DOJ OPINION NO. 27, s.

2021
August 6, 2021

Mr. Niño Raymond B. Alvina

Executive Director
Bureau of Local Government Finance
8th Floor EDPC Building, Bangko Sentral ng Pilipinas Complex
Roxas Boulevard, 1004 Manila

Dear Executive Director Alvina :

We write in response to the letter from the Bureau of Local
Government Finance (BLGF) of the Department of Finance regarding the
proper interpretation and application of Section 15 (c) of Republic Act (RA)
No. 9513, the Renewable Energy Act of 2008 (RE Act), in relation to the levy
of an annual tax which shall accrue exclusively to the Special Education
Fund (SEF) under RA No. 7160, the Local Government Code of 1991 (LGC).
HTcADC

Section 15 (c) of the RE Act provides a special tax rate on real property
and other taxes of a registered renewable energy (RE) developer and is
worded in the following manner:
SEC. 15. Incentives for Renewable Energy Projects and Activities.
— RE developers of renewable energy facilities, including hybrid
systems, in proportion to and to the extent of the RE component, for
both power and non-power applications, as duly certified by the DOE,
in consultation with the BOI, shall be entitled to the following
incentives:
xxx xxx xxx
(c) Special Realty Tax Rates on Equipment and
Machinery. — Any law to the contrary notwithstanding,
realty and other taxes on civil works, equipment,
machinery, and other improvements of a
Registered RE Developer actually and exclusively
used for RE facilities shall not exceed one and a
half percent (1.5%) of their original cost less
accumulated normal depreciation or net book value:
Provided, That in case of an integrated resource
development and generation facility as provided under
Republic Act No. 9136, the real property tax shall only be
imposed on the power plant.
xxx xxx xxx (emphasis supplied)
The BLGF's question revolves around how Section 15 (c) of the RE Act
should be interpreted in relation to Sections 233 and 235 of the LGC. Section
233 mandates the collection of basic Real Property Tax (RPT) in the following
rates:
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 Section 233. Rates of Levy. — A province or city or a municipality
within the Metropolitan Manila Area shall fix a uniform rate of basic
real property tax applicable to their respective localities as follows:
(a) In the case of a province, at the rate not exceeding
one percent (1%) of the assessed value of real property;
and
(b) In the case of a city or a municipality within the
Metropolitan Manila Area, at the rate not exceeding two
percent (2%) of the assessed value of real property.
Section 235, on the other hand, authorizes the collection of a levy
besides the basic RPT, in the rate and manner given, the proceeds of which
are to be placed in the SEF established in the LGC:
Section 235. Additional Levy on Real Property for the Special
Education Fund . — A province or city, or a municipality within the
Metropolitan Manila Area, may levy and collect an annual tax of one
percent (1%) on the assessed value of real property which shall be in
addition to the basic real property tax. The proceeds thereof shall
exclusively accrue to the Special Education Fund (SEF).
Issue
The BLGF thus poses the question of whether the special realty tax
rate under the RE Act is inclusive of the additional tax which accrues to the
SEF as provided under Section 235 of the LGC.
Contrasting views are presented by the BLGF. One view states that a
registered RE developer is entitled to a special realty tax rate not exceeding
1.5% inclusive of both the basic RPT and the additional levy for the SEF
under Section 235, LGC.
The other view considers the basic RPT and the levy accruing to the
SEF as separate and distinct impositions. Thus, the special rate provided for
under the RE Act should only be applied to the basic RPT, and the additional
levy should remain.
We take note that Section 15 (c) of the RE Act is couched in
unequivocal language when it provides that an RE developer is entitled to a
special tax rate on realty and other taxes, so long as the civil works,
equipment, machinery, and other improvements are actually and exclusively
used for RE facilities.
Thus, the issue could be resolved by answering the simple
question of whether the additional levy on real property, the
amount of which accrues exclusively to the SEF, is covered by the
phrase "realty and other taxes." Otherwise stated, is the additional
levy of one percent (1%) of the assessed value of the real property
a tax? If yes, then it should be deemed included under Section 15
(c) of the RE Act.
Discussion
The levy accruing to the SEF is a tax and
is included in the term "realty and other taxes"
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 Both in name (the law, after all, calls it an "annual tax") and in
substance, the additional levy imposed under Section 235 of the LGC is a
tax, and as such, is included in the term "realty and other taxes"
referred to in Section 15 (c) of the RE Act.
This can easily be gleaned from the unequivocal language of Section
235 of the LGC which covers the SEF, particularly from its title ("Additional
Levy on Real Property for the Special Education Fund" ) and its body ("an
annual tax of one [1%] is imposed on the assessed value of real property").
Clearly, the levy is imposed on real property and uses the assessed value
thereof as the basis for the tax.
Moreover, relevant headings and sub-headings of the LGC indicate that
the SEF is a realty tax. Sec 235 falls under Title II ("Real Property Taxation")
and Chapter 5 ("Special Levies on Real Property") of the LGC.
Nevertheless, even assuming hypothetically that the additional levy
which accrues to the SEF cannot be considered as a realty tax, it may
nevertheless be considered as a specie of "other taxes," and thus remains
within the ambit of the phrase "realty and other taxes" in Sec 15 (c) of the
RE Act. CAIHTE

