January 17, 2020

OFFICE OF THE CITY TREASURER

Naga City
Cebu

Attention: Ms. Anna Maria B. Gabilan

City Treasurer

Re: KEPCO SPC Power Corporation

2020 Real Property Tax

Madame:

This refers to the Payment, under Protest, by KEPCO SPC Power Corporation
(KSPC) of the Real Property Tax (RPT) for the year 2020 last December 20, 2019.

Timeliness of the Protest

Under Section 252 of the Local Government Code of the Philippines, “the protest in
writing must be filed within thirty (30) days from payment of the tax to the provincial, city
treasurer or municipal treasurer, in the case of a municipality within Metropolitan Manila
Area, who shall decide the protest within sixty (60) days from receipt.”

On December 20, 2019, KSPC paid, under protest, the 2020 RPT to the City Treasurer
of Naga City, Cebu. Thus, KSPC has thirty (30) days from payment of the tax, or until
January 19, 2020 to file its written protest. In this regard, the present Protest is timely
filed within the permissible period under the Local Government Code.

Nature of the Protest

This Protest is in the nature of a request for reassesment and recalculation, with prayer
for the issuance of tax credit, questioning the resonableness or correctness of the
amount assessed. Specifically, KSPC is asking for the adjustment of real property
values, taking into account the allowed and/or reasonable depreciation to update the
RPT due for year 2020, on the basis of evidence and arguments, as well as documents
submitted prior to the issuance of the RPT computation for year 2020 but were not
considered by this Honorable Office in the issuance of the said computation.

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Statement of Relevant Facts

On June 29, 2017, KSPC submitted to the City of Naga Assessor’s Office a letter
request for adjustment of real property values, taking into account the allowed or
reasonable depriciation to update the RPT due for the year 2018, with a sworn
statement of the net book value (NBV) of its real properties as of May 31, 2017. 1

On July 11, 2017, the City of Naga replied stating that they can only accommodate
KSPC’s request for adjustment in the year 2020 because reassement was already done
effective year 2017. It was also explained in the said reply that the Local Government
Code and the Manual on Real Property Assessment Operations provide that real
property assessments can only be done once every three years. 2

On June 28, 2019, KSPC submitted again a sworn statement of the net book value of
the company’s real properties as of May 31, 2019 with the same request for adjustment
for the year 2020 and applicable future years. The said request is based on the ground
that the estimated net book value of KSPC’s real properties is now lower than the
market value currently used in the annual RPT computation. 3

On August 7, 2019, the City of Naga informed KSPC of their plan to conduct ocular
inspection of the Power Plant. Since then, KSPC had been in constant communication
with the City Assesor but no definite date was provided for the planned ocular
inspection.

On October 3, 2019, the City of Naga advised that KSPC’s request for adjustment was
already forwarded to the City Mayor and KSPC will be notified as soon as discussions
or deliberations are done. KSPC expressed its concern that the adjustment may not be
reflected in the year 2020 RPT computation, if the ocular inspection will not be
conducted as soon as possible, but KSPC was advised to just follow-up again in
November 2019 or just pay the current RPT amount which can be adjusted later.

On November 25, 2019, the Office of the City Treasurer issued to KSPC the 2020 RPT
computation amounting to One Hundred Thirty-Nine Million Three Hundred Thirty-Three
Thousand Seven Hundred Thirty-Six Pesos (Php139,333,736.00), net of twenty (20)
percent discount, broken down as follows:

1
A copy of KSPC’s Letter, with Sworn Statement, dated June 29, 2017 is attached as Annex “A”.
2
A copy of the City Assessor’s Reply dated July 11, 2017 is attached as Annex “B”.
3
A copy of KSPC’ Letter, with Sworn Statement, dated June 28, 2019 is attached as Annex “C”.

