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City Government of San Pablo Laguna vs Reyes 1999 Section 543 (f): general repealing clause.

Issue: WON there was an implied repeal by RA 7160 of theMERALCOs franchise insofar as the latter imposes a 2% taxin lieu of all taxes and assessments of whatever nature. YES.A general law cannot be construed to have repealed a speciallaw by mere implication unless the intent to repeal or alter ismanifest and it must be convincingly demonstrated that thetwo laws are so clearly repugnant and patently inconsistent that they cannot co-exist.The magic words contained in the phrase shall be in lieu of all taxes have to give way to the peremptory language of theLGC specifically providing for the withdrawal of suchexemption privileges.The LGC was enacted in pursuance of the constitutionalpolicy to ensure autonomy to local governments and toenable them to attain fullest development of self-reliant communities.These policy considerations are consistent with the Statepolicy to ensure autonomy to local governments and theobjective of the LGC that they enjoy genuine and meaningfullocal autonomy to enable them to attain their fullest development as self-reliant communities and make themeffective partners in the attainment of national goals. Thepower to tax is the most effective instrument to raise neededrevenues to finance and support myriad activities of localgovernment units for the delivery of basic services essentialto the promotion of the general welfare and theenhancement of peace, progress, and prosperity of thepeople.Reason for the withdrawal: the tax exemption resulted inserious tax base erosion and distortions in the tax treatment of similarly situated enterprises, and there was a need forthese entities to share in the requirements of development,fiscal or otherwise, by paying the taxes and other chargesdue from them NATURE OF FRANCHISE TAX; TAX EXEMPTION; WITHDRAWAL OF TAX PRIVILEGES BY THE LOCAL GOVERNMENT CODE NATIONAL POWER CORPORATION vs. CITY OF CABANATUAN GR. No. 149110, April 9, 2003 Facts: NAPOCOR, the petitioner, is a government-owed and controlled corporation created under Commonwealth Act 120. It is tasked to undertake the development of hydroelectric generations of power and the production of electricity from nuclear, geothermal, and other sources, as well as, the transmission of electric power on a nationwide basis. For many years now, NAPOCOR sells electric power to the resident Cabanatuan City, posting a gross income of P107,814,187.96 in 1992. Pursuant to Sec. 37 of Ordinance No. 165-92, the respondent assessed the petitioner a franchise tax amounting to P808,606.41, representing 75% of 1% of the formers gross receipts for the preceding year. Petitioner, whose capital stock was subscribed and wholly paid by the Philippine Government, refused to pay the tax assessment. It argued that the respondent has no authority to impose tax on government entities. Petitioner also contend that as a nonprofit organization, it is exempted from the payment of all forms of taxes, charges, duties or fees in accordance with Sec. 13 of RA 6395, as amended. The respondent filed a collection suit in the RTC of Cabanatuan City, demanding that petitioner pay the assessed tax, plus surcharge equivalent to 25% of the amount of tax

and 2% monthly interest. Respondent alleged that petitioners exemption from local taxes has been repealed by Sec. 193 of RA 7160 (Local Government Code). The trial court issued an order dismissing the case. On appeal, the Court of Appeals reversed the decision of the RTC and ordered the petitioner to pay the city government the tax assessment. Issues: (1) Is the NAPOCOR excluded from the coverage of the franchise tax simply because its stocks are wholly owned by the National Government and its charter characterized is as a non-profit organization? (2) Is the NAPOCORs exemption from all forms of taxes repealed by the provisions of the Local Government Code (LGC)? Held: (1) NO. To stress, a franchise tax is imposed based not on the ownership but on the exercise by the corporation of a privilege to do business. The taxable entity is the corporation which exercises the franchise, and not the individual stockholders. By virtue of its charter, petitioner was created as a separate and distinct entity from the National Government. It can sue and be sued under its own name, and can exercise all the powers of a corporation under the Corporation Code. To be sure, the ownership by the National Government of its entire capital stock does not necessarily imply that petitioner is no engage din business. (2) YES. One of the most significant provisions of the LGC is the removal of the blanket exclusion of instrumentalities and agencies of the National Government from the coverage of local taxation. Although as a general rule, LGUs cannot impose taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities, this rule now admits an exception, i.e. when specific provisions of the LGC authorize the LGUs to impose taxes, fees, or charges on the aforementioned entities. The legislative purpose to withdraw tax privileges enjoyed under existing laws or charter is clearly manifested by the language used on Sec. 137 and 193 categorically withdrawing such exemption subject only to the exceptions enumerated. Since it would be tedious and impractical to attempt to enumerate all the existing statutes providing for special tax exemptions or privileges, the LGC provided for an express, albeit general, withdrawal of such exemptions or privileges. No more unequivocal language could have been used. Palma Development Corp vs. Municipality of Malangas GR No. 152492, October 16, 2003 In accordance with the Local Government Code of 1991, a municipal ordinance imposing fees on goods that pass through the issuing municipalitys territory is null and void. Petitioner Palma Development Corporation is engaged in milling and selling rice and corn to wholesalers in Zamboanga City. It uses the municipal port of Malangas, Zamboanga del Sur as transshipment point for its goods. The port, as well as the surrounding roads leading to it, belong to and are maintained by the Municipality of Malangas, Zamboanga del Sur. On January 16, 1994, the municipality passed Municipal Revenue Code No. 09, Series of 1993, which was subsequently approved by the Sangguniang Panlalawigan of Zamboanga del Sur in Resolution No. 1330 dated August 4, 1994. Section 5G.01 of the ordinance reads: Section 5G..01. Imposition of fees. There shall be collected service fee for its use of the municipal road[s] or streets leading to the wharf and to any point along the shorelines within the jurisdiction of the municipality and for police surveillance on all goods and all equipment harbored or sheltered in

