MINDANAO SHOPPING DESTINATAION CORP, ET AL., V. dismissed the latter.

Petitioners moved for reconsideration, but the same

DUTERTE, ETC. ET AL. was denied.

FACTS: Petitioners Mindanao Shopping Destination Corporation et al. are
corporations engaged in the retail business of selling general
merchandise within the territorial jurisdiction of Davao City.
Respondent Sangguniang Panglungsod of Davao City (Sanggunian),
after due notice and hearing, enacted the assailed Davao City Ordinance
No. 158-05, Series of 2005, otherwise known as “An Ordinance
Approving the 2005 Revenue Code of the City of Davao, as Amended.”
Unperturbed, petitioners filed a petition for review before the Court of
Appeals. The appellate court dismissed the petition and affirmed the OP.
Petitioners moved for reconsideration of the appellate court’s decision,
but the same was denied. Hence, this Petition for Review under Rule 45
before the Supreme Court.
ISSUE: Whether the Court of Appeals erred in upholding the validity of
the assailed ordinance.

Petitioners' particular concern is Section 69 (d) of the questioned Petitioners assert that although the maximum rate that may be imposed
Ordinance which provides: by cities on retailers with gross receipts exceeding P400,000.00 is 1.5%
of the gross receipts, the maximum adjustment which can be applied
Section 69. Imposition of Tax. There is hereby imposed on the once every five (5) years, is only 0.15% or 10% of the maximum rate
following persons who establish, operate, conduct or maintain of 1.5% of the gross receipts in accordance with Section 191 of the LGC.
their respective business within the City a graduated business tax However, the assailed Ordinance increased the tax rate on them, as
in the amounts prescribed: retailers, by more than the maximum allowable rate of 0.15%, from 50%
of 1% (0.5%) of the gross receipts to 1.5% (now, 1.25%) of the gross
xxx receipts, thus, violative of the Local Government Code, specifically
Section 191, in relation to Sections 143 and 151, to wit:
(d) On retailers
Section 191. Authority of Local Government Units to
Gross Sales/Receipts Rates of Tax Per Annum
Adjust Rates of Tax Ordinances. — Local government units
for the Preceding Year
shall have the authority to adjust the tax rates as prescribed
herein not oftener than once every five (5) years, but in no case
More than P50,000.00 2%
shall such adjustment exceed ten percent (10%) of the rates fixed
but not over
under this Code.
P400,000.00
1 1/2%
Section 143 (d). Tax on Business. — The municipality may
In excess of
impose taxes on the following businesses:
P400,000.000
xxx
However, barangays shall have exclusive power to levy taxes on
(d) On retailers
stores where the gross sales or receipts of the preceding calendar
year does not exceed P50,000.00 subject to existing laws and
With gross sales or Rates of Tax Per Annum
regulations.
receipts for the
preceding calendar year
The DOJ-Sec dismissed the appeal and denied petitioner’s motion for in the amount of:
reconsideration.
P400,000.00 or less 2.00%
Meanwhile, Davao City Ordinance No. 0253, Series of 2006 (Amended
Ordinance), amended Section 69 (d) of the questioned ordinance. In it, More than 1.00%
tax rate on retailers with gross receipts in excess of P400,000.00 was P400,000.000
reduced from one and one-half percent (1 1/2%) to one and one-fourth
percent (1 1/4%); Section 69 (d), as amended, now reads: xxx

(d) On retailers Section 151. Scope of taxing powers. – Except as otherwise

provided in this Code, the city, may levy the taxes, fees, and
Gross Sales/Receipts Rates of Tax Per Annum charges which the province or municipality may impose: Provided,
for the Preceding Year however, That the taxes, fees and charges levied and collected by
highly urbanized and independent component cities shall accrue
More than P50,000.00 2% to them and distributed in accordance with the provisions of this
but not over Code.
P400,000.00
1 1/2% The rates of taxes that the city may levy may exceed the
In excess of maximum rates allowed for the province or municipality by not
P400,000.000 more than fifty percent (50%) except the rates of professional
and amusement taxes.
However, barangays shall have the exclusive power to levy taxes
on stores where the gross sales or receipts of the preceding RULING: The Supreme Court disagreed with petitioners, and affirmed
calendar year does not exceed Fifty Thousand Pesos (P50,000) the ruling of the appellate court with modification that the tax rate to be
subject to existing laws and regulations. imposed is reduced to 1.21%.

