THE Supreme Court (SC) declared on Wednesday that local government units (LGUs) have no power to impose business taxes on persons and entities engaged in the manufacturing and distribution of petroleum products.
In a 14-page decision penned by Associate Justice Diosdado Peralta, the Court’s Third Division junked the petition filed by the Batangas City government seeking to collect the amount of P405 million as business taxes from Pilipinas Shell Petroleum, which operates an oil refinery and depot in Tabagao, Batangas City.
The Court upheld the January 22, 2009, and April 13, 2009, resolutions of the Court of Tax Appeals (CTA), which reversed and set aside the ruling issued by the Regional Trial Court (RTC) of Batangas City on October 29, 2004, that sustained the imposition of business taxes against Pilipinas Shell.
In seeking the reversal of the CTA decision, the Batangas City government argued that any activity that involves the production or manufacture and the distribution or selling of any kind or nature as a means of livelihood or with a view to profit can be taxed by LGUs.
The petitioner stressed that such authority emanates from Section 143 (h) of the Local Government Code (LGC), which states that “The municipality may impose taxes on any business…which the sanggunian concerned may deem proper to tax; provided that on any business subject to the excise, value-added or percentage tax under the National Internal Revenue Code (NIRC), as amended, the rate of tax shall not exceed 2 percent of gross sales or receipts of the preceding calendar year.”
Furthermore, the petitioner said the CTA erred in ruling that the word “taxes” in Section 133 (h) of the LGC does not include business taxes.
In denying the petition of the Batangas City government, the Court pointed out that although the power to tax is inherent in the State, the same cannot be said for LGUs.
It explained that LGUs’ mandate to impose taxes is not encompassing as it is subject to limitations as stated in Section 5, Article X of the 1987 Constitution.
The said constitutional provision states: “Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees, and charges subject to such guidelines and limitations as Congress may provide, consistent with the basic policy of local autonomy.”
The SC added that under Section 133 (h) of the LGC, LGUs cannot impose excise taxes on articles enumerated under the NIRC and taxes, fees or charges on petroleum products.
The Court further explained that, while the LGU’s power to impose business taxes is derived from Section 143 of the LGC, the same is subject to the restrictions provided for under Section 133 (h).
“Thus, the omnibus grant of power to LGUs under Section 143 [h] of the LGC cannot overcome the specific exception or exemption in Section 133 [h] of the same Code,” the SC stressed.
“When there is in the same statute a particular enactment and also a general one, which in its most comprehensive sense would include what is embraced in the former, the particular enactment must be operative, and the general enactment must be taken to affect only such cases within its general language as are not within the provisions of the particular enactment,” the decision read.
Concurring with the ruling were Associate Justices Teresita Leonardo-de Castro, Martin Villarama, Jose Portugal Perez and Estela Perlas-Bernabe.
The case stemmed from the notice of assessment issued on February 20, 2001, by Batangas City through its City Legal Officer Teodulfo Deguito and City Treasurer Teresa Geron demanding payment of P92.37 million and P312.65 million as business taxes for its manufacture and distribution of petroleum products.
In 2002 the respondent was only paying the amount of P98,964.71 for fees and other charges which include the amount of P1,180.34 as mayor’s permit.
Pilipinas Shell, however, filed a protest on April 17, 2002, contending among others that it is not liable for the payment of the local business tax either as a manufacturer or distributor of petroleum products.
It argued that the mayor’s permit fees are exorbitant, confiscatory, arbitrary, unreasonable and not commensurable with the cost of issuing a license.
On May 13, 2002, petitioners denied respondent’s protest and declared that under Section 14 of the Batangas City Tax Code of 2002, they are empowered to withhold the issuance of the mayor’s permit for failure of respondent to pay the business taxes on its manufacture and distribution of petroleum products.
On June 17, 2002, respondent filed a petition for review pursuant to Section 195 of the LGC of 1991 before the Regional Trial Court (RTC) of Batangas City.
In its petition, respondent maintained that petitioners have no authority to impose the said taxes and fees, and argued that the levy of local business taxes on the business of manufacturing and distributing gasoline and other petroleum products is contrary to law and against national policy.
On October 29, 2004, the Batangas Regional Trial court rendered a decision which upheld the imposition of business taxes by Batangas City upon the manufacture and distribution of petroleum products by respondent.
Then Pilipinas Shell elevated the case before the CTA which ruled in its favor, prompting the Batangas City government to bring the matter before the SC.
source: Business Mirror
