Payment under protest: Local business tax

Local government units (LGUs) are constitutionally granted the power to generate their own sources of revenues. This power necessarily includes devising procedures and remedies aimed at providing means for the effective and efficient collection of taxes. Such rules, however, which are enacted through local tax ordinances, should be made in accordance with the guidelines and limitations set by Congress through the Local Government Code (LGC) of 1991, and its amendments.

Controversies usually arise when there are differences between the guidelines provided in the LGC and in the local tax ordinance. One area where differences are usually encountered is with respect to the remedies available to taxpayers in contesting tax assessments issued by LGUs. There is no doubt that under the LGC, when an LGU issues a notice of assessment, the concerned taxpayer may contest the assessment by filing a written protest within a prescribed number of days from the receipt of the assessment. The same rule had been incorporated in the local revenue codes of LGUs.

The controversy lies on the requirement by some local revenue codes for the payment under protest, before said protest can be entertained. With respect to real-property taxes, this is not an issue since the LGC is explicit on this matter. To be specific, Section 252 of the said code provides that no protest shall be entertained unless the taxpayer first pays the tax. This is very specific to real property-tax assessment.

There is no similar provision insofar as local business-tax assessment is concerned. In the absence of a specific provision in the LGC, some LGUs have applied the same rule required in protesting real property-tax assessment. These local governments contend that since there is no prohibition in applying the rules in real property-tax assessment, the LGU is not prohibited from extending the same requirement in local business-tax assessment. To them, this is part of the power granted to the LGUs to devise means to accomplish tax collection in an effective manner. Hence, some local revenue codes include provision similar to real property-tax assessment requiring payment as a condition for the validity of a protest against local business-tax assessment.

This is one of the issues brought before the Court of Tax Appeals in C.T.A. AC 139, promulgated on August 11. In this case, the city treasurer of Davao refused to act on the protest of the taxpayer assailing the assessment of deficiency local business taxes. The city treasurer did not act on the protest because there was no prior payment as required by the Revenue Code of the city. The court ruled that payment under protest is not required for local business taxes. The court reminded the basic rule that all ordinances should be in conformity with the law. Since payment under protest is not required under the LGC, a local ordinance cannot require such prior payment. In fact, the court held that the city of Davao should not supply additional requirements onerous to the taxpayer. The provision in the Revenue Code of Davao has no legal basis.

With this ruling, it is hoped that the issue will be finally put to rest. Requiring payment under protest in contesting real property-tax assessment is acceptable and reasonable and with legal basis, but certainly not for local business-tax assessments.

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The author is a junior associate of Du-Baladad and Associates Law Offices (BDB Law), a member- firm of World Tax Services (WTS) Alliance.

The article is for general information only and is not intended, nor should be construed as a substitute for tax, legal or financial advice on any specific matter. Applicability of this article to any actual or particular tax or legal issue should be supported, therefore, by a professional study or advice.  If you have any comments or questions concerning the article, you may e-mail the author atayesha.matanog@bdblaw.com.ph or call 403-2001 local 170.

No double jeopardy yet even if complaints filed only before ‘barangay’ officials

Dear PAO,
Last month, my father filed a complaint before barangay (village) authorities because of physical injuries he sustained in a fight with a neighbor. But he was not able to attend hearings on his complaint because he had to watch over my younger sister who was hospitalized. Besides, it was only last week that my father was able to obtain his medical certificate from the hospital where his injuries were treated. It says in the certificate that it will require him 10 to 15-day medication. He went to the village officials and was told that his complaint was not completely acted upon because it was only the neighbor whom he had fought with who showed up in the three hearings set by the barangay chairman.

My father is considering to refile his complaint but our neighbor said it cannot be done because there is already double jeopardy. Is that correct? Has the crime also prescribed? Please advise me on this matter.
Alyssa

Dear Alyssa,
The principle of double jeopardy provides a barrier to the filing of a second or subsequent complaint against a person who has already been convicted or acquitted of the same offense. This principle is expressly provided for under Section 21, Article III of the 1987 Philippine Constitution, which states that “(n)o person shall be twice put in jeopardy of punishment for the same offense. If an act is punished by law or an ordinance, conviction or acquittal under either shall constitute a bar to another prosecution for the same act.”