2
It can be noted that in computing the above assessment, KSPC’s real properties were
subjected to the same market value used annually from year 2017 to 2019, with no
adjustments on depriciation.4

On the same day, KSPC received a Letter, dated October 24, 2019, from the Office of
the City Assesor to file again a sworn statement of the true value of the company’s real
properties with supporting documents.5

On December 9, 2019, KSPC submitted to the City Assessor’s Office the sworn
statement of the true value of real properties as of November 30, 2019. 6

On December 20, 2019, KSPC paid, under protest, the City of Naga the total amount of
ONE HUNDRED THIRTY-NINE MILLION THREE HUNDRED THIRTY-THREE
THOUSAND SEVEN HUNDRED THIRTY-SIX PESOS (Php139,333,736.00), net of
twenty percent (20%) discount, without adjustment on depreciation, as reflected in the
following receipts:

Official Receipt Number7 Amount in Php

0107982 173,144.32
0107983 138,333,166.8
0107984 827,424.80
TOTAL 139,333,736

4
A copy of the 2020 RPT Computation issued by the City Treasurer is attached as Annex “D”.
5
A copy f the City Assessor’s Letter dated October 24, 2019 is attached as Annex “E”.
6
A copy of KSPC’ Sworn Statement dated December 9, 2019 is attached as Annex “F”.
7
Copies of the Official Receipts issued by Naga City as proof of KSPC’s December 20, 2019 payment
under protest for its 2020 RPT are attached as Annexes “G” to “G-2”.

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Considering the relevant facts and applicable laws and jurisprudence, we respectfully
manifest our protest against the 2020 RPT computation for the reason discussed
herein.

THE 2020 RPT ASSESSMENT AND

COMPUTATION ARE WITHOUT LEGAL
AND FACTUAL BASIS

A. The City of Naga did not undetake a general revision of assessment once
in every three (3) years in blatant violation of the Local Government Code
and the Manual of Real Property Appraisal and Assessment Operation

At the outset, it must be stated that local government units are mandated to undertake a
general revision of real property assessments once every three (3) years. In fact, the
Department of Interior and Local Government (DILG) and the Department of Finance
(DOF) issued Joint Memorandum Circular No. 2010-01, directing all local government
units to implement Section 2198 of the Local Government Code, which requires
assessors to revise the real property assessments in their respective jurisdictions every
three (3) years. In the said Memorandum, the local government units were also ordered
to: (a) require all owners or administrators of real properties, prior to the
preparation of the revised schedule of Fair Market Values (FMV), to file sworn
statements declaring the true value of their properties and the improvements
thereon; and (b) comply with the DOF issuances relating to the appraisal and
assessment of real properties.

The last reassessment by the City of Naga was made in March 2017 using year 2016
figures and applied the same for years 2017 to 2019. Hence, given that the last
reevaluation of real property assessment values in Naga City was made way back in
2016, the City of Naga should have undertaken the required general revisions to
equalize and update the valuation of real properties.

However, despite the clear mandate of the law and KSPC’s repeated requests for
adjustments on the ground of depreciation, the City of Naga still did not undertake the
required general revisions, in blatant violation of the Local Government Code and the
Manual on Real Property Appraisal.

B. The City of Naga did not make any appraisal and assessment of real
property despite KSPC’s repeated requests for adjustment in clear
violation of the Local Government Code and its own City Ordinance.

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Section 219. General Revision of Assessments and Property Classification. – The provincial, city or
municipal assessor shall undertake a general revision of real property assessments within two (2) years
after the effectivity of this Code and every three (3) years thereafter.

