose and intent of the law.

During the Bicameral Conference Committee (Bi-cam

Conference) on the Disagreeing Provisions of Senate Bill No. 2046

and House Bill No. 4193 on 07 October 2008, Senator Eduardo

Angara (Chairman of the Senate Panel) emphasized the need

to provide “much incentives” to the renewable energy industry,

to which Congressman Juan Miguel M. Arroyo (Chairman of the

House Panel) agreed to.

“THE CHAIRMAN (SEN. ANGARA). Okay. Ilagay mo sa

section 15, iha. Just concentrate on that. Okay, General

Incentives, Section 15, Incentives for Renewable Energy

Projects and Activities, which is the main body of the

Incentives.

THE CHAIRMAN (REP. ARROYO). Yes

12 R.A. 9513 Sec. 15 (c)

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THE CHAIRMAN (SEN. ANGARA). Well, as you will see from

the reading of this enumeration, we try to provide as

much incentives to renewable energy industry because

number one this is a new industry as far as we are

concerned. And, secondly, as earlier said we want to

promote clean technology and lessen our dependence

on imported fossil product. And that’s why this package

of incentives are probably greater than what is normally

available under the BOI or the PEZA incentive scheme

because this is a distinct, new and welcome industry that

will create future jobs and investments in our country.

THE CHAIRMAN (REP. ARROYO). Mr. Chairman, in the

House panel, we agree that we have to incentivize this

industry so that there will be more investors. We just have

a few comments on certain provisions.”13

The Declaration of Policies is contained in Section 2 (b) of

the RE Law, which is to provide fiscal and non-fiscal incentives

to RE Developer, to wit:

“Section 2. Declaration of Policies. - It is hereby declared

the policy of the State to:

(b) Increase the utilization of renewable energy by

institutionalizing the development of national and local

capabilities in the use of renewable energy systems, and

promoting its efficient and cost-effective commercial

application by providing fiscal and nonfiscal incentives”14;

The following is a transcription of the statements of

Secretary Vince Perez, who was then the Secretary of the

Department of Energy, who was invited as resource person,

Reps. Exequiel Javier and Luis Villafuerte, members of the House

Panel, made during the Bi-cam Conference, discussing in part

the Special Educational Fund in relation to the special realty tax:

“MR. PEREZ. | was just informed that currently there is a

pending—there is precedent in the Court of Appeals that

real estate tax is limited to 1 percent so I'm trying to get

the data that we’ll circulate to you that actually its

currently | percent right now.

REP. VILLAFUERTE. One percent of what?

13 Transcript during the Bicameral Conference on the Disagreeing provisions of S.B.No. 2046 and H.B.

No. 4193 (Renewable Energy Act of 2008) from Senate Records and Archives Service. 14 R.A. 9513 Sec. 2 (b)

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MR. PEREZ. On equipment—any land and other real

estate permanented here to the soil so | have to check

the data.

REP. JAVIER. | think the rate under the Local Government

Code is I percent ‘no plus the additional assessment of 1

percent for SEF so its total, 2. So total, 2 percent.

MR. PEREZ. This is two and half.

REP. JAVIER. That's right. Its more than 2 percent.

REP. VILLAFUERTE. No, net book value.

REP. JAVIER. Minus depreciation ito eh.

MR. PEREZ. Ah, | see. Okay Net book value.”15

(Emphasis supplied)

The following are additional portions of the conversation

during the Bi-cam Conference:

"xxx

MR. PEREZ. Yeah but let me explain because a lot of the

renewable power assets like hydro, solar wind, they are

not used to 100 percent all of the time. There are, you

know, 30 percent so the value is very high upfront. And if

you’re gonna tax — kagaya ng_ 1 percent, now 2.5%,

mas mabigat,eh.

REP. VILLAFUERTE. Book value. Minus, eh

REP. JAVIER: | think you better exempt them.

MR. PEREZ: Under the current Local Code, we have a

provision, its actually exempted but not implemented.

There's a section called.

VOICE: Section 234

MR. PEREZ. Ano?

VOICE: Section 234

15 Ibid.

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MR. PEREZ. Section 234(e), “Machinery and equipment

used for pollution control and environmental protection

under the Local Government Code is actually exempt

from the real property tax.”

REP. VILLAFUERTE: That does not include’ the hydroelectric

dams and -— _ that’s environmental equipment. Kung

gusto mo

MR. PEREZ: One percent na lang.

MR.VILLAFUERTE. O sige sige, 1 percent na lang

VOICE. Okay, Thank you.

SEN. ZUBIRI. Yes, Mr. Chair. Okay na po yong 1 percent,

local government share-- | mean, local government unit,

‘yong real estate, real estate tax.

REP. MAGSAYSAY. The new version, 2.5.

THE CHAIRMAN (SEN. ANGARA). Maliit ba yon? Ha? You

are also naman trying up the only source of the LGUs

xxx

REP. GUINGONA. Mr. Chairman, why dont we just exempt

it na lang?

THE CHAIRMAN (SEN. ANGARA): Huwag naman,huwag

naman.

REP. GUINGONA. Ha?

