Republika ng Pilipinas

KAGAWARAN NG KATARUNGAN

Department of Justice

Manila

 

OPINION NO. 19, S. 2000

 

 

                                                                                                                        February 16, 2000

 

 

The Managing Head

Board of Investments

Industry and Investments Building

385 Sen. Gil Puyat Avenue

Makati City

 

S i r :

 

            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 for 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 BOIProvided, 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 v.s. 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 Philippines vs. Court of Tax Appeals and Collector of Internal Revenue, 106 Phil. 345; Insular Lumber Company vs. Court of Tax Appeals, 104 SCRA 170).

 

            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 t`ax (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 III of the Code states, thus:

 

            “ART. 39. Incentives to Registered Enterprises.  – xxx xxx

 

            (a)     Income Tax Holiday –

 

  (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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