the premises of the wharf and other within the jurisdiction. Accordingly, the service fees imposed by Section 5G.01 of the ordinance was paid by petitioner under protest. It contended that under Republic Act No.. 7160, otherwise known as the Local Government Code of 1991, municipal governments did not have the authority to tax goods and vehicles that passed through their jurisdictions. Thereafter, before the Regional Trial Court (RTC) of Pagadian City, petitioner filed against the Municipality of Malangas on November 20, 1995, an action for declaratory relief assailing the validity of Section 5G.01 of the municipal ordinance. By express language of Sections 153 and 155 of RA No. 7160, local government units, through their Sanggunian, may prescribe the terms and conditions for the imposition of toll fees or charges for the use of any public road, pier or wharf funded and constructed by them. A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid. However, Section 133(e) of RA No. 7160 prohibits the imposition, in the guise of wharfage, of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise. It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods, because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e). vi. TFC on products sold by marginal farmers of fishermen 1. Definition of Marginalized Fishermen (Sec. 122) "Marginal Farmer or Fisherman" refers to an individual engaged in subsistence farming or fishing which shall be limited to the sale, barter or exchange of agricultural or marine products produced by himself and his immediate family Batangas Power Corporation vs. Batangas City, G.R. No. 152675, April 28, 2004 Facts: In the early 1990s, power outages lasted 8-12 hours daily and power generation was badly needed. Thegovernment, through the National Power Corporation (NPC), sought to attract investors in power plant operations byproviding them with incentives, one of which was through the NPCs assumption of payment of their taxes in the BuildOperate and Transfer (BOT) Agreement.On June 29, 1992, Enron Power Development Corporation (Enron) and petitioner NPC entered into a Fast Track BOTProject. Enron agreed to supply a power station to NPC and transfer its plant to the latter after ten (10) years of operation.Section 11.02 of the BOT Agreement provided that NPC shall be responsible for the payment of all taxes that may beimposed on the power station, except income taxes and permit fees . Subsequently, Enron assigned its obligation under the BOT Agreement to petitioner Batangas Power Corporation (BPC). On September 23, 1992, the BOI issued a certificate of registration to BPC as a pioneer enterprise entitled to a taxholiday for a period of six (6) years . On October 12, 1998, Batangas City sent a letter to BPC demanding payment of business taxes and penalties, commencing from the year 1994, BPC refused to pay, citing its tax-exempt status as apioneer enterprise for six (6) years under Section 133 (g) of the Local Government Code (LGC). The citys tax claimwas modified and demanded payment of business taxes from BPC only for the years 1998-1999.

BPC still refused to paythe tax. It insisted that its 6-year tax holiday commenced from the date of its commercial operation on July 16,1993 , not from the date of its BOI registration in September 1992.In the alternative, BPC asserted that the city should collect the tax from the NPC as the latter assumed responsibilityfor its payment under their BOT Agreement . On August 26, 1999, the NPC intervened. While admitting assumption of BPCs tax obligations under their BOT Agreement, NPC refused to pay BPCs business tax as it allegedly constituted anindirect tax on NPC which is a tax-exempt corporation under its Charter .BPC filed a petition for declaratory relief12 with the Makati RTC against Batangas City and NPC. It alleged that under theBOT Agreement, NPC is responsible for the payment of such taxes but as NPC is exempt from taxes, both the BPCand NPC are not liable for its payment .Makati RTC dismissed the petition and held that: (1) BPC is liable to pay business taxes to the city; (2) NPCs taxexemption was withdrawn with the passage of R.A. No. 7160 (The Local Government Code) ; and, (3) the 6-year taxholiday granted to pioneer business enterprises starts on the date of registration with the BOI as provided in Section 133(g) of R.A. No. 7160, and not on the date of its actual business operations. Issue: Whether or not NPCs tax exemption privileges under its Charter were withdrawn by Section 193 of the LocalGovernment Code (LGC). Held: Yes. The effect of the LGC on the tax exemption privileges of the NPC has already been extensively discussed andsettled in the recent case of National Power Corporation v. City of Cabanatuan. In said case, this Court recognized the removal of the blanket exclusion of government instrumentalities from local taxation as one of themost significant provisions of the 1991 LGC. Specifically, we stressed that Section 193 of the LGC, an express andgeneral repeal of all statutes granting exemptions from local taxes, withdrew the sweeping tax privileges previouslyenjoyed by the NPC under its Charter. The power to tax is no longer vested exclusively on Congress; local legislative bodies are now given direct authority tolevy taxes, fees and other charges pursuant to Article X, section 5 of the 1987 Constitution. The LGC is considered as themost revolutionary piece of legislation on local autonomy, the LGC effectively deals with the fiscal constraints faced byLGUs. It widens the tax base of LGUs to include taxes which were prohibited by previous laws.Neither can the NPC successfully rely on the Basco case as this was decided prior to the effectivity of the LGC

, when there was still no law empowering local government units to tax instrumentalities of the national government