The additional levy for the SEF is

for a governmental purpose
The SEF is for support of the government and for a public need. The
purpose of the SEF is found elsewhere in the LGC. Section 272 of the law
provides:
Application of Proceeds of the Additional One Percent SEF Tax . — The
proceeds from the additional one percent (1%) tax on real property
accruing to the Special Education Fund (SEF) shall be automatically
released to the local school boards: Provided, That, in case of
provinces, the proceeds shall be divided equally between the
provincial and municipal school boards: Provided, however, That the
proceeds shall be allocated for the operation and
maintenance of public schools, construction and repair of
school buildings, facilities and equipment, educational
research, purchase of books and periodicals, and sports
development as determined and approved by the Local School
Board. (emphasis supplied)
It is clear from the above citation that the SEF will be used for the
support of government (operating through the local school boards) in
carrying out the decidedly public purpose that may be summarized as the
improvement of the public school system.
Thus, the above-described additional SEF tax on real property
under Section 235 of the LGC is clearly included in the term "realty
and other taxes" contemplated in Section 15 (c) of the RE Act. The
same is already covered by the one and a half percent (1.5%)
maximum special realty tax rate in the subject provision of the RE
Act.
Intent of Congress
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 This view reflects the clear intent of the Congress to lump both the
basic RPT and the additional tax pertaining to the SEF into a special tax rate
under the RE Act, which can be gleaned from the relevant portion of the
deliberations of the Bicameral Conference Committee, to wit:
xxx xxx xxx
REP. JAVIER.
I think the rate under the Local Government Code is 1 percent 'no
plus the additional assessment of 1 percent for SEF so it's total,
2. So total, 2 percent.
MR. PEREZ.
This is two and a half.
REP. JAVIER.
That's right. It's more that 2 percent/
xxx xxx xxx
MR. PEREZ.
Mr. Chairman, if I may. You know, the real estate tax — I'm sorry,
but currently, the practice is 1 percent. So, actually, by making it
2.5, well, actually, it's becoming a disincentive, eh.
xxx xxx xxx
REP. VILLAFUERTE.
Maybe, Mr. Chairman. Compromise is 1.5%.
THE CHAIRMAN (SEN. ANGARA).
One and a half, o sige. Okay na 'yon, okay na' yon. We have to —
we may be favoring companies but we may be disadvantaging
the LGUs. Masama rin naman 'yon.
REP. JAVIER.
O' paano 'yan?
THE CHAIRMAN (SEN. ANGARA).
One and a half. We will accept the 1.5. So, we reduce it by .5.
Okay.
xxx xxx xxx
REP. MAGSAYSAY.
Mr. Chairman, I just like to ask in the present set up of the mga —
who are engaged in this business, are they paying special realty
tax already on equipment and machine and how much?
REP. VILLAFUERTE.
Yes, yes. Alam mo ang mawawala diyan special education
fund. 1 (Emphasis and underscoring supplied).
It is apparent from the above deliberations that the Congress was
aware that the special realty tax rate of one and a half percent (1.5%)
intended to incentivize RE developers would affect the tax collections of the
LGU and funding for the improvement of the public school system.
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 CBAA and CTA rulings
On top of all these are decisions of the Court of Tax Appeals (CTA) and
the Central Board of Assessment Appeals (CBAA) where both bodies
consistently adopted the interpretation that the basic RPT and the additional
tax which accrues to the SEF, in the aggregate, should not exceed the one
and a half percent (1.5%) maximum realty tax rate provided under Section
15 (c) of the RE Act.
On 26 February 2020, the CTA En Banc, in Calajate v. North Luzon
Renewable Energy Corp., 2 held:
The Court finds no error in the conclusion arrived at by the
CBAA in the assailed Decision that, indeed, the SEF was considered
by the members of the Bicameral Committee and, more importantly,
intended to be included in the applicability of Section 15 (c) as one of
the taxes that will be subject to the capped preferential rate. The
CBAA observed, "The SEF was mentioned twice during the Bicam
Conference and none of the members of the body commented that it
was not included therein. Hence, it is apparent that the intent of the
law makers, is to give as much incentive as possible to RE
Developers. This intent is very explicated [from] the transcript of their
deliberations."
xxx xxx xxx
The foregoing discussion lends to no other conclusion [ ] than
that the SEF was intended to be part and parcel of the phrase "other
taxes" subject to the capped preferential specialty realty tax rate.
(Underscoring supplied).
The CTA's Decision in the Calajate case was not appealed to the
Supreme Court 3 and thus became final and executory. 4
This Department respects the conclusions of judicial bodies such as the
CTA, a highly specialized body specifically created for the purpose of
reviewing decisions in tax cases. In Commissioner of Internal Revenue v. GJM
Philippines Manufacturing, Inc., 5 the Supreme Court explained:
Oft-repeated is the rule that the Court will not lightly set aside
the conclusions reached by the CTA which, by the very nature of its
function of being dedicated exclusively to the resolution of tax
problems, has accordingly developed an expertise on the subject,
unless there has been an abuse or improvident exercise of authority.
This Court recognizes that the CTA's findings can only be disturbed
on appeal if they are not supported by substantial evidence, or there
is a showing of gross error or abuse on the part of the Tax Court. In
the absence of any clear and convincing proof to the contrary, the
Court must presume that the CTA rendered a decision which is valid
in every respect. It has been the Court's long-standing policy
and practice to respect the conclusions of quasi-judicial
agencies such as the CTA, a highly specialized body
specifically created for the purpose of reviewing tax cases.
(emphasis supplied)
Similarly, in the CBAA cases entitled "Hedcor Sibulan, Inc. v. The Local
Board of Assessment Appeals of the Province of Davao Del Sur" 6 and "Green
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 Core Geothermal, Inc. v. The Local Board of Assessment Appeals of the
Province of Negros Oriental, " 7 the CBAA ruled that both the RPT and the
additional tax which accrues to the SEF should not exceed one and a half
percent (1.5%) pursuant Section 15 (c) of the RE Act.
These pronouncements of the CBAA should also be given weight,
pursuant to the guiding principle enunciated in Benguet Corporation v.
Central Board of Assessment Appeals, et al., 8 where the Supreme Court
held:
It has been the long-standing policy of this Court to
respect the conclusions of quasi-judicial agencies like the
CBAA, which, because of the nature of its functions and its
frequent exercise thereof, has developed expertise in the
resolution of assessment problems. The only exception to this
rule is where it is clearly shown that the administrative body has
committed grave abuse of discretion calling for the intervention of
this Court in the exercise of its own powers of review. There is no
such showing in the case at bar. (emphasis supplied)
Conclusion
Based on all the foregoing, it is the opinion of this Department that
under Section 15 (c) of the RE Act, the special realty taxes imposed on RE
developers for real properties actually and exclusively used for RE facilities
should not exceed 1.5%, which rate includes both the basic RPT and the
additional levy for the SEF.
Please be guided accordingly. DETACa

