TABUK CITY, Kalinga – The City Legal Office opined that the tax exemption on the land and the building that was leased by the local government to XRC Mall Developers, Inc. does not result to substantial loss on the part of the city.
In a statement, the City Legal office claimed that being the property owned by the local government, no real property taxes have been previously collected by the city from the tenants and that it would have been different if the tax exemption was given to a private property because in the said case, there would be eventual loss of income from the real property tax paid by the private owner.
Further, any tax that could have been collected from the lessee is offset and recovered from the lease rental payments, as well as other economic and social benefits.
Under Section 133 of the Local Government code, the taxing powers of the local government unit shall not extend to the levy of taxes, fees or charges of any kind one the national government, its agencies and instrumentalities, and local government units.
The City Legal Office opined that there is no point in national and local governments taxing each other unless a sound and compelling policy requires such transfer of public funds from one government pocket to another.
Moreover, it added that if a local government cannot tax another local government, it goes without saying that it would be absurd if it will tax itself.
On the other hand, Section 234 of the Local government code stated that real property owned by the Republic of the Philippines or any of its political subdivisions are exempted from payment of the real property tax and that the exemption to the same is where the beneficial use has been granted, for consideration or otherwise, to a taxable person.
The City Legal Office pointed out that the aforesaid Section is applicable only to real property owned by the Republic and any of its political subdivisions which is used by a taxable person and the same does not apply to the property owned by the local government itself where the beneficial use is granted to a taxable person.
According to the City Legal Office, it is within the prerogative of the concerned local government whether or not to pass on the tax to its lessee and in the case of XRC Mall Developers, Inc., the city has assumed the real property taxes on the land and building, then the exemption does not apply as the same will continue to be enjoyed for the land and the building.
The said office disclosed that the property subject of the contract of lease is not only the land owned by the city but also the Bulanao public market itself.
Under Section 17 of the Local government code, the public market is one of the basic facilities provided by local government units.
The City Legal Office explained that even if the public market has been leased to only a single lessee, the same does not actually change the nature of the property as a public market and that the new building that will be constructed on the leased property belongs to the city as a public market owned by the city, the property retains its tax exempt status.
Under Section 22 of the Local government code, every local government unit, as a corporation, shall have the power to enter into contracts.
In the contract of lease executed by the city with XRC Mall, the City Legal Office emphasized that it is explicitly provided that real estate taxes for the land and building, and documentary stamp tax shall be for the account of the city.
By providing that the real estate taxes for the land and building shall be for the account of the city, the local government unit affirms the tax exempt status of the property and thereby waives the collection of real property taxes from its lessee, thus, the lessee can claim tax exemption under Section 206 of the same code, by filing with the City Assessor within 30 days from the date of the declaration of real property sufficient documentary evidence, including the contract of lease, support its claim.
The City Legal Office stipulated that the local government is bound by the said contractual provision since a contract once perfected, has the force of law between the proper parties with which they are bound to comply in good faith and from which neither one may renege without the consent of the other as the autonomy of contract allows parties to establish such stipulations, clauses, terms and conditions as they may deem appropriate provided only that they are not contrary to law, morals, good customs, public order or public policy.
In the case of XRC Mall Developers, Inc. which was tapped by the local government to modernize the public market, the company will be infusing around P780 million worth of investments in putting up the building that will include some P145 million for the payment of the improvements of the building and around P4 million on the land improvement.
If there is no development that will be undertaken in the said 4-hectare property, the source argued, that the city will not be able to have the said investment and will not generate any income as the same will remain idle unlike in the case of the XRC that the city will have an investment and will own the property after the 30-year lease period.
Moreover, the city stands to earn an additional P68 million in lease rentals from the said contract because of the fixed rent of P2 million annually and the prescribed increase in the rentals of 5 percent every 5 years which will be implemented after the rent-free construction period starting on the 6th year and every 5 years thereafter.