Local governments hosting new Aboitiz plant in Davao asked to agree on tax-sharing scheme

Business Mirror

07 Oct 2013 

 

Written by Bong D. Fabe / Correspondent

DAVAO CITY—Officials of the AboitizPower Corp. have asked the local governments of Davao City and Davao del Sur to agree on a revenue-sharing scheme for the taxes that will be generated from the operation of the company’s proposed coal-fired power plant in the area.

AboitizPower, a unit of Aboitiz Equity Ventures Inc., cited a decision of the Department of Finance for an equal sharing of the taxes between Davao del Sur and Davao City.

AboitizPower is putting up a 300-megawatt (MW) coal-fired power plant under its subsidiary Therma South Inc. (TSI).

TSI is building the plant in a contiguous area straddling two villages: Barangay Binugao, Davao City, and Barangay Inawayan, Santa Cruz, Davao del Sur.

AboitizPower executives said they wrote the Davao City Council last month to address “the very volatile issue of local business taxes that, if not resolve this early, will pit two [local government units] against each other that will complicate matters for the company.”

“To resolve the issue as early as now, we are proposing that the 70 percent of taxes shall be shared equally by Davao City and Santa Cruz,” TSI President and Chief Operating Officer Benjamin A. Cariaso Jr. and Manuel M. Orig, AboitizPower first vice president for Mindanao affairs, said in their letter.

The other 30 percent is automatically paid to the LGU where the company principally holds office based on Republic Act 7160, or the Local Government Code.

The officers said they offer the proposal of “tax sharing” of 35 percent each based on the circular issued by the Bureau of Local Government Finance.

Cariaso and Orig said they based their “proposition to the similarly situated case of San Roque Power Corp. in Pangasinan in respect to the allocation of the local business taxes, which was decided by the Bureau of Local Government Finance (BLGF), under the Department of Finance” in August 2004.

Following the BLGF’s decision, which is based on Section 150 of the legal government code (LGC), Davao City will get up to 65 percent of TSI’s taxes

Section 150 of the LGC states that “[a] for purpose of collection of taxes under Section 143 of this Code, manufacturers, assemblers, repackers, brewers, distillers, rectifiers and compounders of liquor, distilled spirits and wines, millers, producers, exporters, wholesalers, distributors, dealers, contractors, banks and other financial institutions, and other business, maintaining, or operating branch or sales outlet elsewhere shall record the sale in the branch or sales outlet making the sale or transaction, and the tax thereon shall accrue and shall be paid to the municipality where such branch or sales outlet is located. In cases where there is no such branch or sales outlet in the city or municipality where the sale or transaction is made, the sale shall be duly recorded in the principal office and the taxes due shall accrue and shall be paid to such city or municipality.”

Further, the LGC states: “(b) The following sales allocation shall apply to manufacturers, assemblers, contractors, producers and exporters with factories, project offices, plants and plantations in the pursuit of their business: (1) thirty percent of all sales recorded in the principal office shall be taxable by the city or municipality where the principal office is located; and (2) seventy percent of all sales recorded in the principal office shall be taxable by the city or municipality where the factory, project office, plant, or plantation is located. (c) In case of a plantation located at a place other than the place where the factory is located, said seventy percent mentioned in subparagraph (b) of subsection (2) above shall be divided as follows: (1) sixty percent to the city or municipality where the factory is located; and (2) forty percent to the city or municipality where the plantation is located. (d) In cases where a manufacturer, assembler, producer, exporter or contractor has two or more factories, project offices, plants, or plantations located in different localities, the seventy percent sales allocation mentioned in subparagraph (b) of subsection (2) above shall be prorated among the localities where the factories, project offices, plants, and plantations are located in proportion to their respective volumes of production during the period for which the tax is due.”

According to Cariaso and Orig, Davao City Mayor Rodrigo Duterte and Sta. Cruz, Davao del Sur Mayor Joel Ray Lopez have both agreed to their proposal.   source