Manila International Airport Authority vs. Court of Appeals 2072010 MANILA INTERNATIONAL AIRPORT AUTHORITY vs. COURT OF APPEALS G.R. No. 155650 July 20, 2006 Facts: MIAA received Final Notices of Real Estate Tax Delinquency from the City of Paraaque for the taxable years 1992 to 2001. MIAAs real estate tax delinquency was estimated at P624 million. The City of Paraaque, through its City Treasurer, issued notices of levy and warrants of levy on the Airport Lands and Buildings. The Mayor of the City of Paraaque threatened to sell at public auction the Airport Lands and Buildings should MIAA fail to pay the real estate tax delinquency. MIAA filed with the Court of Appeals an original petition for prohibition and injunction, with prayer for preliminary injunction or temporary restraining order. The petition sought to restrain the City of Paraaque from imposing real estate tax on, levying against, and auctioning for public sale the Airport Lands and Buildings. Paranaques Contention: Section 193 of the Local Government Code expressly withdrew the tax exemption privileges of government-owned andcontrolled corporations upon the effectivity of the Local Government Code. Respondents also argue that a basic rule of statutory construction is that the express mention of one person, thing, or act excludes all others. An international airport is not among the exceptions mentioned in Section 193 of the Local Government Code. Thus, respondents assert that MIAA cannot claim that the Airport Lands and Buildings are exempt from real estate tax. MIAAs contention: Airport Lands and Buildings are owned by the Republic. The government cannot tax itself. The reason for tax exemption of public property is that its taxation would not inure to any public advantage, since in such a case the tax debtor is also the tax creditor. Issue: WON Airport Lands and Buildings of MIAA are exempt from real estate tax under existing laws? Yes. Ergo, the real estate tax assessments issued by the City of Paraaque, and all proceedings taken pursuant to such assessments, are void. Held: 1. MIAA is Not a Government-Owned or Controlled Corporation

MIAA is not a government-owned or controlled corporation but an instrumentality of the National Government and thus exempt from local taxation. MIAA is not a stock corporation because it has no capital stock divided into shares. MIAA has no stockholders or voting shares. MIAA is also not a non-stock corporation because it has no members. A nonstock corporation must have members. MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental functions. MIAA is like any other government instrumentality, the only difference is that MIAA is vested with corporate powers. When the law vests in a government instrumentality corporate powers, the instrumentality does not become a corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a government instrumentality exercising not only governmental but also corporate powers. Thus, MIAA exercises the governmental powers of eminent domain, police authority and the levying of fees and charges. At the same time, MIAA exercises all the powers of a corporation under the Corporation Law, insofar as these powers are not inconsistent with the provisions of this Executive Order. 2. Airport Lands and Buildings of MIAA are Owned by the Republic a. Airport Lands and Buildings are of Public Dominion The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the State or the Republic of the Philippines. No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like roads, canals, rivers, torrents, ports and bridges constructed by the State, are owned by the State. The term ports includes seaports and airports. The MIAA Airport Lands and Buildings constitute a port constructed by the State. Under Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are properties of public dominion and thus owned by the State or the Republic of the Philippines. The Airport Lands and Buildings are devoted to public use because they are used by the public for international and domestic travel and transportation. The fact that the MIAA collects terminal fees and other charges from the public does not remove the character of the Airport Lands and Buildings as properties for public use. The charging of fees to the public does not determine the character of the property whether it is of public dominion or not. Article 420 of the Civil Code defines property of public dominion as one intended for public use. The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines, constitute the bulk of the income that maintains the

operations of MIAA. The collection of such fees does not change the character of MIAA as an airport for public use. Such fees are often termed users tax. This means taxing those among the public who actually use a public facility instead of taxing all the public including those who never use the particular public facility. b. Airport Lands and Buildings are Outside the Commerce of Man The Court has also ruled that property of public dominion, being outside the commerce of man, cannot be the subject of an auction sale. Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition through public or private sale. Any encumbrance, levy on execution or auction sale of any property of public dominion is void for being contrary to public policy. Essential public services will stop if properties of public dominion are subject to encumbrances, foreclosures and auction sale. This will happen if the City of Paraaque can foreclose and compel the auction sale of the 600-hectare runway of the MIAA for nonpayment of real estate tax. c. MIAA is a Mere Trustee of the Republic MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic. Section 48, Chapter 12, Book I of the Administrative Code allows instrumentalities like MIAA to hold title to real properties owned by the Republic. n MIAAs case, its status as a mere trustee of the Airport Lands and Buildings is clearer because even its executive head cannot sign the deed of conveyance on behalf of the Republic. Only the President of the Republic can sign such deed of conveyance. d. Transfer to MIAA was Meant to Implement a Reorganization The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA was not meant to transfer beneficial ownership of these assets from the Republic to MIAA. The purpose was merely toreorganize a division in the Bureau of Air Transportation into a separate and autonomous body. The Republic remains the beneficial owner of the Airport Lands and Buildings. MIAA itself is owned solely by the Republic. No party claims any ownership rights over MIAAs assets adverse to the Republic. e. Real Property Owned by the Republic is Not Taxable Sec 234 of the LGC provides that real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person following are exempted from payment of the real property tax. However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from real estate tax. For example, the land

area occupied by hangars that MIAA leases to private corporations is subject to real estate tax. LAND TRANSPORTATION OFFICE [LTO], et al. vs. CITY OF BUTUAN,represented in this case by Democrito D. Plaza II, City Mayor.

