IF the Cebu City Government is bent on rescinding the 2015 sale of lots in the South Road Properties (SRP) to a consortium of big developers, would it still have to pay taxes in the meantime?
According to City Attorney Joseph Bernaldez, the matter is still the subject of a thorough examination.
“That remains to be seen. Ang taxes ana, at that time man gud, that transaction was during the time of former mayor Michael Rama. I don’t know if taxes were paid for that. We still have to check,” he told SunStar Cebu in a phone interview.
Bernaldez said his office has received a notice of assessment from the Bureau of Internal Revenue (BIR) not long ago.
“Naa sa ilang notice nakabutang na maningil na sila. The position of BIR is that they can collect economic taxes in the SRP, but the position of the City is that the transaction with the consortium is not proprietary in nature, but a performance of governmental function,” he said.
Director Eduardo Pagulayan Jr. of the Bureau of Internal Revenue (BIR) 13 yesterday said the Cebu City Government must pay withholding tax, income tax and value-added tax (VAT) for every sale of its SRP lots.
Pagulayan said that selling any part of the SRP is a proprietary function of the City Government. Proprietary activities are acts of local government units (LGUs) to create additional sources of income, and such activities are taxable.
That 2015 sale
He said that while the BIR 13 has been assessing Cebu City’s proprietary activities since 2010, “it is only now that I saw collectibles of the BIR from the City of Cebu.”
In 2015, the City Government sold 45.2 hectares in the SRP. Of that, 26 hectares were bought by the consortium of Ayala Land and SM, while 19.2 hectares were bought by Filinvest Land Inc. (FLI).
Last May 2016, before assuming office, Mayor Tomas Osmeña called the transaction “questionable” and announced that he will revoke the sale of the property.
In February 2017, FLI rescinded its purchase, saying the local government has failed to fulfill its obligations under the sale contract. Osmeña posed no objection, with a plan to return the P4.5 billion paid by the real estate firm.
As for the status of the move to rescind the sale, Bernaldez said his office is still waiting for instructions from the Office of the Mayor.
“But we wrote the Commission on Audit in 2016, asking them to declare the 2015 sale illegal,” he added.
Pagulayan also explained that if the City Government will not pay what is due to the BIR, the amount will increase because of a 25 percent penalty every year.
However, Pagulayan said that the BIR already spoke with the mayor about the City of Cebu’s tax obligation and the mayor suggested that the City avail itself of a compromise and abatement.
He also said that after the assessment and the City’s initial refusal to pay, the matter was elevated to the Office of the BIR Commissioner, who ruled that the sale of real properties by the City of Cebu is a proprietary function and not a government function.
The National Tax Code states that lease or sale of lands is a proprietary function that is subject to tax. He cited as an example of a government function the construction of a market and the collection of real estate taxes to support local government operations.