Very truly yours,

(SGD.) MENARDO I. GUEVARRA

Secretary

Footnotes

1.Bicameral Conference Committee on the Disagreeing Provisions of Senate Biol

No. 2406 and House Bill No. 4193 (Renewable Energy Act of 2008),
October 7, 2008, pp. 48, 145, 148, 151 (Senate Version).
2.CTA EB Case No. 1812, February 26, 2020.

3.Records Verification dated 20 July 2020, "No motion for reconsideration nor
appeal has been filed with the Supreme Court"
(http://cta.judiciary.gov.ph/history2 ).
4.Promulgation of Resolution dated 16 March 2021, "WHEREFORE, petitioner
Provincial Treasurer's "Urgent Motion to Furnish Original Copies of the En
Banc Decision and Notice of Decision to the Provincial Government of
Ilocos Norte" is DENIED, while respondent's "Motion for Entry of
Judgement" is GRANTED. Let the Decision rendered by this Court on
February 26, 2020 be entered in the Book of Judgments. SO ORDERED."
(http://cta.judiciary.gov.ph/history2)

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 5.G.R. No. 202695, February 29, 2016.

6.CBAA Case No. M-44-2018, October 18, 2019.

7.CBAA Case No. V-37, November 25, 2019.
8.G.R. No. 106041, January 29, 1993.

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