City Legal told: Bring tax case to SC

The Cebu City Council has asked the City Legal Office to file a petition for declaratory relief, seeking the Supreme Court’s intervention to determine whether or not the city is taxable by the Bureau of Internal Revenue (BIR).

The issue on the city government’s tax liability was tackled during yesterday’s regular session, following the approval of this year’s P299 million third supplemental budget.

The budget covers the P188.4 million in compromise settlement for the city’s basic tax deficiency owed to BIR.

“To request the City Legal Office to prepare the necessary pleadings for either a declaratory relief or an appeal on this issue (whether the local government unit can be taxed on its proprietary or business functions) before the Court of Tax Appeals and Supreme Court,” City Councilor Jocelyn Pesquera said.

Pesquera’s motion was approved by the members of the City Council.

It can be recalled that BIR found out that the city has unsettled proprietary operations, including income, value-added and withholding taxes, since 2010 ballooning to P1.2 billion.

Among the taxable proprietary operations are the rental of equipment, sports complex, condominium, social hall and function hall, sales revenue, sales of property, sale of government lots, and others.

Pesquera and City Councilor Jose Daluz III both expressed that the city government should not be taxed by the BIR.

“It will cripple the LGU in providing basic services because the use of portalets, buses…whatever amount that will be collected is just administrative fees. It’s just return of a little expense of the city in delivering basic services,” she said.

Daluz said LGUs should be exempted from paying taxes.

“This issue will not be settled by a compromise settlement since it will only refer to those previous taxes imposed by BIR. I would like to see BIR will not collect taxes from us. That was the stand of the mayor at that time. That should be the stand of the city. LGU should not be taxed by BIR. It’s okay to tax the city now but without prejudice to appealing,” he said.

City Councilor Margarita Osmeña, for her part, said the city government has already asked a lawyer who is an expert on taxation.

Osmeña said the filing of petition was not recommended by the lawyer whom she referred as a “dean.”

“It was not recommended by that dean. He’s a dean. Because we will be required to post, just for the information, a filing fee is double the amount of the assessment. So we will have to file a P2.4 billion. That is his opinion,” she said.

But, Daluz said the filing fee can be waived by the SC if the petition for declaratory relief will be filed there since the city government will be questioning the law.

Of the P1.2 billion tax liability of the city government, P471 million is from the basic taxes’ income and VAT, P475 million from the interest, and P235.5 million from the surcharges.

At present, the city has applied for the abatement or cancellation of the P475 million interest and P235.5 surcharges.

Minimum requirement of the filing of abatement is to pay P188 million or 40 percent of the basic tax.

Once BIR approved the abatement, Rentuza said the city will pay over P200 million representing the 60 percent of the basic tax of the assessed tax liability.

As for the approved P299 million SB-3, the appropriation includes P55 million for the City Hospitalization Assistance and Medicines Program, P40 million for the paving and retreading of various city streets, P1 million repairs and maintenance of artesian wells, P8 million financial assistance to barangay Banilad, P1.5 million for terminal leave benefits of employees, and P940,337.44 for the payment for the consumer price index and power cost adjustment to Pilipinas Water Resources, Inc.