41 Taxation ICase Digests G.R. No. 131512, January 20, 2000 FACTS: Respondent City of Butuan asserts that one of the salient provisions introduced by theLocal Government Code is in the area of local taxation which allows LGUs to collectregistration fees or charges along with, in its view, the corresponding issuance of allkinds of licenses or permits for the driving of tricycles.Sec. 129. Power to Create Sources or Revenue . Each local government unitshall exercise its power to create its own sources of revenue and to levy taxes,fees, and charges subject to the provisions herein, consistent with the basicpolicy of local autonomy. Such taxes, fees, and charges shall accrue exclusivelyto the local government units.Sec. 133. Common Limitations on the Taxing Powers of Local Government Units . Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of thefollowing:x x x x x x x x x(l) Taxes, fees or charges for the registration of motor vehicles and for theissuance of all kinds of licenses or permits for the driving thereof, excepttricycles. TheCityofButuanassertsthatSec.129andSec.133oftheLocalGovernmentCodeistheir basis for said ordinance and that, said provisions authorize LGUs to collect registrationfees or charges along with, in its view, the corresponding issuance of all kinds of licenses or permits for the driving of tricycles.LTO explains that one of the functions of the National Government, that , indeed has been transferred to LGUs is the franchisingauthority over tricycles-forhire of the LTFRB but NOT the authority of the LTO toregister all motor vehicles and to issue to qualified persons of licenses to drive suchvehicles. The RTC of Butuan decreed an issuance of a PERMANENT WRIT OFINJUCTION against TO prohibiting and enjoining LTO, as well as its employees andother persons acting in its behalf, from (a) registering tricycles and (b) issuing licenses to tricycle drivers. The CA sustained the RTCs decision. The adverse rulings of both Courts prompted the LTO to file an instant petition for review on certiorari to annul andset aside the earlier Court decisions. ISSUE: WON under the present set up, the power of the Land Registration Office ("LTO") toregister, tricycles in particular, as well as to issue licenses for the driving thereof, has likewise devolved to local government units

42 Taxation ICase Digests RULING: No. The reliance made by respondents on the broad taxing power of local government units,specifically under Section 133 of the Local Government Code, is tangential. Policepower and taxation, along with eminent domain, are inherent powers of sovereigntywhich the State might share with local government units by delegation given under aconstitutional or a statutory fiat. All these inherent powers are for a public purpose andlegislative in nature but the similarities just about end there. The basic aim of policepower is public good and welfare. Taxation, in its case, focuses on the power of government to raise revenue in order to support its existence and carry out its legitimateobjectives. Although correlative to each other in many respects, the grant of one doesnot necessarily carry with it the grant of the other. The two powers are, by tradition and jurisprudence, separate and distinct powers, varying in their respective concepts,ch aracter, scopes and limitations. To construe the tax provisions of Section 133(1)indistinctively would result in the repeal to that extent of LTO's regulatory power whichevidently has not been intended


June 10, 2003 _______________________________________________________________ TAX EXEMPTION;WITHDRAWAL OF TAX PRIVILEGES OF ELECTRIC COOPERATIVES BY THE LOCAL GOVERNMENT CODE _______________________________________________________________ Facts: On May 23, 2003, a class suit was filed by petitioners in their own behalf and in behalf of other electric cooperatives organized and existing under PD 269 which are members of petitioner Philippine Rural Electric Cooperatives Association, Inc. (PHILRECA). The other petitioners, electric cooperatives of Agusan del Norte

(ANECO), Iloilo 1 (ILECO 1) and Isabela 1 (ISELCO 1) are non-stock, non-profit electric cooperatives organized and existing under PD 269, as amended, and registered with the National Electrification Administration (NEA). Under Sec. 39 of PD 269 electric cooperatives shall be exempt from the payment of all National Government, local government, and municipal taxes and fee, including franchise, fling recordation, license or permit fees or taxes and any fees, charges, or costs involved in any court or administrative proceedings in which it may be party. From 1971to 1978, in order to finance the electrification projects envisioned by PD 269, as amended, the Philippine Government, acting through the National Economic council (now National Economic Development Authority) and the NEA, entered into six loan agreements with the government of the United States of America, through the United States Agency for International Development (USAID) with electric cooperatives as beneficiaries. The loan agreements contain similarly worded provisions on the tax application of the loan and any property or commodity acquired through the proceeds of the loan. Petitioners allege that with the passage of the Local Government Code their tax exemptions have been validly withdrawn. Particularly, petitioners assail the validity of Sec. 193 and 234 of the said code. Sec. 193 provides for the withdrawal of tax exemption privileges granted to all persons, whether natural or juridical, except cooperatives duly registered under RA 6938, while Sec. 234 exempts the same cooperatives from payment of real property tax. Issue: (1) Does the Local Government Code (under Sec. 193 and 234) violate the equal protection clause since the provisions unduly discriminate against petitioners who are duly registered cooperatives under PD 269, as amended, and no under RA 6938 or the Cooperatives Code of the Philippines? (2) Is there an impairment of the obligations of contract under the loan entered into between the Philippine and the US Governments? Held: (1) No. The guaranty of the equal protection clause is not violated by a law based on a reasonable classification. Classification, to be reasonable must (a) rest on substantial classifications; (b) germane to the purpose of the law; (c) not limited to the existing conditions only; and (d) apply equally to all members of the same class. We hold that there is reasonable classification under the Local Government Code to justify the different tax treatment between electric cooperatives covered by PD 269 and electric cooperatives under RA 6938. First, substantial distinctions exist between cooperatives under PD 269 and those under RA 6938. In the former, the government is the one that funds