It bears stressing, though, that all the elements of double jeopardy must be present in order for such barrier to attach, to wit: (a) that there has been a valid indictment, (b) such indictment was before a competent court, (c) that it was made after arraignment, (d) after a valid plea having been entered; and (e) that the case was dismissed or otherwise terminated without the express consent of the accused (Icasiano vs. Sandiganbayan, G.R. No. 95642, May 28, 1992).

In the situation that you have presented, we believe that there is no double jeopardy yet considering that the elements thereof are wanting. It is true that your father has filed a complaint against your neighbor but such was only filed before the barangay. While the barangay provides an avenue for parties to amicably settle their disputes and the complaint is well within the jurisdiction of the barangay, such is not considered as a “competent court.”

Corollary thereto, your father may refile his complaint before the barangay if conciliation proceedings concerning the complaint, which he filed last month, has been terminated because of his non-appearance. As mentioned and contrary to what your neighbor claims, there is no double jeopardy yet.

It is also important to note that the complaint may still be filed since the crime has not yet prescribed. Under the Revised Penal Code, the imposable penalty for the crime of less serious physical injuries is arresto mayor or imprisonment for one month and one day to six months. Crimes with such penalty prescribe in five years (Article 265 in relation to Articles 27 and 90, Ibid.). Considering that only a month has passed since the altercation between your father and your neighbor, it is well within the five-year prescriptive period. Hence, it may still be refiled before the barangay.

We hope that we were able to answer your queries. Please be reminded that this advice is based solely on the facts you have narrated and our appreciation of the same. Our opinion may vary when other facts are changed or elaborated.

Editor’s note: Dear PAO is a daily column of the Public Attorney’s Office. Questions for Chief Acosta may be sent to dearpao@manilatimes.net

Monthly dialogues set

THE European Chamber of Commerce of the Philippines (ECCP) said it would hold monthly dialogues with local government units (LGUs) to identify growth areas outside Metro Manila ahead of the country’s planned shift to the federal system.
Henry J. Schumacher, ECCP senior advocacy adviser, said Interior Undersecretary Austere A. Panadero has invited the ECCP, which has over 800 member companies operating across the country, for talks every month.

“[T]hat makes a big difference. Now we can ask our members who face challenges or see opportunities with LGUs to join these constructive interactions,” read a statement quoting Mr. Schumacher and sent to journalists yesterday.

“The government is looking at decentralization and regionalization. We have started it.”

President Rodrigo R. Duterte in his inaugural address had urged Congress to amend the Philippine Constitution to pave the way for federalism, where the power to govern is shared between national and state governments. That bid gained some ground on his first month in office but the debate fizzled out somewhat amid disagreements over how to do the shift. Mr. Duterte had said he wants the shift done before he ends his term in 2022.

“We have to understand that we have to drive more investments in Visayas and Mindanao,” Mr. Schumacher said.

The group would start the regular dialogue with select LGUs across the three major islands, such as Puerto Princesa for Luzon, Tuburan (a second income class municipality in Cebu) for Visayas, and Cagayan de Oro for Mindanao.

“By having regular dialogues with the government, we will create opportunities to jointly address the challenges as far as promoting sustainable business and inclusive growth at the local level,” ECCP President Guenter Taus said in the statement. -- RSCC

source:  Businessworld

Makati forum shopping over Bonifacio row: SC

THE Supreme Court (SC) has found Makati City guilty of forum-shopping for pursuing two simultaneous legal actions against a Pasig City court regarding a dispute on jurisdiction over part of Fort Bonifacio.

In a 27-page decision dated June 15, the SC Second Division said the city, through its lawyers, was “guilty of direct contempt” for engaging in forum shopping.

