When the government taxes itself By Victor Avecilla | Oct. 07, 2014 at 12:01am As a government-owned and controlled corporation, the University of the Philippines (UP) pays for its expenses using funds given to it by Congress. Since UP’s share of the annual appropriations is a far cry from the ideal amount needed to operate the state university, UP is authorized by law to augment its annual budget by accepting donations from both the private sector and the international community. UP is likewise given numerous landholdings which it can lease to interested parties. It is also permitted to lease its real estate to commercial entities. In both instances, UP is allowed to use such revenues for its operational expenses. The law allows UP to lease its properties, but not to sell them, except in instances when the donor allows the sale of the property donated to UP. In such instance, the money realized from the sale belongs to UP. Under Section 25(a) of Republic Act No. 9500, otherwise known as The UP Charter of 2008, all revenues and assets of UP used for educational purposes or in support of its educational purposes are exempt from all taxes and duties. Thus, when UP leases some of its real estate to a business establishment for commercial use, and the rentals paid are spent by UP to support its objectives as an educational institution, those rentals are not subject to any tax. The language used in Section 25(a) is broad enough to include exemption from real estate taxes imposed by any local government. In October 2006, UP leased 380,630 square meters of its prime property along Commonwealth Avenue (between the Wellworth Philippines Coconut Authority headquarters and the UP Asian Institute of Tourism) to real estate developer Ayala Land, Inc. On this tract of land, the lessee constructed the Ayala Technohub, an information technology and research center. Some spaces in the technohub are leased to restaurants and similar commercial establishments. As far as UP is concerned, the proceeds from this long-term lease are used by UP for its operations, and for this reason, the land on which the technohub stands remains exempt from real estate taxes. It appears that upon the completion of the technohub in 2009, the Quezon City (QC) government went on to impose real estate taxes on the land. In July 2014, the QC government assessed UP the total amount of P117-M for unpaid real estate taxes, inclusive of interest and penalties. The city treasurer said that since the technohub is being used for commercial purposes, the land on which it stands lost its tax-exempt status pursuant to law. As expected, UP invoked its tax exempt status under the UP Charter – which exempts UP’s assets from taxes if used in support of its educational purposes. It was likewise stressed that the power of Congress to impose taxes includes the power to allow tax exemptions (as in the UP Charter), and that taxing UP is akin to government taxing itself. The refusal of UP to pay up prompted the QC government to sell the property in a public auction. Days ago, the Supreme Court issued a temporary restraining order enjoining the threatened auction. How the Supreme Court ought to rule in the tax case filed by UP is not the focus of this discussion. What ought to be examined is the rather unusual situation that arises when the government taxes itself. It seems no different from a situation where someone pays himself for services he rendered to himself. Sure, income taxes are imposed by the national government through the Bureau of Internal Revenue (BIR), and real estate taxes are imposed by the local government unit concerned. From the beneficial perspective, whether the tax is imposed by the national or the local government is largely immaterial. At the end of the day, whatever is collected from taxpayers, whether by the BIR or by the local government, constitutes a public fund from which the Filipino people can benefit. More than a decade ago, the Supreme Court disallowed the Pasay City government from selling the Ninoy Aquino International Airport at public auction to satisfy unpaid real estate taxes due from the airport. The Court likened the situation to the government taking money from one pocket and transferring it to another pocket from the one and the same coat it owns. * * * The attention of the Quezon City (QC) government is invited to its Bago Bantay district where many road corners do not have signs identifying the streets. Whether the local residents are aware of the names of the streets in that district is beside the point. Non-residents who may need to find a place in that district may well end up wasting time and fuel looking for streets which should be publicly marked and identified in the first place. The problem gets aggravated after the daylight hours when non-resident motorists face the risk of getting robbed or even injured or killed. This is not to say that the legitimate residents of the district are inclined to criminal activity. What must be stated is that dark areas of a city have a way of attracting the presence of criminal elements who do not need to be residents of the area. Often, missing signs identifying a road are replaced only when the road concerned or a street near it is re-named after some deceased politician, or after the parent of an incumbent city official. The sign identifying a road is usually embellished with letters or phrases identifying it with the top city official. Quezon City, Makati, and Pasig are known for those vanity letters or phrases. Signs identifying a road are not only for public convenience. A city that does not bother to put up signs to identify its roads is a city that tells its visitors to get lost—in the literal sense of the word.
Posted on: Wed, 08 Oct 2014 09:17:04 +0000