those so-called electric cooperatives, while in the latter, the members make equitable contribution as source of funds. a. Capital Contributions by Members Nowhere in PD 269 doe sit require cooperatives to make equitable contributions to capital. Petitioners themselves admit that to qualify as a member of an electric cooperative under PD 269, only the payment of a P5.00 membership fee is required which is even refundable the moment the member is no longer interested in getting electric service from the cooperative or will transfer to another place outside the area covered by the cooperative. However, under the Cooperative Code, the articles of cooperation of a cooperative applying for registration must be accompanied with the bonds of the accountable officers and a sworn statement of the treasurer elected by the subscribers showing that at least 25% of the authorized share capital has been subscribed and at least 25% of the total subscription has been paid and in no case shall the paid-up share capital be less than P2,000.00. b. Extent of Government Control over Cooperatives The extent of government control over electric cooperatives covered by PD 269 is largely a function of the role of the NEA as a primary source of funds of these electric cooperatives. It is crystal clear that NEA incurred loans from various sources to finance the development and operations of these electric cooperatives. Consequently, amendments were primarily geared to expand the powers of NEA over the electric cooperatives o ensure that loans granted to them would be repaid to the government. In contrast, cooperatives under RA 6938 are envisioned to be self-sufficient and independent organizations with minimal government intervention or regulation. Second, the classification of tax-exempt entities in the Local Government Code is germane to the purpose of the law. The Constitutional mandate that every local government unit shall enjoy local autonomy, does not mean that the exercise of the power by the local governments is beyond the regulation of Congress. Sec. 193 of the LGC is indicative of the legislative intent to vet broad taxing powers upon the local government units and to limit exemptions from local taxation to entities specifically provided therein. Finally, Sec. 193 and 234 of the LGC permit reasonable classification as these exemptions are not limited to existing conditions and apply equally to all members of the same class. (2) No. It is ingrained in jurisprudence that the constitutional prohibition on the impairment of the obligations of contracts does not prohibit every change in existing laws. To fall within the prohibition, the change must not only

impair the obligation of the existing contract, but the impairment must be substantial. Moreover, to constitute impairment, the law must affect a change in the rights of the parties with reference to each other and not with respect to non-parties. The quoted provision under the loan agreement does not purport to grant any tax exemption in favor of any party to the contract, including the beneficiaries thereof. The provisions simply shift the tax burden, if any, on the transactions under the loan agreements to the borrower and/or beneficiary of the loan. Thus, the withdrawal by the Local Government Code under Sec. 193 and 234 of the tax exemptions previously enjoyed by petitioners does not impair the obligation of the borrower, the lender or the beneficiary under the loan agreements as, in fact, no tax exemption is granted therein. SMARTCOMMUNICATIONSVS.CITYOFDAVAO FACTS: Smart filed a special civil action for declaratory relief for the ascertainment of its rights and obligations under the Tax Code of the City of Davao, which imposes a franchise tax on businesses enjoying a franchise within the territorial jurisdiction of Davao. Smart avers that its telecenter in Davao City is exempt from payment of franchise tax to the City. RTC denied the petition. Smart filed an appeal before the SC but was denied. Hence, Smart filed a the motion for reconsideration. Smart argues that the in lieu of all taxes clause in Smarts franchise covers local taxes According to its franchise, Smart shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of the business transacted under this franchise by the grantee, its successors or assigns and the said percentage shall be in lieu of all taxes on this franchise or earnings. Moreover, it argues that the in in lieu of all taxes" clause is not rendered ineffective by the Expanded VAT Law. ISSUE: Whether Smart is liable to pay franchise tax to the City of Davao in view of the "in lieu of all taxes" clause in its franchise? HELD: YES. Tax exemptions are highly disfavored and that a tax exemption must be expressed in the statute in clear language that leaves no doubt of the intention of the legislature to grant such exemption. And, even in the instances when it is granted, the exemption must be interpreted in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. Jurisprudence suggests that aside from the national franchise tax, the franchisee is still liable to pay the local franchise tax, unless it is expressly and unequivocally exempted from the

payment thereof under its legislative franchise. The "in lieu of all taxes" clause in a legislative franchise should categorically state that the exemption applies to both local and national taxes; otherwise, the exemption claimed should be strictly construed against the taxpayer and liberally in favor of the taxing authority. Moreover, the "Expanded VAT Law," did not remove or abolish the payment of local franchise tax. It merely replaced the national franchise tax that was previously paid by telecommunications franchise holders and in its stead imposed a ten percent (10%) VAT. VAT replaced the national franchise tax, but it did not prohibit nor abolish the imposition of local franchise tax by cities or municipaties. The imposition of local franchise tax is not inconsistent with the advent of the VAT, which renders functus officio the franchise tax paid to the national government. VAT inures to the benefit of the national government, while a local franchise tax is a revenue of the local government unit

Drilon vs Lim


GR No. 112497, August 4, 1994 FACTS: Pursuant to Section 187 of the Local Government Code, the Secretary of Justice had, on appeal to him of four oil companies and a taxpayer, declared Ordinance No. 7794, otherwise known as the Manila Revenue Code, null and void for non-compliance with the prescribed procedure in the enactment of tax ordinances and for containing certain provisions contrary to law and public policy. In a petition for certiorari filed by the City of Manila, the Regional Trial Court of Manila revoked the Secretarys resolution and sustained the ordinance, holding inter alia that the procedural requirements had been observed. More importantly, it declared Section 187 of the Local Government Code as unconstitutional because of its vesture in the Secretary of Justice of the power of control over local governments in violation of the policy of local autonomy mandated in the Constitution and of the specific provision therein conferring on the President of the Philippines only the power of supervision over local governments. The court cited the familiar distinction between control and supervision, the first being the power of an officer to alter or modify or set aside what a subordinate officer had done in the performance of his duties and to substitute the judgment of the former for the latter, while the second is the power of a superior officer to see to it that lower officers perform their functions is accordance with law.