It imposed a fine of P2,000 each on the city’s three counsels: Pio Kenneth I. Dasal, Glenda Isabel L. Biason, and Gwyn Gareth T. Mariano.

The case was an offshoot of Makati City’s dispute with Taguig City over 729.15 hectares of land occupied by the inner Fort Bonifacio barangays (Post Proper Northside and Post Proper Southside) and the seven Enlisted Men’s Barrios barangays (whose names end in “EMBO”). The area contains the lucrative Bonifacio Global City.

The high court did not tackle the dispute itself, as an appeal by Taguig City over the July 30, 2013 decision in Makati City’s favor remains pending before the Court of Appeals (CA) Sixth Division.

Makati City initially lost the legal battle, after Pasig City Regional Trial Court (RTC) Branch 153 Judge Briccio C. Ygaña issued a July 8, 2011 decision that ruled the area a part of Taguig City. Makati City, however, questioned the judge’s jurisdiction, claiming the decision was only antedated and issued after he retired on July 9.

In response, Makati City petitioned the CA to annul Mr. Ygaña’s judgment, while simultaneously filing a motion for reconsideration (MR) ad cautelam with the Pasig RTC -- a “precautionary” appeal of the decision while rejecting the judge’s jurisdiction.

The CA Former Seventh Division dismissed the petition to annul the judgment in December 2012 on the grounds of forum-shopping, although the court later dropped this finding in an April 2013 resolution that only junked the case for prematurity.

The MR ad cautelam tackled by Pasig RTC Judge Leili Cruz Suarez (who took over Mr. Ygaña) also resulted in a loss for Makati City. But when the case was elevated before the CA Sixth Division, the city prevailed in the July 2013 decision now being appealed by Taguig City.

The high court agreed with Taguig City that Makati City should be sanctioned for forum-shopping, and said the lawyers had no justification for simultaneously filing the petition for annulment and the MR ad cautelam.

The decision, penned by Associate Justice Marvic M. V. F. Leonen, noted that Makati City’s contention about the just-retired judge could have been raised in the MR.

“It was not as though respondent was left with no other remedy... Lack of jurisdiction could have just as easily been raised as an error in its Appeal or in its Motion for Reconsideration,” it read.

The high court added that Makati City’s actions even gave rise to harm as the RTC began conflicting with the CA. While the RTC found the city guilty of forum-shopping, the CA, as narrated above, “strangely flip-flopped” on the issue.

“Respondent City of Makati’s actions have not only vexed courts as an adverse litigant. They have actually and already given rise to conflicting decisions, not only between different courts -- the RTC and Court of Appeals -- but even within the Court of Appeals itself,” the decision said.

The high court also criticized Makati City’s actions as “a contumacious attempt to obfuscate the resolution of cases through the abuse of legal processes.”

source:  Businessworld

Counting terms: Jurisprudential guidelines on the three-term limit rule for local elective officials

The euphoria of the 2016 elections may have died down but some legal issues are yet to be resolved by the courts and the Comelec. A number of these cases may relate to the proper interpretation of the “three-term limit rule” for local elective officials.

This disqualification rule, as enshrined under Section 8, Article X of the 1987 Constitution and reiterated in Sec. 43 (b) of the Local Government Code of 1991, prohibits local elective officials from serving more than three (3) consecutive terms in the same position. It ensures that there is a change in leadership every after three consecutive terms of a local elective official to give chance to some other qualified individuals. Although the rule appears to be simple, the same has been a fertile ground for disputes stemming from varying interpretations of said rule.

In Abundo v. Comelec (2012), the Supreme Court laid down the following requisites for the applicability of the rule: (1) that the official concerned has been elected for three consecutive terms in the same local government post; and (2) that he has fully served three consecutive terms.

The Abundo ruling likewise summarized various cases where the applicability of this rule was tested. These cases relate to: (1) assumption of office by operation of law, (2) assumption of office after winning a recall election, (3) conversion of a municipality to a city, and (4) declaration of the proclaimed candidate as the losing party in an election contest, and other analogous cases.