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Section 220 of the Local Government Code, which is also adopted in Ordinance No.
003-2008 of Naga City, provides that a classification, appraisal and assessment of real
property shall be made when there is an on-going general revision of real property
assessment or there is a request made by the person in whose name the property is
declared, to wit:

“Section 220. Valuation of Real Property- In cases where: (a) real

property is declared and listed for taxation purposes for the first time;
(b) there is an on-going general revision of property classification and
assessment; (c) request is made by the person in whose name the
property is declared, the Assessor or his duly authorized Deputy
shall, in accordane with the provisions of this Chapter, make a
classification, appraisal and assessment of the real property listed
and prescribed in the declaration irrespective of any previous
assessment of the real property valuation thereon: Provided,
however, that the assessment of real property shall not be increased
oftener than once every three (3) years except in case of new
improvements substantially increasing the value of said property or of
any changce in its actual use.” (emphasis supplied)

Notably, KSPC has been continously requesting the City of Naga for an adjustment of
real property values on the ground of depreciation since 2017. In fact, KSPC has
submitted three (3) sworn statements of the company’s net boook value of real
properties together with request letters for adjustments for the year 2020 and applicable
future years on June 29, 2017, June 28, 2019 and December 9, 2019.

However, despite the repeated requests of KSPC, the City of Naga did not make any
appraisal and assessment of the company’s real properties to determine its real values,
in clear violation of Section 220 of the Local Government Code and Naga City
Ordinance.

C. The 2020 RPT Assessment is excessive and confiscatory for failure of Naga
City to consider the allowance for depreciation under the Local
Government Code and Naga City Ordinance.

Appraisal is the act or process of determining the value of property as of a specific date
for a specific purpose, while assessment is the act or process of determining the value
of a property, or proportion thereof subject to tax, including the discovery, listing,
classification, and appraisal of the properties”. 9 When it comes to machinery, its
appraisal and assessment are particularly governed by Sections 224 and 225 of the
Local Government Code, which read:

“Section 224. Appraisal and Assessment of Machinery. - (a) The fair

market value of a brand-new machinery shall be the acquisition cost. In

9
Section 199(e-f) of the Local Government Code.

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 all other cases, the fair market value shall be determined by dividing the
remaining economic life of the machinery by its estimated economic life
and multiplied by the replacement or reproduction cost.

(b) If the machinery is imported, the acquisition cost includes freight,

insurance, bank and other charges, brokerage, arrastre and handling,
duties and taxes, plus cost of inland transportation, handling, and
installation charges at the present site. The cost in foreign currency of
imported machinery shall be converted to peso cost on the basis of
foreign currency exchange rates as fixed by the Central Bank.

Section 225. Depreciation Allowance for Machinery. - For purposes

of assessment, a depreciation allowance shall be made for
machinery at a rate not exceeding five percent (5%) of its original
cost or its replacement or reproduction cost, as the case may be,
for each year of use: Provided, however, That 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.” (emphasis supplied)

Notably, the foregoing provisions are also adopted and can be found under Sections 26
and 27 of Ordinance No. 003-2008 of Naga City, to wit:

Section 26. Appraisal and Assessment of Machinery-

(a)The fair market value of a brand-new machinery shall be the

acquisition cost. In all other case, the fair market value shall be
determined by dividing the remaining economic life and multiplied by
the replacement or reproduction cost.

(b) If the machinery is imported, the acquisition cost includes

freight, insurance, bank and other charges, brokerage, arrastre and
handling installation charges at the present site. The cost in foreign
currency of imported machinery shall be converted to pesos cost on the
basis of foreign currency rated as fixed by the Central Bank.

Section 27. Depreciation Allowance for Machinery. – For purposes

of assessment, a depreciation allowance shall be made for
machinery at a rate not exceeding five (5) percent of its original
cost or its replacement or reproduction cost, as the case may be,
for each year of use provided that the remaining value of all kinds of
machinery shall be fixed at not less than twenty (20) percent of such
original, replacement or reproduction cost for so long as the machinery
is useful and in operation.”

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The above-quoted provisions cannot be any clearer. Every machinery must be
individually appraised and assessed depending on its acquisition cost, remaining
economic life, estimated economic life, replacement or reproduction cost, and
depreciation. Further, by the express provisions of the Local Government Code and
the applicable Ordinance of Naga City, depreciation allowance for machinery shall
be made at a rate not exceeding five percent (5%) of its original cost or its
replacement or reproduction cost, as the case may be, for each year of use.
However, no depreciation allowance was considered or made for KSPC’s real
properties for years 2017 to 2019.

