OFFICE OF BUDGET AND MANAGEMENT

MINISTRY OF FINANCE
COMMISSION ON AUDIT

JOINT CIRCULAR NO. 4-82

February 24, 1982

TO : All Heads of Ministries, Bureaus, Offices and Agencies including Regional Offices
of the National Government; Officials of Local Governments; Managing Heads of
Government-Owned and/or Controlled Corporations; Budget Officers; Chief
Accountants/Heads of Accounting Units; COA Unit Auditors and All Others
Concerned.

SUBJECT : Budgetary and Accounting Guidelines Procedures to Implement Section 23 of

P.D. No. 1177 Re - "Tax and Duty Exemptions"

1.0 Purposes

This Circular is issued to restate and consolidate with modifications pertinent

provisions of joint Budget Circular No. 289 and Finance Circular No. 2-78 dated May 9,
1978 and COA Circular No. 80-126 dated January 2, 1980 relative to the implementation
of Section 23 of P.D. No. 1177.

2.0 Definition of Terms

2.1 Taxes, duties and fees include provisions/payments for all taxes, duties and fees
which are chargeable against all units of government in accordance with Section
23 of P.D. No. 1177.

2.2 Government units refer to national government agencies including state

universities and colleges, local governments and government-owned and/or
controlled corporations.

2.3 Developing corporations refer to government-owned and/or controlled

corporations which fall under any of the following categories:

2.3.1 Those that cannot attain the minimum rate of return specified in the
financial covenant even if the same shall be granted the tax duty
exemptions.

2.3.2 Those that are able to meet the covenant minimum rate of return but the
absorption of the tax duty shall endanger or impair the attainment of said
covenanted minimum rate of return unless its rates or tariffs are raised
sufficiently to cover the duty/taxes.
 2.3.3 Those that have been in operation for less than five (5) years except
corporations which have attained an average annual rate of return on
equity of 12% during the last three (3) years.

2.4 Established corporations refer to all other corporations which cannot be

classified as developing corporations.

2.5 Equity refers to the amount received by government-owned and/or

controlled corporations as payment of capital subscriptions and generally
capital investment of the national government in said corporations and
which form part of their capitalization.

2.6 Subsidy means amount granted to all government units out of the
General Fund to augment appropriations/funding sources to cover
payment by said government units for all forms of taxes, duties, fees and
other charges due the national government.

3.0 Coverage

All government units entitled to and qualified for tax and duty exemptions under
subsisting laws are governed by these rules and regulations.

4.0 Budgetary Policies

4.1 All government units shall be liable for all forms of taxes, duties, fees and other
charges due the National Government that shall accrue to the General Fund.
These include those imposed under Section 113-190 of the National Internal
Revenue Code, as amended, and Section 101 of the Tariff and Custom Code,
likewise as amended.

4.2 All government units which are exempted by law from the payment of taxes,
duties and fees shall be entitled to either a tax subsidy or payments constituting
equity or contributions shall be granted only if the commodities/goods involved
are not locally available or are highly essential. Government units which import
commodities/goods that are locally available shall pay the taxes, duties and fees
assessed therein out of their own funds.

4.3 Subsidies and equity contributions granted to tax and duty-exempt government
units shall be released from the General Fund Adjustments or the Social Pricing
and Development Adjustment Fund, as the case maybe.

5.0 Accounting Policy

The tax subsidy/equity contribution shall automatically be considered as both

revenue and expenditures of the General Fund.

6.0 Responsibilities
 6.1 The Board of Investment and Ministry of Finance shall determine
commodities/goods that are not locally available or are highly essential for which
tax subsidy/equity contributions shall be granted.

6.2 The Commission on Audit, Ministry of Finance and the National Economic
Development Authority shall jointly approve the qualification of government units
for the subsidy or payments constituting equity contributions.

6.3 The Ministry of the Budget shall issue the Advice of Allotment based on the Work
and Financial Plan (WFP) supported by the Summary List/compilation of
Payment Compliance Certificates.

6.4 All unit auditors concerned shall be responsible for the audit of the books of
accounts of agencies within their auditorial jurisdictions in accordance with the
provisions of existing laws and pertinent accounting and auditing rules and
regulations. They shall make sure that the provisions of this circular are carried
out accordingly.

7.0 Procedural Guidelines

7.1 General

7.1.1 Revenue collecting (RCAs) shall assess the tax paying agencies (TPAs)
for the full amount of taxes, duties and fees. Agencies qualified to receive subsidy/equity
contributions shall not be required to pay in cash or its equivalent. For this purpose, a
payment compliance certificate (PCC), Annex A, shall be issued in six (6) copies by the
revenue collecting agencies indicating the nature of the assessment and amount due.
These payment compliance certificates shall bem compiled and summarized by the
RCAs at the end of each month. The summary list/compilation of Payment Compliance
Certificates shall be prepared in six (6) copies and distributed with the PCCs as follows:

7.1.1.1 For National Government Agencies

a. Original and 2 copies - TPA

b. Three copies - RCA

7.1.1.2 For Local Government Units and Government Corporations

a. Original - TPA
b. 3 copies - Bureau of the Treasury
c. 2 copies - RCA

7.2.1 No actual remittance of cash or cash instruments shall be made by the

Bureau of the Treasury to cover the subsidy or equity contributions to the
availing agencies or for the payment of taxes/customs duties to the
revenue collecting agencies. Payment shall be evidenced effected by
journal vouchers (JV) only.

7.2 Specific

7.2.1 Case I - The tax paying agency is a national government unit:

7.2.1.1 The RCAs shall record at the end of each month taxes/duties due as
income receivable based on the compilation/summarization of PCCs.