ASSUMPTION OF OFFICE BY OPERATION OF LAW
In Borja, Jr. v. Comelec (1998), Capco was elected vice-mayor but he eventually succeeded as mayor by operation of law due to the death of the incumbent mayor. Capco was then elected as mayor for two more terms after his assumption by operation of law. On his third attempt to re-election, his disqualification was sought. The Supreme Court held that “it is not enough that an individual served three consecutive terms in an elective local office, he must also have been elected to the same position for the same number of times before the disqualification can apply.” Thus, the initial assumption by operation of law was not counted for purposes of the three-term limit rule.

ASSUMPTION OF OFFICE AFTER WINNING IN A RECALL ELECTION
In Socrates v. Comelec (2002), Hagedorn was elected and served as mayor for three consecutive terms. After that Hagedorn opted not to run for the next elections, in which Socrates eventually won. However, while serving his term, Socrates faced recall proceedings. Hagedorn ran for the former’s unexpired term, so Socrates sought his disqualification. The Supreme Court upheld Hagedorn’s candidacy to run in the recall election, since after his third term “he became a private citizen until the recall election” where he won.

CONVERSION OF A MUNICIPALITY INTO A CITY
In Latasa v. Comelec (2003), Latasa served as Mayor of the Municipality of Digos for three consecutive terms. During his third term, Digos was converted to a component city. When he filed his candidacy for city mayor, the Supreme Court ruled that “the conversion of a municipality to a city does not constitute an interruption of the incumbent official’s continuity of service.” Thus, the rule was applied.

LOSING IN AN ELECTION CONTEST
In Lonzanida v. Comelec (1999), Lonzanida was elected and served as mayor for three terms from 1989-1998. However, his proclamation relative to the 1995 election (for his 3rd term) was declared as null on the ground of failure of elections. Three months before the 1998 elections, Lonzanida vacated the mayoralty post. In the May 1998 elections, Lonzanida again filed his certificate of candidacy. This was questioned by his opponent.

The Supreme Court held that “Lonzanida cannot be considered as having been duly elected to the post in the May 1995 elections since his assumption of office as mayor cannot be deemed to have been by reason of a valid election but by reason of a void proclamation.” It was also stated that “Lonzanida did not fully serve the 1995-1998 mayoral term having been ordered to vacate his post before the expiration of the term, a situation which amounts to an involuntary relinquishment of office.” Thus, the rule did not apply.

Contrast this to Ong v. Alegre (2006), Ong was elected and served as mayor for three terms from 1995-2004. During the 1998 elections, the Comelec nullified Ong’s proclamation on account that he lost during the 1998 elections. Nonetheless, the decision became final and executory on July 4, 2001 when Ong had fully served the 1998-2001 term and was in fact already starting to serve the 2001-2004 term. In 2004, he filed his certificate of candidacy for the same position which his opponent questioned. Ong invoked the ruling in Lonzanida.

The Supreme Court held that “his assumption of office as mayor for the term 1998-2001 constitutes service for the full term.”Lonzanida did not apply because the conditions are different. Ong was deemed to have served for a full term because Ong’s proclamation was voided only after the expiry of the term. It was further noted that “the decision declaring Ong as not having won the 1998 elections was without practical and legal use and value.” “His proclamation as the duly elected mayor in the 1998 mayoralty election coupled by his assumption of office and his continuous exercise of the functions thereof from start to finish of the term, should legally be taken as service for a full term in contemplation of the three-term limit rule.”

Based on the foregoing, the rule is applicable for as long as a local elective official (1) has been elected and (2) had served for three consecutive terms in the same position. As such, an official who merely assumed office by operation of law can run for the same position for three consecutive terms since he was not elected to the position. Likewise, an officer who has been elected and had served three consecutive terms will not be disqualified to run for a recall election for the same position since there has been an interruption in the continuity of terms of office after his third term. Lastly, an official who did not serve a full term for having been declared to have lost an election contest can still run for the same position since the requirements are not complied with.

