G.R. No. 211093. June 06, 2017
MINDANAO SHOPPING DESTINATION CORPORATION, ACE HARDWARE PHILS., INC., INTERNATIONAL TOYWORLD, INC., STAR APPLIANCE CENTER, INC., SURPLUS MARKETING CORPORATION, WATSONS PERSONAL …
PERALTA, J.:
dated January 22, 2014 of the Court of Appeals in CA-G.R. SP No.
101482, which affirmed the Decision dated July 2, 2007 and Resolution
dated October 31, 2007 of the Office of the President.
Petitioners Mindanao Shopping Destination Corporation, Ace
Hardware Philippines, Inc., International Toyworld, Inc., Star Appliance
Center, Inc., Surplus Marketing Corporation, Watsons Personal Care
Stores (Philippines), Inc. and Supervalue, Inc. (collectively as
petitioners) are corporations duly organized and existing under and by
virtue of Philippine law and engaged in the retail business of selling
general merchandise within the territorial jurisdiction of Davao City.[4]
The facts are as follows:
On November 16, 2005, 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”[5] attested to by Vice-Mayor Hon. Luis B. Bonguyan (respondent Vice-Mayor), as Presiding Officer of the Sanggunian,
and approved by then City Mayor, Hon. Rodrigo R. Duterte, now the
President of the Republic of the Philippines. The Ordinance took effect
after the publication in the Mindanao Mercury Times, a newspaper of general circulation in Davao City, for three (3) consecutive days, December 23, 24 and 25, 2005.[6]
Petitioners’ particular concern is Section 69 (d)[7] of the questioned Ordinance which provides:
Section 69. Imposition of Tax. There is hereby imposed on
the following persons who establish, operate, conduct or maintain their
respective business within the City a graduated business tax in the
amounts prescribed:x x x x
(d) On Retailers
Gross Sales/Receipts for the Preceding Year More than P50,000 but not over P400,000.00 In excess of P400,000.00 However, barangays shall have the exclusive power to levy
taxes on stores where the gross sales or receipts of the preceding
calendar year does not exceed Fifty Thousand Pesos (P50,000) subject to
existing laws and regulations.x x x
Petitioners claimed that they used to pay only 50% of 1% of the
business tax rate under the old Davao City Ordinance No. 230, Series of
1990, but in the assailed new ordinance, it will require them to pay a
tax rate of 1.5%, or an increase of 200% from the previous rate.
Petitioners believe that the increase is not allowed under Republic Act (RA) No. 7160, The Local Government Code (LGC).
Consequently, invoking the LGC, petitioners appealed to the DOJ,
docketed as MTO-DOJ Case No. 02-2006, asserting the unconstitutionality
and illegality of Section 69 (d), for being unjust, excessive,
oppressive, confiscatory and contrary to the 1987 Constitution and the
provisions of the LGC. Petitioners prayed that the questioned ordinance,
particularly Section 69 (d) thereof be declared as null and void ab initio.
For lack of material time, the appeal was filed and served
through registered mail. Unfortunately, when the appeal was mailed on
January 24, 2006, the verification/certification of non-forum shopping
and the postal money order, covering the payment of filing fees were not
attached. The attachments were mailed the next day, January 25, 2006,
together with a covering manifestation. Petitioners received
respondents’ Comment on the appeal on March 2, 2006; and, on June 27,
2006, petitioners received respondents’ manifestation alleging that the
appeal should be deemed filed out of time for failure to pay the filing
fees within the prescribed period.
In a Resolution[8] dated July 12, 2006, the DOJ-OSec dismissed the appeal and denied petitioners’ motion for reconsideration.[9]
Meanwhile, on September 26, 2006, Davao City Ordinance No. 0253, Series of 2006 (Amended Ordinance),
amended Section 69 (d) of the questioned ordinance. In it, tax rate on
retailers with gross receipts in excess of P400,000.00 was reduced from
one and one-half percent (1 ½%) to one and one-fourth percent (1 ¼%
Section 69 (d), as amended, now reads:
(d) On Retailers
Gross Sales/Receipts for the Preceding Year More than P50,000 but not over P400,000.00 In excess of P400,000.00 However, barangays shall have the exclusive power to levy
taxes on stores where the gross sales or receipts of the preceding
calendar year does not exceed Fifty Thousand Pesos (P50,000) subject to
existing laws and regulations.