7.2.1.2 The RCAs shall forward the summarized and compiled PCCs together
with a copy of their JV to the TPA which shall book up the
corresponding payable account.

7.2.1.3 The TPA shall submit the WFP supported by two copies each of the
summary list and compilation of PCCs to the Ministry of the Budget.

7.2.1.4 The Ministry of the Budget shall issue the Advice of Allotment based on
the WFP, direct to the TPA concerned.

7.2.1.5 The TPA shall obligate the allotment and liquidate the obligation thru a
JV. A copy of the JV shall be furnished the Bureau of the Treasury,
National Cash Accounting Division (NCAD).

7.2.1.6 Upon receipt of the JV, the NCAD shall draw its JV to charge the
agency account current of the TPA and credit the agency account
current of RCA. A copy of the NCAD JV shall be furnished both
agencies.

7.2.1.7 Based on the NCAD JV, the RCA shall adjust the receivable account
previously set up in recording income.

7.2.2 Case II - The TPA is a local government unit:

7.2.2.1 The RCAs shall record at the end of each month taxes, duties, due as
income receivable based on the compilation/summarization of PCCs.

7.2.2.2 The RCAs shall forward the summarized and compiled PCCs together
with a copy of their JV to the TPA which shall book up the
corresponding payable account. Three (3) copies each of the summary
list and compilation of PCCs shall be furnished the Bureau of the
Treasury.

7.2.2.3 The Bureau of the Treasury shall prepare the WFP and submit same
supported by two (2) copies each of the summary list and compiled
PCCs to the Ministry of the Budget for approval.

7.2.2.4 Based on the approved WFP, the Ministry of the Budget shall issue the
Advice of Allotment to the Bureau of the Treasury which shall record in
the books of the Bureau of the Treasury (BTR)- Miscellaneous the
allotments.

7.2.2.5 The BTR-Miscellaneous shall obligate the allotment for the subsidy and
liquidate the obligation thru a JV. A copy of the JV shall be furnished the
NCAD and the TPA.
 7.2.2.6 Upon receipt of the JV from the BTR- Miscellaneous, the TPA shall
record the subsidy as income.

7.2.2.7 The TPA shall prepare a special budget for the amount of the PCCs for
approval by the Sangguniang Bayan/Panlalawigan. The approved
special budget shall be recorded in the books of the TPA by JV to
reflect the following:

a a. Approval of special budget;

b. Release of allotment for payment of taxes;
c. Expenditure for taxes; and
d. Adjustment of payable to RCA.

7.2.2.8 The BTR-Miscellaneous upon receipt of the JV of the TPA shall draw
its own JV charging its treasury account current in favor of the RCA. A
copy of the JV shall be furnished the NCAD.

7.2.2.9 Based on the JV furnished by the BTR- Miscellaneous, the NCAD shall
charge the BTR-Miscellaneous agency account current and credit the
RCA account current. NCAD shall furnish the BTR-Miscellaneous and
the RCA a copy each of the JV.

7.2.2.10 The RCA upon receipt of the NCAD JV shall adjust the receivable
account previously set up in recording income.

7.2.3 Case III - the TPA is a government corporation:

7.2.3.1 The RCA shall record at the end of each month taxes and duties as
receivables based on the compiled/summarized PCCs covering said
month. Copies of the PCCs shall be furnished the TPA and the Bureau
of the Treasury.

7.2.3.2 The TPA, based on the copies of the summary list and compilation of
PCCs, shall record the taxes payable.

7.2.3.3 The Bureau of the Treasury shall prepare the WFP and submit same
supported by two (2) copies each of the summary list and compilation
of PCCs to the Ministry of the Budget for approval.

7.2.3.4 Based on the approved WFP, the Ministry of the Budget shall issue the
Advice of Allotment to the BTR-Miscellaneous which shall record same
in its books.

7.2.3.5 The BTR-Miscellaneous shall obligate the allotment for the

equity/subsidy and liquidate the obligation by JV a copy of which is
furnished the NCAD.

7.2.3.6 Upon advice by the Bureau of the Treasury, the corporate board shall
pass a resolution for the utilization of the subsidy/equity contribution to
pay taxes/duties/fees due the National Government.
 7.2.3.7 The NCAD shall draw a JV to charge the account current of BTR-
Miscellaneous and to credit the depository account of the TPA.
Simultaneously, it shall credit the depository account of the RCA.
Copies of the JVs shall be furnished the TPA, RCA, and BTR-
Miscellaneous.

7.2.3.8 The TPA, upon receipt of the NCAD JV, shall record the subsidy as
income or the equity contribution as capital, and record liquidation of its
payable account thru a JV.

7.2.3.9 The RCA, upon receipt of the NCAD JV shall credit the receivable
account previously set up in recording income.

7.3 Illustrative journal entries. For comparative illustrative journal entries in the
books of the revenue collecting agency, the tax paying agency and the Bureau of
the Treasury, refer to Annex B.

8.0 Amendatory and Repealing Provisions

Budget Circular No. 289 and Finance Circular No 2-78 dated May 9, 1978 and
COA Circular No. 80-126 dated January 2, 1980 are hereby revoked. Provisions of
other existing rules and regulations inconsistent with this circular are hereby amended or
repealed accordingly.

9.0 Effectivity

This Circular shall take effect immediately.

(SGD.) CESAR E. A. VIRATA (SGD.) MANUEL S. ALBA

Minister of Finance Minister of the Budget

(SGD.) FRANCISCO S. TANTUICO, JR.

Chairman
Commission on Audit