Republika ng Pilipinas
KAGAWARAN NG KATARUNGAN
Department of Justice
OPINION
NO. 19, S. 2000
February 16, 2000
The
Managing Head
Board
of Investments
Industry
and
385
Sen. Gil Puyat Avenue
Sir:
This has reference to a request for
confirmation of the following views of the
Board
of Investments (BOI):
1. Firms registered with BOI pursuant to the provisions of Republic Act No. 8479, otherwise known as the Downstream Oil Deregulation Law, are exempted from paying the Value Added Tax (VAT) for the importation of capital equipment, and are liable to pay only a minimum of three percent duty for importation of capital equipment as part of its incentives under the law; and
2. These firms registered pursuant to the provisions of
R.A. 8479, may avail of six (6) years Income Tax Holiday
(ITH) incentive despite the express language of
R.A. 8479
limiting the incentives provided therein to five years.
Said views,
BOI states, are founded
on Section 9 of R.A. 8479 which provides for, among others, the following
incentives: Income Tax Holiday (ITH), minimum tax and duty of three percent
(3%) and Value Added Tax (VAT) on imported capital equipment (Nos. 1 and 3, Section 9,
R.A.
No. 8479).
With respect to the first view, it
is alleged that under Section 9 of
R.A. 8479, persons
with new investments as determined by the
Department
of Energy (DOE) and registered with the
BOI
in refining, storage, marketing and distribution of petroleum products shall be
extended the same incentives granted to
BOI-registered
firms which incentives shall include “minimum tax and duty of three percent
(3%) and value added tax on imported capital equipment.” However,
BOI
notes that the quoted phrase is vague in the sense that the adjective “minimum”
does not seem to be appropriate to the tax component. It argues that while the word “minimum” may
refer to three percent in case of duty, its use seems to be misplaced in the
case of VAT since there are only two rates, 10% or 0% for the VAT. The language being vague, it is claimed that
reference may be made to excerpts in the
Senate
deliberations which “seem to suggest that indeed the intention was to grant tax
exemption to the new industry participants”.
To carry out the avowed intent,
BOI
submits that the qualified registrants must be exempted from paying the 10%
VAT.
With reference to the second view on
the period for availment of the ITH incentive,
BOI
advances the view that the firms registered under
R.A. 8479
may avail of six (6) years ITH despite the express language of
R.A. 8479 limiting incentives provided therein to five (5)
years.
BOI’s
argument is anchored on the proviso in the last paragraph of Section 9 which
states that:
“x
x x nothing herein contained shall preclude qualified persons or entities as
provided under the ‘Omnibus Investments Code’ from applying or continue
enjoying incentives and benefits under the said Code.”
The
BOI requests confirmation of the
aforestated two views.
Section
9 of
R.A. 8479 provides, to wit:
“SEC.
9. Incentive
for new Investments. – To the extent
applicable, persons with new investments as determined by the
DOE and registered with the
BOI in refining, storage and distribution of
petroleum products, shall be extended the same incentives granted to
BOI-registered enterprises engaged in a
preferred area of investment pursuant to Executive Order No. 226, otherwise
known as the ‘Omnibus Investments Code of 1987’.
Such
incentives shall include:
1) Income tax holiday;
2) Additional deduction for labor
expenses;
3) Minimum tax and duty of three percent (3%) and value
added tax (VAT) on imported capital equipment;
4) Tax credit on domestic capital
equipment;
5) Exemption from contractor’s tax;
6) Unrestricted use of consigned equipment or machineries;
7) Exemption from the real property tax on production equipment
or machineries;
8) Exemption from taxes and duties on imported spare parts; and
9) Such other applicable incentives under Article 39 of
Executive Order No. 266.
Any provision of law to
the contrary notwithstanding, the said incentives may be availed by persons with
new investments for a period of five (5) years from registration with the
BOI:
Provided, however, That in the
storage, marketing and distribution of petroleum products, only the investments
of new industry participants shall be entitled to incentives provided in the
said Code. As used herein, ‘marketing of
petroleum products’ shall include the establishment of gasoline stations.