ISSUES: The issues in this case are (1) whether or not Section 187 of the Local Government Code is unconstitutional; and (2) whether or not the Secretary of Justice can exercise control, rather than supervision, over the local government HELD: The judgment of the lower court is reversed in so far as its declaration that Section 187 of the Local Government Code is unconstitutional but affirmed the said lower courts finding that the procedural requirements in the enactment of the Manila Revenue Code have been observed. Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and, if warranted, to revoke it on either or both of these grounds. When he alters or modifies or sets aside a tax ordinance, he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure. Secretary Drilon did set aside the Manila Revenue Code, but he did not replace it with his own version of what the Code should be. An officer in control lays down the rules in the doing of an act. It they are not followed, he may, in his discretion, order the act undone or re-done by his subordinate or he may even decide to do it himself. Supervision does not cover such authority. The supervisor or superintendent merely sees to it that the rules are followed, but he himself does not lay down such rules, nor does he have the discretion to modify or replace them. In the opinion of the Court, Secretary Drilon did precisely this, and no more nor less than this, and so performed an act not of control but of mere supervision. Regarding the issue on the non-compliance with the prescribed procedure in the enactment of the Manila Revenue Code, the Court carefully examined every exhibit and agree with the trial court that the procedural requirements have indeed been observed. The only exceptions are the posting of the ordinance as approved but this omission does not affect its validity, considering that its publication in three successive issues of a newspaper of general circulation will satisfy due process.


[G.R. No. 118900. February 27, 2003]

JARDINE DAVIES INSURANCE BROKERS, INC., petitioner, vs. HON. ERNA ALIPOSA, in her capacity as Presiding Judge of Branch 150 of the Makati Regional Trial Court, CITY (previously Municipality) OF MAKATI and ROLANDO M. CARLOS, in his capacity as Acting Treasurer of Makati, respondents. DECISION

Pursuant to Republic Act No. 7160, otherwise known as the Local Government Code of 1991, the then Sangguniang Bayan of Makati enacted Municipal Ordinance No. 92-072, otherwise known as the Makati Revenue Code, which provides, inter alia, for the schedule of real estate, business and franchise taxes in the Municipality of Makati at rates higher than those in the Metro Manila Revenue Code. On May 10, 1993, the Philippine Racing Club, Inc. (PRCI for brevity), a taxpayer of Makati, appealed to the Department of Justice (DOJ for brevity) for the nullification of said ordinance, alleging that it was approved without previous public hearings, in violation of the Local Government Code and Article 276 of its Implementing Rules, and that some of the ordinances provisions were unconstitutional: (2) The in-lieu-of-all-taxes clause of the franchise of the Philippine Racing Club, Inc. exempts it from payment of the real property tax, annual business tax and other new taxes imposed by the ordinance here in question. To withdraw the exemption would impair the obligation of contract in violation of its constitutional right as franchise holder. (3) The imposition of the franchise tax is not within the scope of the taxing powers of the Municipality of Makati (Sections 134, 137 and 142 of Republic Act No. 7160 and Articles 223, 226 and 231 of Rule XXX of the Implementing Rules and Regulations of the Local Government Code of 1991). and (4) The Municipality of Makati already shares 5 of the 25% franchise tax provided for in Section 8 of the franchise of the Philippine Racing Club, Inc. To allow the said municipality to impose another franchise tax and to base the tax on the gross annual receipts, as it does in the ordinance, would certainly be unjust, excessive, oppressive or confiscatory (Section 130 of Republic Act No. 7160 and Article 219 of Rule XXX of the Implementing Rules and Regulations).

Although required by the DOJ to comment on the appeal, respondent Makati failed to do so. On July 5, 1993, the DOJ came out with a resolution declaring null and void and without legal effect the said ordinance for having been enacted in contravention of Section 187 of the Local Government Code of 1991 and its implementing rules and regulations.
[2] [3]

On August 19, 1993, respondent Makati sought a reconsideration of the ruling of the DOJ. Pending resolution of its motion, said respondent filed a petition ad cautelam with the Regional Trial Court (RTC) of Makati, entitled Hon. Jejomar C. Binay and the Municipality of Makati, Petitioners, v. Hon. Franklin M. Drilon, Department of Justice and Philippine Racing Club, Inc., Respondents, and docketed as Case No. 93-2844. The case was raffled to Branch 148 of the Makati RTC. Respondent Makati alleged, inter alia, that public hearings were conducted before the approval of the ordinance and hence the ordinance was valid. It prayed that after due proceedings judgment be rendered in its favor, thus:

WHEREFORE, petitioners respectfully pray that this Honorable Court promulgate judgment: (a) declaring null and void the DOJ Decision dated July 5, 1993; and

(b) allowing the full implementation of Makati Municipal Ordinance No. 92-072. Petitioners pray for such further or other reliefs as this Honorable Court may deem just and equitable.

