Republic of the Philippines

DEPARTMENT OF FINANCE
Roxas Boulevard corner Vito Cruz Street
Manila 1004

Local Finance Circular No. 1-05

December 8, 2005

SUBJECT

TO

PRESCRIBING THE GUIDELINES GOVERNING THE POWERS OF LOCAL GOVERNMENT UNITS TO IMPOSE TAXES, FEES AND CHARGES
PRODUCTS AND NEW ENTRANTS IN THE OIL INDUSTRY PURSUANT TO REPUBLIC ACT NO. 7160, OTHERWISE KNOWN AS THE
CODE OF 1991

ALL REGIONAL DIRECTORS, BUREAU OF LOCAL GOVERNMENT FINANCE, TREASURERS OF METROPOLITAN MANILA; PROVIN
MUNICIPAL TREASURERS, AND OTHERS CONCERNED

In view of Section 133 (h) of Republic Act No. 7160, otherwise known as the Local Government Code (LGC) of 1991, providing that the exercise of the taxing powers
of Local Government Units (LGUs) shall not extend to the levy of local taxes, fees and charges on petroleum products and in accordance with Article 287 of its
Implementing Rules and Regulations (IRR), the following guidelines are hereby prescribed to clarify the implementation of the said provision consistent with the pertinent
provisions of Republic Act No. 8479, otherwise known as An Act Deregulating the Downstream Oil Industry, granting incentives to the downstream oil industry,
Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987 and other related laws and national policies.

SECTION 1. Coverage. This Circular prescribes the guidelines governing the limitation on the powers of provinces, cities and municipalities to impose taxes, fees, and
charges on petroleum products as provided for in Section 133 (h) of the LGC in relation to Section 143 (c-3) thereof.

SEC. 2. Denition of Terms. As used herein, the following terms shall mean:

(a) Petroleum Products shall refer to products formed in the course of rening crude petroleum through distillation, cracking, solvent rening and chemical
treatment coming out as primary stocks from the renery such as, but not limited to, LPG, naphtha, gasoline, solvent, kerosene, aviation fuels, fuel oils, waxes and
petroleum fractions which have not undergone any process or treatment as to produce chemically-dened compounds in a pure or commercially pure state and to
which various substances may have been added to render them suitable for particular uses: Provided, That the resultant product contains not less than fty percent
(50%) by weight of such petroleum products;

(b) New Industry Participants shall refer to new participants in a particular sub-sector of the downstream oil industry with investments and initial business
operations commencing after January 1, 1994;

(c)Dealer shall refer to any person, whether natural or juridical, who is engaged in the marketing and direct selling of petroleum products to motorists, end users,
and other consumers;

(d)Hauler shall refer to any person, whether natural or juridical engaged in the transport, distribution, hauling, and carriage of petroleum products, whether in bulk
or packed form, from the oil companies and independent marketers to the petroleum dealers and other consumers;

(e)Downstream Oil Industry shall refer to the business of importing, exporting, re-exporting, shipping, transporting, processing, rening, storing, distributing,
marketing and/or selling crude oil, gasoline, diesel, liqueed petroleum gas, kerosene, and other petroleum products.

(f) Machinery embraces machines, equipment, mechanical contrivances, instruments, appliances or apparatus which may or not be attached, permanently or
temporarily to the real property. It includes the physical facilities for production, the installation of appurtenant service facilities, those which are mobile, selfpowered or self-propelled, and those not permanently attached to the real property which are actually, directly and exclusively used to meet the needs of the
downstream oil industry, business or activity.

(g)Retailers fees shall refer to payments made by gasoline operator to oil companies directly for the sale of petroleum products.

SEC. 3. Exemption from Local Taxation. (a) Pursuant to Section 133 (h) of the LGC and Article 22 (h) of the IRR, local government units are prohibited from imposing
taxes, fees and charges on petroleum products, which include the sale of petroleum products by gasoline stations, dealers, resellers or retailers. However, the sale of tires,
batteries and other accessories (TBA) as well as services rendered by them are subject to business taxes.

(b)Haulers of petroleum products who operate as transportation contractors or independent common carriers shall be exempt from local taxes pursuant to Section 133
(j) of the LGC.

(c)Taxes, fees, charges and other impositions shall not be levied on petroleum products carried into or out of or passing through the territorial jurisdictions of local
government units pursuant to Section 133 (e) of the Code.

SEC. 4. Exemption from Real Property Tax for New Participants in the Downstream Oil Industry. Consistent with Section 9 (7) of Republic Act No. 8479, production
equipment or machineries, which are actually, directly, and exclusively used to meet the needs of rening, storage, marketing and distribution of BOI-registered oil
industry participants are exempted from the payment of real property tax. Said incentive may be availed of by persons with new investments for a period of ve (5) years
from the date of registration with the BOI.

SEC. 5. Mayors Permit Fee and Other Regulatory Fees.

(a)Local government units are authorized to collect the Mayors Permit fee and other regulatory fees and charges from the head ofce, branch, rening plant, depot,
storage facility, warehouse of oil companies and all other businesses within their jurisdiction.

(b) The conduct or operation of two or more businesses by any one person, natural or juridical, shall require the issuance of a separate Mayors permit for each
business.

(c)Oil companies shall not be required to pay Mayors permit and other regulatory fees in localities where they do not directly operate any ofce, branch, plant or
depot notwithstanding the collection of retailer fees from gasoline station operators.

(d)No such fee or charge shall be based on capital investment or gross sales or receipts or volumes of the person or business liable therefor.

SEC. 6. Repealing Clause. All rules, regulations, orders, and/or circulars previously issued by this Department, which are contrary to, or inconsistent with, the
provisions of this Circular are hereby repealed or modied accordingly.

SEC. 7. Effectivity. This Circular shall take effect immediately.

MARGARITO B. TEVES
Secretary

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