For this purpose, the
industry shall be included in the annual Investment Priorities Plan (IPP): Provided,
That nothing herein contained shall preclude qualified persons or entities as
provided under the ‘Omnibus Investments Code’ from applying for or continue
enjoying incentives and benefits under the said Code.” (stress ours)
As
stated above, persons with new investments as determined by the
DOE and registered with the
BOI in refining, storage, marketing and
distribution of petroleum products shall be extended the same incentives
granted to
BOI-registered enterprises
engaged in a preferred area of investment pursuant to Executive Order 226,
otherwise known as the “Omnibus Investments Code of 1987”. Such incentives include “minimum tax and duty
of three percent (3%) and Value Added Tax (VAT) on imported capital
equipment”. The postulate that the
minimum in case of duty refers to three percent (3%) is well-taken, it being
clearly expressed in the language of the law.
As a general rule, if a statute is clear, plain and free from ambiguity,
it must be given its literal meaning and applied without attempted
interpretation, in consonance with the “plain-meaning rule or verba legis” (Agpalo, Statutory Construction, Fourth Edition
[1998], p. 120).
The
problem, however, lies with the imposition of VAT, it being felt that the word
“minimum” is misplaced with respect to VAT, inasmuch as the said tax has only
two rates, 10% or 0%.
As
a rule, the spirit or intention of a statute prevails over the letter
thereof. (Tañada v. Cuenco, 103 Phil. 1051 [1957] citing 82 C.J.S. 613).
In
determining the intent of meaning, a statute must always be construed as a
whole, and the particular meaning to be attached to any word or phrase is
usually to be ascertained from the context, the nature of the subject treated
and the purpose or intention of the body which enacted or framed the statute
(Agpalo, Statutory Construction, p.
250).
The
purpose of the law may be manifested in its declaration of policy. Section 2, Chapter 1 of
R.A.
8479 pronounces, to wit:
“SEC.
2. Declaration of Policy. – It shall be the policy of the State to
liberalize and deregulate the downstream oil industry in order to ensure a
truly competitive market under a regime of fair prices, adequate and continuous
supply of environmentally-clean and high-quality petroleum products. To this
end, the State shall promote and encourage the entry of new participants in the
downstream oil industry, and introduce adequate measures to ensure the
attainment of these goals.” (italic
ours)
A
construction which would carry into effect the evident policy of the law should
be adopted in favor of that interpretation which would defeat it (Tinio vs. Francis, 98 Phil. 32
[1955]). As can be taken from the
language of the above-quoted provision of law, it is through the promotion and
encouragement of entry of new participants in the downstream oil industry that
a truly competitive market would be attained.
In turn, the promotion and encouragement of entry of new participants
would be best achieved through the grant of incentives under Section 9 of
R.A. 8479.
Nonetheless,
we cannot agree that Section 9 intends to grant exemption from VAT. Well-settled is the rule that exemption from
taxation is never presumed. Where the
law intends to grant a tax exemption, it says so in clear, express and unmistakable
terms (Asiatic Petroleum Co. vs. Llanes,
49 Phil. 466; Jai-Alai Corporation of the
The
provision of Section 9 itself will readily show that exemption from VAT is not
contemplated. Among the incentives
enumerated in Section 9 are the following:
“3) Minimum tax and duty of three
percent (3%) and value added tax (VAT) on imported capital equipment;
xxx xxx xxx
5) Exemption from contractor’s tax;
xxx xxx xxx
7) Exemption from the real property tax on production
equipment or machineries;
8) Exemption from taxes and duties on imported spare
parts;
xxx xxx xxx
(Emphasis supplied.)”
Note
that while the word “exemption” appears in subpars. 5, 7 and 8, subpar. 3 does
not employ the word “exemption” but uses “minimum”, clearly implying that with
respect to taxes and duties, including VAT, on imported capital equipment,
there is no exemption but only a reduction in taxes and duties. As to the rate of taxes and duties, other
than VAT, a minimum rate of 3% is expressly given. But as to VAT, since as you state and we
agree, that there is only two rates–0% or 10%, the word “minimum” as applied to
VAT would mean 0%.