THE CHAIRMAN (SEN.ANGARA). Magagalit sa atin ang —

magaglit ang LGU. Ifo lang ang source ng income nila.

REP. VILLAFUERTE. Maybe, Mr. Chairman, compromise is

1.5% percent.

THE CHAIRMAN (SEN. ANGARA). One and a half, o sige.

okay na iyon, okay na iyon. We have to—we may be

favoring companies but we may be disadvantaging

LGUs. Masama rin naman iyon.

REP. JAVIER. O, paano yan?

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THE CHAIRMAN (SEN. ANGARA). One and a half. We will

accept the 1.5. So we reduce it by .5. Okay.

xxx

REP. MAGSAYSAY. Mr. Chairman, | just like to ask in the

present set up of the mga—who are engaged in this

business, are they paying special realty tax already on

equipment and machine and how much?

REP. VILLAFUERTE: Yes, yes. Alam mo, ang mawawala

diyan ‘yung special education fund.

REP. MAGSAYSAY: How much? No, I mean, if they are not

complaining with the present rate then-- are they

complaining? If they are not complaining, bakit pa natin

tatanggalin ang exemption?

THE CHAIRMAN (SEN. ANGARA). Tama na siguro ‘yung

compromise natin one and a half. Okay na iyon. Okay,

one and a half na. xxx”

(Emphasis supplied)16

It is apparent that the lawmakers included the Special

Educational Fund in crafting Section 15 (c). The SEF was

mentioned twice during the Bicam Conference and none of the

members of the body commented that it was not included

therein.

The lawmakers intended to give as much incentives as

possible to RE Developers.

Senate Bill No. 2046 had a ceiling of 2.5 percent while

House Bill No. 4193 was at 1.5 percent.

When the bills were finally enacted into law as R.A. No.

9513, the final provision read as follows:

“Section 17. Incentives for Renewable Energy

Projects and Activities.

(c) Special Real Property Tax Rates on Equipment

and Machinery. — Any law to the contrary

notwithstanding, realty and other taxes on civil works,

equipment, machinery, and other improvements of a

16 Ibid.

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Registered RE Developer actually and exclusively used for

RES facilities shall not exceed one and a half percent

(1.5%) of their original cost less accumulated normal

depreciation or net book value: Provided, That in case of

an integrated resource development and generation

facility as provided under Republic Act No. 9136, the real

property tax shall only be imposed on the power plant;”17

While the original bills put the tax base as the original cost

of machineries, the enacted law placed it as original cost less

accumulated normal depreciation or net book value.

It also included other taxes imposed on civil works,

equipment, machinery, and other improvements of a Registered

RE Developer, thus implying the Congress intended to decrease

the tax amount due and to include other taxes aside from the

realty taxes.

It is therefore fair to conclude that the Special Educational

Fund is included in the maximum rate of one and half percent

imposed under Section 15 (c) of the RE Law.

Article 10, Section 5 of the Philippine Constitution is clear

that the power of the local government units to create their own

sources of revenue and to levy taxes will be subject to the

guidelines and limitations set forth by Congress.

“Article X- Local Government

General Provisions

xxx

Section 5. 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 the Congress may provide, consistent with

the basic policy of local autonomy. Such taxes, fees, and

charges shall accrue exclusively to the local

governments.”

xxx”

The power of taxation by local government units is merely

a delegated power and thus must be in conjunction with the

limits imposed by Congress.

17 Ibid.

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Despite having enacted an Ordinance to serve as basis for

the assessment and collection of real property taxes, the same

will have to give way to the limits imposed by the Legislature.

Section 5, Article X of the 1987 Constitution provides that

"the power to tax is no longer vested exclusively on Congress;

local legislative bodies are now given direct authority to levy

taxes, fees and other charges. Nevertheless, such authority is

‘subject to such guidelines and limitations as the Congress may

provide.’

As regards the depreciation allowance for the Palinpinon 1

properties, this Board agrees with the Respondent that Petitioner

is no longer entitled to the 5 percent automatic depreciation

allowance considering that these have been in use for over 30

years.

Its remaining value can therefore be considered as residual

value.

As for the Palinpinon II properties, these were acquired in

2009 but already used for 16 years prior and are presumed to

have been bought brand new in 1993. The tax declarations for

these properties would show that it was granted an 80 percent

assessment level, pursuant to Sec. 17, Chapter IV of the Manual

of Real Property Appraisal and Assessment Operations and thus,

the 20 percent minimum ceiling of the original, replacement or

reproduction cost for these machineries has not yet been

exhausted, thus its entitlement to depreciation allowance.

WHEREFORE, Respondents are ordered to recompute the

Real Estate Tax and Special Education Fund tax to reflect a 1.5%

levy against Petitioner-Appellant and refund the amount of half

percent (.5%) excess levy either as actual refund or tax credit.

Respondent are likewise ordered to compute depreciation

allowance for the Palinpinon II properties.

SO ORDERED.

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Manila, Philippines, November 25, 2019.

(On Leave)

MANUEL D.J. SIAYNGCO

Chairperson

RAMON A.I. BANTA SILVERIO Q. CASTILLO

Member Member

central board of assessment appeals green core …

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