Inexplicable

There is a gaping policy hole revealed here. It should focus the attention of the DOF and the DILG. It will probably require judicial remedy.

Last April 19, very quietly, almost surreptitiously, the Manila city government passed Ordinance No. 8229, Series of 2011. The ordinance permanently exempts Smart Communications from the local franchise tax and real property tax on all equipment directly used for its telecommunications business.

There is no explanation for the exemption provided in the text of the ordinance. There were no public consultations conducted — even if this exemption (and probably others like it that have yet to be documented) will mean a significant diminution of the city revenues direly needed to fix its decrepit public health and flood control systems.

So haphazard was this ordinance, it was not even printed on official stationary. There is no indication of debate within the city council. The mayor’s legal counsel earlier issued an opinion that this sort of exemption was illegal and unconstitutional. His signature, however, is found on the ordinance.

Mayor Alfredo Lim was conveniently abroad when this ordinance was passed. But the Secretary to the Mayor, representing him, signed the document. He has neither vetoed the measure nor moved to postpone its implementation.

While local governments, consistent with laws and national policy, may impose local taxes, they do not, however, have the power to exempt from standard tax measures. There is a constitutional issue here. If all local governments, following the lead of the City of Manila, start exempting favored entities from taxation, that will open a dangerous floodgate which could dramatically deplete state revenues.

The power to exempt is strictly circumscribed. Tax relief may be granted in periods of calamity or civil disturbance — and only for a limited period. On the principle of universal application, such relief or exemption ought to be given equally to all companies in the same line of business. According to our Internal Revenue Code, the exemption may be granted for a maximum of one year, clearly stated in the ordinance.

In our jurisprudence, exemption from taxation is never favored. In this case, the exemption is granted on a tax measure clearly stated in the Manila Revenue Code no less.

There could be other exemptions similarly granted to individual corporate entities rather than to classes or sectors of business activity. This, however, will be the judicial and policy test case because a criminal suit was filed by former Manila mayor Lito Atienza and several barangay officials against the city government.

The exemption has direct bearing on the potential revenue of the smallest political unit. All citizens of the city might be injured by the council giving away tax exemptions. That will diminish the revenues available to fund city services to its constituents.

Last Monday, Atienza et al filed a case with the Ombudsman against the Manila Mayor, the Vice-Mayor and the city council. The case involves grave abuse of authority, ignorance of the law, dishonesty and grave misconduct, violation of RA 6713, violation of RA 3019 and violation of their oath of office. A plea for a restraining order is likewise being contemplated.

The DILG and the DOF might want to look into this case. During the Marcos government, a letter of instruction was issued preventing local governments from issuing tax exemptions precisely because this practice opens a wide door for corruption.

Paradox

While on the subject of local governments, we should also take a close look at Camarines Sur. The province represents something of a paradox.

 Over the past few years, under the leadership of LRay Villafuerte, CamSur has rapidly emerged as a tourist destination. The province now competes head-to-head with other tourist hotspots Boracay, Cebu, Palawan and Bohol. Major investments have been made improving tourist infrastructure, especially in water sports, over the past few years.

Yet, for all its current and potential tourism business, the province remains one of the poorest. In the Good Governance Index (GGI) produced by the National Statistics Coordinating Board, CamSur shares bottom ranking with Maguindanao, that notorious province where poverty reigns and warlords rule.

 How could CamSur rank so low in the GGI? Its main city, Naga, has long been touted as a textbook case of good governance.

It turns out that the institutions for governance at the provincial level leaves much to be desired. Governor Villafuerte now faces 11 cases filed at the Ombudsman for a whole range of questionable transactions from anomalous purchase of construction materials, release of funds to undocumented cooperatives, nondisclosure of project expenditures and failure to seek council authorization for infrastructure projects.

 The COA has reported at least 20 questionable financial transactions for 2009 alone. These include: non-turnover of collections by the CamSur Water Sports Complex, the province’s cash overdraft amounting to P168 million, overstatement of the province’s assets and various unliquidated cash advances. The province is likewise in arrears on its water and power bills as well as large uncollected franchise and amusement taxes.

 The auditing agency also found that the provincial government has not released to the constituent municipalities their 40 percent share of real property taxes collected. This hampers the municipal governments from delivering their share of social services.

 LRay ought to quickly raise the standards of governance for his province. All indications show that observance of proper procedures in his province is nearly as bad as they are in Ampatuan country. It will be a pity for the huge economic potentials of CamSur to dissipate in thin air because governance is bad.