Certainly,
0% VAT is not equivalent to exemption from VAT.
In fact, under the VAT law, certain transactions are subject to 0% VAT
while others are expressly exempt from VAT (Secs. 3 and 4, R.A. No. 7716).
Based
on these premises, we express the view that the incentive granted under Section
9 with respect to VAT is 0% VAT and not exemption from VAT.
With
respect to the period of availment of the ITH, the view of the
BOI is that registered firms pursuant to
R.A. 8479 may avail of six (6) years ITH incentive despite
the express language of
R.A. 8479 limiting the availment
of incentives provided therein to five (5) years.
We
are also unable to agree.
As
earlier as earlier quoted, Section 9 of
R.A. 8479
clearly states that the said incentives may be availed of by persons with new
investments for a period of five (5) years from registration with the
BOI.
The law is crystal-clear in providing for the period of five (5) years
and not six (6) years. Again, the
statute, being the will of the legislature, should be applied in exactly the
way the legislature has expressed itself clearly in the law. The clear, unambiguous and unequivocal language
of the statute precludes the court from construing it and gives it no
discretion but to apply the law (Ramos
vs. Court of Appeals, 108 SCRA 728 [1981]).
The
contention that the firms are entitled to six (6) years based on the proviso in
Section 9 which states that “nothing herein contained shall preclude qualified
persons or entities as provided under the ‘Omnibus Investments Code’ from
applying for or continue enjoying incentives and benefits under the said Code”,
is not well-taken. The provision means
that there is nothing in Section 9 that prevents new participants which are at
the same time qualified persons or entities pursuant to the Omnibus Investments
Code, to avail of the incentives and benefits under the said Code. In other words, the new industry participants
shall enjoy incentives enumerated under Section 9 of
R.A.
No. 8479, and at the same time, can apply for or continue to enjoy other
incentives and benefits provided in the Code.
With
specific reference to the period for availment of ITH, we believe that firms
registered both under
R.A. 8479 and the
Omnibus
Investments Code may avail of six (6) years ITH if they are otherwise qualified
to avail of the six (6) years ITH under the Omnibus
Investments Code. It should be noted that the Omnibus
Investments Code provides for two (2) periods within which the ITH may be
enjoyed. Article 39, Title
“ART. 39. Incentives to Registered Enterprises. – xxx xxx
(a) Income Tax
(1) For six (6) years from commercial
operation for pioneer firms and four (4) years for non-pioneer firms, new
registered firms shall be fully exempt from income taxes levied by the National
Government xxx xxx xxx xxx.”
Pioneer
enterprise is defined in the same Code as–
“ART. 17. x
x x a registered enterprise (1) engaged
in the manufacture, processing or production, packaging of goods, products,
commodities or raw materials that have not been or are not being produced in
the Philippines on a commercial scale or (2) which uses a design, formula,
scheme, method, process or system of production or transportation of any
element, substance or raw materials into another raw material or finished goods
which is new and untried in the Philippines or (3) engaged in the pursuit of
agricultural, forestry and mining activities and/or services including the
industrial aspects of food processing whenever appropriate x x x.”
Non-pioneer
enterprise, on the other hand, shall include all registered producer
enterprises other than pioneer enterprises (Article 18, Ibid).
Thus,
for an enterprise registered pursuant to
R.A. No 8479 to
avail of the six (6) years ITH under Article 39(a) of the Omnibus
Investments Code, it must prove to be engaged in a pioneer activity pursuant to the said
Code as determined by the
BOI. Otherwise, it can only enjoy such incentive
for five (5) years as provided for in Section 9 of
R.A. No.
8479.
Please
be guided accordingly.
Very
truly yours,
ARTEMIO G.
TUQUERO
Acting
Secretary
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