In the meantime, respondent Makati continued to implement the ordinance. Petitioner Jardine Davies Insurance Brokers, Inc., a dulyorganized corporation with principal place of business at No. 222 Sen. Gil J. Puyat Avenue, Makati, Metro Manila, was assessed and billed by Makati the amount of P63,822.47 for taxes, fees and charges under the ordinance for the second quarter of 1993. It was again billed by respondent Makati the same amount for the third quarter of 1993 and the same amount for the fourth quarter of 1993. Petitioner did not protest the assessment for its quarterly business taxes for the second, third and fourth quarters of 1993 based on said ordinance effective April 1, 1993. Petitioner, in fact, paid the said amounts on April 26, 1993 (for the second quarter), July 12, 1993 (for the third quarter) and October

19, 1993 (for the fourth quarter), respectively, without any protest. Respondent Makati issued the corresponding receipts in favor of petitioner.

On January 30, 1994, petitioner wrote the municipal treasurer of Makati requesting that respondent Makati compute its business tax liabilities in accordance with the Metro Manila Revenue Code and not under the ordinance considering that said ordinance was already declared by the DOJ null and void. Petitioner likewise requested that respondent Makati credit the overpayment in the total amount of P27,854.91 for the second to fourth quarters of 1993 against its 1994 liabilities for 1994, or in the alternative, for Makati to refund the said amount to petitioner. In a Letter dated February 4, 1994, respondent Makati, through Maximo L. Paulino Jr., Acting Chief of its Municipal License Division, denied the request of petitioner for tax credit/refund. Respondent Makati insisted that the questioned ordinance code was valid and enforceable pending the final outcome of its petition ad cautelam with the Regional Trial Court of Makati.

In the meantime, on October 26, 1993, the RTC rendered judgment in Case No. 93-2844 granting the petition of Makati and declaring the ordinance valid. On November 9, 1993, the DOJ issued a memorandum to the Chief State Counsel directing the latter to refrain from accepting any appeal or to act on pending appeals on the validity/constitutionality of the ordinance until the same shall have been finally resolved by courts of competent jurisdiction. When informed of the denial by respondent Makati of its letterrequest, petitioner filed a complaint on March 7, 1994 with the RTC of Makati against respondents Makati and its Acting Municipal Treasurer. The case was raffled to Branch 150 of said court. Petitioner alleged in its complaint that in view of the resolution of the DOJ declaring the Makati Revenue Code null and void and without legal effect, the provisions of the Metro Manila Revenue Code continued to remain in full force and effect; however, petitioner was assessed and billed by respondent Makati for taxes, fees and charges for second, third and fourth quarters for 1993 beginning on April 4, 1993 up to October 14, 1994 at rates fixed in the ordinance despite the nullity thereof. Petitioner prayed that after due proceedings judgment be rendered as follows:
1. Declaring as NULL AND VOID Municipal Ordinance No. 92-072, (Makati Revenue Code) of the Municipality of Makati and ordering Defendants to

refund or issue as tax credit in favor of Plaintiff the sum of P27,854.91 plus interest. 2. Assuming without admitting that the Municipal Ordinance No. 92-072 (Makati Revenue Code) is valid, declaring that the rates imposed by said ordinance accrue only on July 1, 1993 and ordering Defendants to refund or issue as tax credit in favor of Plaintiff the sum of P9,284.97.[8]

On May 18, 1994, respondents Makati and its Acting Municipal Treasurer filed a motion to dismiss the complaint on the ground of prematurity. They argued that petitioners cause of action was predicated on the appealed resolution of the DOJ, and unless and until nullified by final judgment of a competent court, the ordinance remained in full force and effect.

On May 26, 1994, petitioner opposed the motion to dismiss of respondents, contending that its complaint was not predicated solely on the invalidity and unconstitutionality of the ordinance but also on its claim that the ordinance took effect only in July 1, 1993 but Makati applied the ordinance effective April 1, 1993. Petitioner further averred that under Section 166 of the Local Government Code, new taxes, fees or charges or charges provided for in the ordinance shall accrue on the first day of the quarter following the effectivity of the new ordinance. Hence, assuming that the tax ordinance was valid, the same should have been enforced only from the first (1st) day of the quarter following next the effectivity of the ordinance imposing such new levies or rates as provided for in Section 166 of the Local Government Code. On August 29, 1994, the RTC issued an order granting the motion to dismiss of respondent and ordering the dismissal of the complaint. The trial court ruled that plaintiffs cause of action, if any, had prescribed. Citing Sections 187 and 195 of the Local Government Code of 1991, the trial court ratiocinated that petitioner failed to file an opposition or protest to the written notice of assessment of Makati for taxes, fees and charges at rates provided for in the ordinance within 60 days from the notice of said assessment as required by Section 195 of the Local Government Code. Hence, petitioner was barred from demanding a refund of its payment or that it be credited for said amounts. Petitioner received a copy of said order on October 7, 1994. On October 13, 1994, petitioner filed with the trial court a motion for reconsideration of the order of dismissal, arguing that the trial court erred in applying Section 195 of the Local Government Code of 1991 as its complaint did not involve an assessment for deficiency taxes but one for refund/tax credit. Petitioner further claimed that it was never served

