The Supreme Court (SC) has ruled that local government units (LGUs) cannot impose business tax on transportation contractors and common carriers.
In a 45-page decision released February 18 and penned by Associate Justice Teresita Leonardo-de Castro, the high court nullified Section 21 (b) of the Manila Revenue Code (MRC) for violating restrictions on the taxing powers of LGUs under the Local Government Code (LGC).
“Strictly assessed against the guidelines and limitations set forth in the LGC, Section 21 (b) of the Manila Revenue Code, as amended was enacted ultra vires (beyond the powers),” the SC said.
“It is already well settled that although the power to tax is inherent in the State, the same is not true for the LGUs to whom the power must be delegated by Congress and must be exercised within the guidelines and limitations that Congress may provide,” the court added.
MRC Section 21(b), enacted and approved in 1993, imposed a business tax of 50% of 1% per annum on the “gross receipts of garages, cars for rent or hire driven by lessee, transportation contractors, persons who transport passenger or freight for hire, and common carriers by land, air or water, except owners of bancas and owners of animal-drawn two-wheel vehicles.”
The City Treasurer of Manila began imposing and collecting the business tax in January 1994.
Questioning the validity of the provision, Malaysian Airline System (MAS) filed a petition before the Regional Trial Court (RTC), which favored the carrier. MAS was then assessed to pay P1.1 million license tax instead of the usual P10,307.
A restraining order against the implementation of MRC Section 21 (b) was issued following the petition filed by other transport companies questioning the ruling. These companies were Maersk Filipinas Inc., American President Lines, Ltd., Overseas Freighters Shipping Inc., Flagship Tankers Corporation, Core Indo Maritime Corporation, and Core Maritime Corporation.
However, the Manila court eventually recalled all the restraining orders that prompted the transport companies to go to the high court.
For its part, the city government of Manila filed a petition with the SC questioning the RTC decision that favored MAS.
The high tribunal consolidated all petitions from the city government of Manila City and the transport companies.
In favoring the transport companies, the SC cited the limitations of the taxing power of LGUs as provided under the LGC, specifically, Sec 133 (j), which “clearly and unambiguously proscribes LGUs from imposing any tax on the gross receipts of transportation contractors, persons engaged in the transportation of passengers or freight by hire, and common carriers by air, land and water.”
The high court said the confusion stemmed from a phrase in Section 143 (h) of the LGC, “unless otherwise provided herein,” which the city government interpreted as an authority to impose tax on any business subject to excise, percentage or value-added tax.
“The omnibus grant of power to municipalities and cities under Section 143(h) of the LGC cannot overcome the specific exception/exemption in Section 133(j) of the same Code. This is in accord with the rule on statutory construction that specific provisions must prevail over general ones,” the decision added.
Citing provisions from the former Local Tax Code and Republic Act 7716 (E-VAT Law), as well as Congress deliberations on the LGC, the SC emphasized that this interpretation is consistent with the intention of the law to withhold from LGUs the power to tax persons engaged in transportation.
The high court said “it is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called ‘common carrier’s tax.’”
“Petitioner is already paying three percent common carrier’s tax on its gross sales/earnings under the National Internal Revenue Code. To tax petitioner again… would defeat the purpose of the Local Government Code,” the SC noted. – Roumina Pablo
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