On the other hand, the rule is applicable to disqualify a local elective official to run for a fourth consecutive term over the same position even if the municipality has been converted into a city, or when a local elective official has been declared to have lost an election only after he had already served his full term.

Reynold L. Orsua is an Associate of the Litigation and Dispute Resolution (LDRD) of the Angara Abello Concepcion Regala & Cruz Law Offices (ACCRALAW).

source:  Businessworld

Federalism 101: Meaningful autonomy, virtues and frailties

Venezuela is the poster boy for how mindless populism runs an economy down to the ground. The country is on a free fall and Venezuelans are teetering on the edge of starvation. It is also a poster boy for how not to organize a federal system. Two centuries after its founding as a federal state in 1811, it has still to find a federalism that works. It has oscillated from the original decentralized federalism to a “Centralized Federal State” of the 1999 Constitution to the “transitional constitutional regime” where the president enjoys decree-making powers. Along the way, the central state has so disemboweled the subnational states that all the possible virtues that can adorn federalism have folded their tents and departed.

What are the possible virtues and frailties of meaningful federalism? My perspective will be economic and will be limited. Everything depends upon meaningful autonomy. With meaningful autonomy, these are possible: first jurisdictional competition: subnational states can engage its fellow states in competition for investments via lower taxes or more market-friendly labor policies in the same way that countries compete. One of the great attractions of PRC as investment destination is that labor unions are illegal. A sub-state can choose from different economic models, say, South Korea or North Korea as autonomy allows. The fate of the whole economy is thus not a wagered upon one model. It is risk diversification at the policy level. Modern Venezuela has, however, evolved no more than meaningless autonomy.

Second is that subnational states will implement a national policy as suits its needs and complimentary assets.

A good example is the agrarian reform policy in India: different subnational states implemented different types of agrarian reform of which the three most important are (Banerjee and Mookherjee, 2005; 2007): (1) tenancy reform which changed the contractual terms in favor of tenants in rural India (crop shares and security of tenure associated most with Operation Barga in Punjab and West Bengal); (2) land ceiling and redistribution: imposed land ownership ceilings and the redistribution of land in excess of the ceiling (Kerala and CARP Philippines); (3) the abolition of tax farming intermediaries, the zamindari system. The robust favorable result on poverty reduction and farm productivity heavily favored contract and bargaining reform while land ceiling and acquisition produced the opposite result. The already agriculturally affluent Punjab and West Bengal benefited. The framers of CARP followed Kerala and got the same sad outcome. So one possibility under meaningful federalism is that land reform in the Philippines will diversify for the good.

The third virtue of the federal system comes via the Buchanan-Nozick federalism: the sub-states will differentiate by local public goods and citizens can vote with their feet -- locate in states whose the Constitution and the local public goods congrue best with their individual values. One state may combine high income taxes with quality publicly provided local public goods and services (Scandinavian welfare state) and another combines low income taxes with less publicly and more privately provided public goods (most LDCs and the Philippines). This circumscription of citizen values by Tiebout voting (effectively violating the Arrow axiom of universal domain) avoids the Arrow paradox of democracy. A federal system like the Swiss cantons acts to homogenize the sub-state population and preferences thus enabling, for example, the median voter theorem.

Fourth is the “tragedy of the commons” argument: In presidential states viewed as a failure by its polity, different subnational groups will retreat to their own subgroups who view fiscal resources of the center as a common resource: they will play a zero-sum game of “grab as grab can”; in those same presidential states, “who pays and who loses” may not be very palpable because the contested resource is large and the competing claimants are numerous and faceless. When federated, the contested subnational state’s common resource as well as the number of claimants are smaller resulting in more visibility and salience on “who pays and who loses.” This should induce greater vigilance and accountability over the allocation and use of local resources -- the classic argument for most decentralization effort.