With the above development, respondents maintained that the
adjustment in the tax base no longer exceeds the limitation as set forth
in Section 191 of the LGC considering that the current Davao City tax
rate of 1.25% on retailers with gross receipts/sales of over P400,000.00
under the assailed ordinance is way below or 0.25% short of the
maximum tax rates of 1.5% for cities sanctioned by the LGC.
Respondents insist that there is thus no increase or adjustment to speak
of under the premises which is violative of Section 191 of the LGC.
From the dismissal of the appeal and the denial of their motion for
reconsideration, petitioners filed an appeal before the Office of the
President (OP). The OP, finding no merit on petitioners' appeal,
Firstly, Section 191 of the LGC presupposes that the following
requirements are present for it to apply, to wit: (i) there is a tax
ordinance that already imposes a tax in accordance with the provisions
of the LGC; and (ii) there is a second tax ordinance that made
adjustment on the tax rate fixed by the first tax ordinance. In the instant
case, both elements are not present.
As to the first requirement, it cannot be said that the old tax ordinance
(first ordinance) was imposed in accordance with the provisions of the
LGC. The old tax ordinance of Davao City was enacted before the
LGC came into law. Thus, the assailed new ordinance was
actually the first to impose the tax on retailers in accordance by its initial implementation of the LGC. It is but fair and reasonable that
with the provisions of the LGC. Davao City at its initial implementation of the LGC, impose the tax rates
as provided in Section 143. It is only then that the imposition of the tax
As to the second requirement, the new tax ordinance (second ordinance) rate on retailers will not be considered as confiscatory or oppressive,
imposed the new tax base and the new tax rate as provided by the LGC considering that the reclassification of wholesaler and retailer and their
for retailers. It must be emphasized that a tax has two components, a corresponding tax rate being observed now is in accord with the LGC.
tax base and a tax rate. However, Section 191 contemplates a
situation where there is already an existing tax as authorized Davao City should, at the very least, start with 1% (the minimum tax
under the LGC and only a change in the tax rate would be rate) as provided under Section 143 (d) of the LGC. Considering that 11
effected. The new ordinance Davao City provided, not only a tax rate, years had already elapsed from its implementing in 2006, Davao City
but also a tax base that were appropriate for retailers, following the could adjust its tax rate twice now which will make its adjusted tax rate
parameters provided under the LGC. Suffice it to say, the second for retailers pegged at 1.2%, in accordance with Section 191 of the LGC.
requirement is absent. Thus, given the absence of the above two To clarify, from 2006-2011 (first 5 years), the initial tax rate should start
requirements for the application of Section 191 of the LGC, with 1%; from 2011-2016 (next 5 years) — 1.1%, thus, for the years
there is no reason for the latter to cover a situation where the 2017-2021, the tax adjustment is 1.21%. However, for this purpose,
ordinance was an initial implementation of R.A. 7160. Davao City should pass an ordinance to give effect to the above-
discussed tax adjustments.
Secondly, Section 191 of the LGC will not apply because with the assailed
tax ordinance, there is no outright or unilateral increase of tax to Based on the foregoing, Davao City merely implemented the LGC, albeit
speak of. The resulting increase in the tax rate for retailers was merely it resulted in — an increase in retailer's tax liability — which nevertheless
incidental. When Davao City enacted the assailed ordinance, it merely is not covered by Section 191 of the LGC. In any case, an ordinance
intended to rectify the glaring error in the classification of wholesaler based on reasonable classification does not violate the
and retailer in the old ordinance. Petitioners are retailers as constitutional guaranty of the equal protection of the law.
contemplated by the LGC. Being retailers, they are subject to the tax
rate provided under Section 69 (d) and not under Section 69 (b) of the
assailed ordinance. In effect, under the assailed ordinance as amended,
petitioners as retailers are now assessed at the tax rate of one and one-
fourth (1 1/4%) percent on their gross sales and not the fifty-five (55%)
percent of one (1%) percent on their gross sales since the latter tax rate
is only applicable to wholesalers, distributors, or dealers. The assailed
ordinance merely imposes and collects the proper and legal tax due to
the local government pursuant to the LGC. While it may appear that
there was indeed a significant adjustment on the tax rate of retailers
which affected the petitioners, it must, however, be emphasized that the
adjustment was not by virtue of a unilateral increase of the tax rate
of petitioners as retailers, but again, merely incidental as a result of
the correction of the classification of wholesalers and retailers
and its corresponding tax rates in accordance with the provisions of the
LGC.

Section 191 is a limitation upon the adjustment, specifically on the

increase in the tax rates imposed by the local government units. As hed
by the CA thus:

x x x Section 191 has no bearing in the instant case because what

actually took place in the questioned Ordinance was the
correction of an erroneous classification, and not, an
upward adjustment or increase of tax rates. The fact that there
occurred an increase in payment due to the reclassification is of
no moment, because: (1) reclassification is not prohibited; (2)
reclassification was made to effect a correction; and (3) the taxes
imposed upon the reclassified taxpayers, was not amended or
increased from that stated in the Local Government Code. And, it
is worthwhile to mention that petitioners have not denied that
they are engaged in the retail business, hence, the reclassification
was right, proper and legal.

Thirdly, it must be pointed out that the limitation under Section 191 of
the LGC was provided to guard against possible abuse of the LGU's
power to tax. In this case, there is merely a rectification of an erroneous
classification of taxpayers and tax rates, i.e., of grouping retailers and
wholesalers in one category, and their corresponding rates. The
amendment of the old tax ordinance was not intended to abuse the
LGU's taxing powers but merely sought to impose the rates as provided
under the LGC as in fact the tax rate imposed was even lower than the
rate authorized by the LGC. In effect, the assailed ordinance merely
corrected the old ordinance so that it will be in accord with the LGC.

While Davao City may rectify and amend their old tax ordinance in order
to give full implementation of the LGC, it, however, cannot impose a
straight 1.25% at its initial implementation of the LGC in so far as
retailers are concerned. Davao City should, at the very least, start with
1% (the minimum tax rate) as provided under Section 143 (d) of the
LGC. While Davao City cannot be faulted in failing to immediately
implement the LGC, petitioners cannot likewise be unjustly prejudiced