The Cebu City Council has denied a request by SM Seaside Cebu Arena for a five-year exemption from amusement taxes, with councilors citing the possible impact on city revenues and public services.
The Sangguniang Panlungsod rejected the request during its regular session on Tuesday, Aug. 18, after Councilor Dave Tumulak, chairman of the Committee on Budget and Finance, moved for its denial.
“Granting the request of five years would result in the reduction of anticipated amusement tax revenues, thereby potentially impairing the city’s capacity to provide and sustain programs in education, health, and other public services,” Tumulak said.
The motion was seconded and approved without objection.
The council’s decision came despite an earlier opinion from the Cebu City Legal Office stating that there was no legal barrier to granting the requested exemption under the city’s existing tax ordinance.
In its legal opinion dated Aug. 10, the City Legal Office said the local government has the authority to provide tax exemptions and incentives through legislation.
It cited Section 192 of Republic Act No. 7160, or the Local Government Code of 1991, which allows local government units to grant tax exemptions, incentives or relief through duly enacted ordinances.
The legal office pointed to City Tax Ordinance No. CXL, which provides for a five-year amusement tax exemption for qualified establishments classified as “Pioneer Business Establishments in the Tourism Industry.”
Under the ordinance, a pioneer business establishment refers to a business enterprise whose place of amusement is considered one of its kind and the first of its kind established in Cebu City.
Based on documents submitted with the application, the legal office said SM Seaside Cebu Arena had substantially complied with the requirements for consideration under the ordinance.
Among the documents cited were the arena’s formal application, a certification from the Cebu City Tourism Commission recognizing it as a Pioneer Business Establishment, a board resolution from the commission recommending the exemption, and the necessary corporate authority supporting the request.
“Accordingly, there exists sufficient legal basis under City Tax Ordinance No. CXL for the favorable consideration of the application,” the legal opinion said.
However, the City Legal Office emphasized that compliance with the documentary and other requirements did not automatically entitle an applicant to the tax exemption.
The ordinance uses the term “may be granted,” which gives the appropriate legislative authority discretion in deciding whether to approve an application.
“Consequently, there appears to be no legal impediment to the approval of the request, should the competent authority determine that the grant of the exemption is consistent with the Ordinance and the public interest,” the legal office said.
The council’s Budget and Finance Committee ultimately focused on the potential financial consequences of approving the five-year exemption.
Tumulak said the loss of anticipated amusement tax collections could limit the resources available to the city government for education, healthcare and other public programs.
The City Legal Office had also noted that the council could consider safeguards intended to protect the city’s fiscal interests. These could include requiring a fiscal impact assessment, periodic reports, monitoring mechanisms or a memorandum of agreement.
The legal office, however, said such measures were separate from the substantive qualifications required for an establishment seeking exemption under the ordinance.
The council had previously referred the request to the City Legal Office during its June 30 session. The referral sought clarification on whether the requested amusement tax exemption could conflict with national tax laws or the Cebu City Tax Code.
After reviewing the matter, the legal office concluded that no conflict existed.
It explained that the amusement tax involved is a local tax governed by the Local Government Code and Cebu City’s tax ordinances, rather than a national tax covered by the National Internal Revenue Code.
The legal office further clarified that its opinion was limited to the legal basis of the request and did not amount to an approval of the exemption itself.
It also said its assessment relied on the documents and representations submitted by SM Seaside Cebu Arena. The opinion did not independently determine the factual accuracy of the Cebu City Tourism Commission’s certification that the facility qualified as a pioneer business establishment.
“Such action remains subject to applicable laws, existing ordinances, auditing, accounting, budgeting, and other relevant government regulations,” the legal office said.
With the council’s vote on Tuesday, the request for a five-year amusement tax exemption has been denied, leaving SM Seaside Cebu Arena without the tax relief it sought under the city’s pioneer business establishment provisions.
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