But the frailties of meaningful federalism are also compelling: arterial infrastructure (those that span sub-national state jurisdictions) will find it harder to be engendered for two reasons: increased approval hurdles (we already experience this with the Local Government Code); two, because the fraction of fiscal resources in the control of the center decreases (as in, say, the Pimentel Plan), it is less able to bankroll those public works, ceteris paribus.

And then there is the equalization transfer issue: cross jurisdiction inequality will rise because capacity of the center to effect fiscal transfers (Internal Revenue Allotment) to poorer jurisdictions will fall -- the Calabarzon region for example will retain more of its huge tax revenues while poorer regions such as ARMM can expect less in the form of IRA. Again cross jurisdiction mobility will mitigate but not eliminate this problem for citizens and household who can move. Poverty will thus rise in these poorer sub-states even as it drops in richer ones.

It is now canonical in the post-Piketty Capital era that income inequality will rise in market economies unless there is a determined pushback by the state. The capacity of the state to do that by transfers (say with an expanded CCT) will be diminished. It is a good bet that,ceteris paribus, net poverty incidence will rise.

Finally, the centrifugal risk: a successful sub-state in a national collective viewed as a failure will be tempted to go it alone (“Brexit” in EU, Catalan exit in Spain). The presence of a sub-state president and legislature makes it easier to bolt. If the economy tanks under the Duterte or subsequent presidency, the rush to the door will forthcome.

A paradox emerges: If Duterte turns out to be a gale force for the good, meaningful federalism will cramp his style. If Duterte turns out to be a force for the bad, meaningful federalism can limit the damage. This conservative posture may not jibe well with voters’ electoral expectation.

Of course, Duterte can always do a Hugo Chavez: chip away at federal autonomy using emergency decree-making powers and run the Philippine economy to the ground. Le plus la meme chose? Whether power is presidential or federal, only correct policies will redeem it.

Raul V. Fabella the chairman of the Institute for Development and Econometric Analysis, a professor at the UP School of Economics, and a member of the National Academy of Science and Technology.

source:  Businessworld Column

Introspective
Raul V. Fabella

Amicable settlement can be enforced by village ‘lupon’

Dear PAO,
My neighbor and I entered into an amicable settlement over my vehicle, which he had damaged in an accident. Under such settlement, he agreed to pay me P 3,000.00 a month for twelve months starting January 2016. He, however, has not paid me anything. May I enforce our agreement?

Sincerely yours,    
BJ

Dear BJ,
For your information, Articles 416 and 417 of Republic Act (RA) 7160 or the Local Government Code of the Philippines, states:

SEC. 416. Effect of Amicable Settlement and Arbitration Award. – The amicable settlement and arbitration award shall have the force and effect of a final judgment of a court upon the expiration of ten (10) days from the date thereof, unless repudiation of the settlement has been made or a petition to nullify the award has been filed before the proper city or municipal court. However, this provision shall not apply to court cases settled by the lupon [village council] under the last paragraph of Section 408 of this Code, in which case the compromise settlement agreed upon by the parties before the lupon chairman or the pangkat [group] chairman shall be submitted to the court and upon approval thereof, has the force and effect of a judgment of said court.

SEC. 417. Execution. – The amicable settlement or arbitration award may be enforced by execution by the lupon within six (6) months from the date of the settlement. After the lapse of such time, the settlement may be enforced by action in the appropriate city or municipal court.

Clearly, when you and your neighbor settled your differences in the barangay [village] and you came up with an agreement relative to that, the same is considered of force and in effect ten (10) days after its award or agreement, if the same is not duly repudiated. Within six (6) months thereafter, the same maybe executed by the barangay lupon, but beyond that time, the filing of a Motion for Execution before the proper Municipal/Metropolitan Trial Court becomes the proper remedy, which is apt in your situation.

Again, we find it necessary to mention that this opinion is solely based on the facts you have narrated and our appreciation of the same. The opinion may vary when the facts are changed or elaborated.

We hope that we were able to enlighten you on the matter.

Editor’s note: Dear PAO is a daily column of the Public Attorney’s Office. Questions for Chief Acosta may be sent to dearpao@manilatimes.net