In addition, KSPC respectfully submits that it is only in the absence of any sworn
statement given by KSPC that Naga City would be constrained to make an assessment
based on the documents or materials available to them.

SECTION 202. Declaration of Real Property by the Owner or

Administrator. - It shall be the duty of all persons, natural or juridical,
owning or administering real property, including the improvements
therein, within a city or municipality, or their duly authorized
representative, to prepare, or cause to be prepared, and file with the
provincial, city or municipal assessor, a sworn statement declaring
the true value of their property, whether previously declared or
undeclared, taxable or exempt, which shall be the current and fair
market value of the property, as determined by the declarant. Such
declaration shall contain a description of the property sufficient in
detail to enable the assessor or his deputy to identify the same for
assessment purposes. The sworn declaration of real property herein
referred to shall be filed with the assessor concerned once every three
(3) years during the period from January first (1st) to June thirtieth
(30th) commencing with the calendar year 1992.

As already stated in the facts of the case, KSPC did not fail to provide the City of Naga
with sworn statements declaring the true value of the company’s real properties, which
should have been made the basis of the fair and current market value of the properties
and which would enable the City of Naga to consider the same for assessment
purposes. The computation for KSPC’s 2020 RPT, however, would confirm that Naga
City did not consider any depreciation allowance.

Settled is the rule that tax assessments by tax examiners are presumed correct and
made in good faith, with the taxpayer having the burden of proving otherwise. 10 In the
present Protest, KSPC overcomes this presumption because it has clearly shown that
the assessment of its properties and the 2020 RPT computation were baseless and
arbitrarily done, without regard for the requirements of the Local Government Code and
its owns City Ordinance.

10
CIR v. Gonzales, G.R. No. 177279, October 13, 2010.

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 D. Assessment and computation for the 2020 RPT violates the right to due
process of KSPC and, therefore, null and void.

The exercise of the power of taxation constitutes a deprivation of property under the due
process clause, and the taxpayer's right to due process is violated when arbitrary or
oppressive methods are used in assessing and collecting taxes. 11 
The Supreme Court in Manila Electric Power Corporation v. The City Assessor and
City Treasurer of Lucena City 12 applies by analogy its pronouncements in
Commissioner of Internal Revenue v. United Salvage and Towage (Phils.), Inc.,
concerning an assessment that did not comply with the requirements of the National
Internal Revenue Code, thus:

“On the strength of the foregoing observations, we ought to reiterate our

earlier teachings that "in balancing the scales between the power of the
State to tax and its inherent right to prosecute perceived transgressors
of the law on one side, and the constitutional rights of a citizen to due
process of law and the equal protection of the laws on the other, the
scales must tilt in favor of the individual, for a citizen's right is amply
protected by the Bill of Rights under the Constitution." Thus, while
"taxes are the lifeblood of the government," the power to tax has
its limits, in spite of all its plenitude. Even as we concede the
inevitability and indispensability of taxation, it is a requirement in
all democratic regimes that it be exercised reasonably and in
accordance with the prescribed procedure.” (emphasis supplied)

KSPC respectfully submits that the assessment and computation of the 2020 RPT of
KSPC, not being compliant with the Local Government Code, Naga City Ordinance and
Manual of Real Property Assessments Operations, are attempts at deprivation of
property without due process of law, and therefore, null and void.

In view of the foregoing, we therefore request that this Honorable Office favorably grant
this formal Protest for ADJUSTMENTS of real property values of KSPC, taking into
accont the allowed or reasonable decpreciation to update the 2020 RPT, and thereafter
SET ASIDE and CANCEL the 2020 RPT computation.

Very truly yours,

OH, JI MIN
Senior Manager

11
City Treasurer of Makati City v. BA Lepanto Condominium Corporation, G.R. No. 154993, October 25,
2005.
12
G.R. No. 166102, August 5, 2015.