with any notice of assessment from respondents and hence there was no need for petitioner to protest. Petitioner argued that what was applicable was Section 196 of the Local Government Code in conjunction with Article 286 of its Implementing Rules and Regulations, both of which simply require the filing of a written claim for refund or tax credit within two years from the date of payment. On December 28, 1994, the trial court issued an order denying the motion for reconsideration of petitioner, a copy of which was served on petitioner on February 13, 1995. The trial court declared that Section 195 of the Local Government Code covers all kinds of assessments and not merely deficiency assessments for taxes, fees or charges. The trial court further ruled that the issue of the validity and constitutionality of the ordinance was still pending resolution by Branch 148 of the RTC in Civil Case No. 93-2844 and until declared null and void, otherwise by final judgment, the ordinance remained valid.


Anent the first assignment of errors, petitioner avers that its action in the RTC was one for a refund of its overpayments governed by Article 196 of the Local Government Code implemented by Article 286 of the Implementing Rules and Regulations of the Code and not one involving an assessment for deficiency taxes governed by Section 195 of the said Code. Petitioner contends that it was not mandated to first file a protest with respondents before instituting its action for a refund of its overpayments or for it to be credited for said overpayments. For its part, respondent Makati avers that petitioner was proscribed from filing its complaint with the RTC and for a refund of its alleged overpayment, petitioner having paid without any protest the taxes due to respondent

Makati under the ordinance. It is further asserted by respondent Makati that until declared null and void by a competent court, the ordinance was valid and should be enforced. The petition has no merit. The Court agrees with petitioner that as a general precept, a taxpayer may file a complaint assailing the validity of the ordinance and praying for a refund of its perceived overpayments without first filing a protest to the payment of taxes due under the ordinance. This was our ruling in Ty v. Judge Trampe:

. . . Hence, if a taxpayer disputes the reasonableness of an increase in a real estate tax assessment, he is required to first pay the tax under protest. Otherwise, the city or municipal treasurer will not act on his protest. In the case at bench, however, the petitioners are questioning the very authority and power of the assessor, acting solely and independently, to impose the assessment and of the treasurer to collect the tax. These are not questions merely of amounts of the increase in the tax but attacks on the very validity of any increase. In this case, petitioner, relying on the resolution of the Secretary of Justice in The Philippine Racing Club, Inc. v. Municipality of Makaticase, posited in its complaint that the ordinance which was the basis of respondent Makati for the collection of taxes from petitioner was null and void. However, the Court agrees with the contention of respondents that petitioner was proscribed from filing its complaint with the RTC of Makati for the reason that petitioner failed to appeal to the Secretary of Justice within 30 days from the effectivity date of the ordinance as mandated by Section 187 of the Local Government Code which reads: Sec. 187-Procedure for Approval and Effectivity of Tax Ordinances and Revenue Measures; Mandatory Public Hearings.- The procedure for approval of local tax ordinances and revenue measures shall be in accordance with the provisions of this Code: Provided, That public hearings shall be conducted for the purpose prior to the enactment thereof: Provided further, That any question on the constitutionality or legality of tax ordinances or revenue measures may be raised on appeal within thirty (30) days from the effectivity thereof to the Secretary of Justice who shall render a decision within sixty (60) days from the date of receipt of the appeal: Provided, however, That such appeal shall not have the effect of suspending the effectivity of the ordinance and the accrual and payment of the tax, fee, or charge levied therein: Provided, finally, That within thirty (30) days after receipt of the decision or the lapse of the sixty-day

period without the Secretary of Justice acting upon the appeal, the aggrieved party may file appropriate proceedings with a court of competent jurisdiction. In Reyes v. Court of Appeals, we ruled that failure of a taxpayer to interpose the requisite appeal to the Secretary of Justice is fatal to its complaint for a refund:

Clearly, the law requires that the dissatisfied taxpayer who questions the validity or legality of a tax ordinance must file his appeal to the Secretary of Justice, within 30 days from effectivity thereof. In case the Secretary decides the appeal, a period also of 30 days is allowed for an aggrieved party to go to court. But if the Secretary does not act thereon, after the lapse of 60 days, a party could already proceed to seek relief in court. These three separate periods are clearly given for compliance as a prerequisite before seeking redress in a competent court. Such statutory periods are set to prevent delays as well as enhance the orderly and speedy discharge of judicial functions. For this reason the courts construe these provisions of statutes as mandatory. A municipal tax ordinance empowers a local government unit to impose taxes. The power to tax is the most effective instrument to raise needed revenues to finance and support the myriad activities of local government units for the delivery of basic services essential to the promotion of the general welfare and enhancement of peace, progress, and prosperity of the people. Consequently, any delay in implementing tax measures would be to the detriment of the public. It is for this reason that protests over tax ordinances are required to be done within certain time frames. In the instant case, it is our view that the failure of petitioners to appeal to the Secretary of Justice within 30 days as required by Sec. 187 of R.A. 7160 is fatal to their cause. Moreover, petitioner even paid without any protest the amounts of taxes assessed by respondents Makati and Acting Treasurer as provided for in the ordinance. Evidently, the complaint of petitioner with the Regional Trial Court was merely an afterthought. In view of our foregoing disquisitions, the Court no longer deems it necessary to resolve other issues posed by petitioner. IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The order of the Regional Trial Court dismissing the complaint of petitioner is AFFIRMED.