Cebu City warned against granting SM Arena with tax exemption

Local

GRANTING SM Arena Complex Corp. a five-year amusement tax exemption could deprive Cebu City of a rapidly growing revenue source and affect its ability to fund public services, City Treasurer Emma Villarete said.

In a fiscal impact assessment submitted to the City Council, Villarete cautioned that any tax break must be weighed against the city’s mandate to maintain fiscal health and deliver basic services.

“The grant of exemption may compromise local fiscal sustainability,” the City Treasurer’s Office stated in the assessment.

The document showed that Cebu City’s amusement tax collections surged from ₱851,562 in 2021 to ₱73.51 million in 2025.

The financial stakes are already evident from the SM Seaside Cebu Arena’s first major bookings. A July 11 concert by BINI generated ₱6.25 million in amusement tax due, while a July 16 show by IV of Spades generated ₱1.54 million, bringing the total to about ₱7.79 million from just two events.

However, Villarete noted that because the arena is newly operational, historical event data remain insufficient to fully determine the city’s potential five-year gain or loss, particularly after accounting for public expenditures related to events.

The assessment also highlighted pressures on Cebu City’s finances.

The General Fund recorded a net operating loss in 2025, continuing a pattern seen from 2020 to 2023. The net income recorded in 2024 was largely driven by a joint venture payout from Filinvest Land Inc.

At the same time, the city’s overhead costs have continued to rise, particularly personnel expenses following Salary Standardization Law adjustments and increased hiring for traffic management, waste collection and event support. Spending on social services and financial assistance has also continued to grow.

The city’s revenue base also faces structural constraints.

Real property tax collections are currently affected by a two-year tax amnesty under the Real Property Valuation and Assessment Reform Act, while Cebu City’s core tax revenue codes have not been updated in 20 years.

Instead of granting a blanket five-year exemption, Villarete recommended allowing SM Arena to seek tax reductions on a per-event basis under existing city ordinances.

The proposed reduction would apply strictly to the corporation as an event owner, operator, or promoter, and not to the physical arena itself or external partner promoters.

She added that any tax relief must be granted through a valid local ordinance under Section 192 of the Local Government Code (Republic Act 7160).

Should the City Council approve the five-year exemption despite the fiscal concerns, Villarete urged that SM Arena be required to remit a guaranteed minimum of ₱10 million annually to the city while it builds an operational track record.

She also called for a formal evaluation to determine whether the venue legally qualifies as a pioneer tourism enterprise under the Tourism Act of 2009 (Republic Act 9593).

Meanwhile, the Cebu City Legal Office separately found no legal impediment to granting the tax break.

It noted that local ordinances allow five-year exemptions for pioneer tourism businesses.

However, the legal opinion clarified that submission of the required documents does not guarantee approval, as the law states that exemptions “may be granted,” leaving the final decision to the City Council.(TGP)