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). On July 2, 2007, the OP, finding no merit on petitioners’ appeal, dismissed the latter.[10] Petitioners moved for reconsideration, but was denied anew in a Resolution[11] dated October 31, 2007.
Unperturbed, petitioners filed a petition for review before the Court of Appeals.[12]
On August 29, 2013, in the disputed Decision of the appellate court, the latter dismissed the petition, to wit:
WHEREFORE, the Petition is DISMISSED. The Decision
dated July 2, 2007 and the Resolution dated October 31, 2007 of the
Office of the President in O.P. Case no. 06-L-425 are AFFIRMED.SO ORDERED. [13]
Petitioners moved for reconsideration, but were denied in a Resolution[14] dated January 22, 2014. Thus, the instant petition for review on certiorari under Rule 45 of the Rules of Court raising the following issues:
WHETHER OR NOT THE HONORABLE COURT OF APPEALS DESPITE THE PATENT
ILLEGALITY AND UNCONSTITUTIONALITY, UPHELD THE VALIDITY OF THE ORDINANCE
AS WELL AS THE LOCAL SANGGUNIAN’S ARBITRARY EXERCISE OF ITS POWER TO
TAXWHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN NOT
ADDRESSING THE MAIN ISSUE RAISED BY PETITIONERS AS A CONSTITUTIONAL
ISSUE.WHETHER THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE SUBSTANTIAL COMPLIANCE OVER PROCEDURAL DEFICIENCIES
On the procedural issues, We find that at this stage of the
proceeding, it is futile to belabor on the procedural deficiencies since
the issue of timeliness of the appeal has become moot and academic
considering that petitioners’ appeal was given due course by the OP. In
fact, both the OP and the appellate court decided the appeal on the
merits and not merely on technicality. We will, thus, proceed with the
substantive issues of the instant case.
Petitioners assert that
although the maximum rate that may be imposed 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 once every five (5)
years, is only 0.15% or 10% of the maximum rate of 1.5% of the gross
receipts in accordance with Section 191 of the LGC. However,
petitioners lamented that the assailed Ordinance increased the tax rate
on them, as 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 receipts, thus, violating Section 191 in relation to Sections 143 and 151 of the Code.
A perusal of the assailed new ordinance, particularly Section 69 (a)
and (b) of Davao City Ordinance No. 158-05, Series of 2005, provides:
Section 69. Imposition of Tax. – There is hereby imposed on
the following persons who establish, operates, conduct or maintain
their respective business within the city a graduated tax in the amounts
hereafter prescribed:x x x x
(b) On WHOLESALERS, DISTRIBUTORS, OR DEALERS, in any article of commerce of whatever kind or nature in accordance with the following schedules:
percent of one percent (1%)(d) On RETAILERS:
Petitioners claim that the assailed tax ordinance is violative of
the Local Government Code, specifically Section 191, in relation to
Sections 143 and 151, to wit:
Section 191. Authority of Local Government Units to Adjust Rates of Tax Ordinances. – Local
government units shall have the authority to adjust the tax rates as
prescribed herein not oftener than once every five (5) years, but in no
case shall such adjustment exceed ten percent (10%) of the rates fixed
under this Code.Section 143 (d). Tax on Business. -The municipality may impose taxes on the following businesses:
x x x x
(d) On retailers
Rate of Tax Per Annum x x x x
Section 151. Scope of Taxing Powers. – Except as
otherwise provided in this Code, the city, may levy the taxes, fees, and
charges which the province or municipality may impose: Provided,
however, That the taxes, fees and charges levied and collected by highly
urbanized and independent component cities shall accrue to them and
distributed in accordance with the provisions of this Code.The rates of taxes that the city may levy may exceed the
maximum rates allowed for the province or municipality by not more than
fifty percent (50%) except the rates of professional and amusement
taxes.[16]
We disagree.
Under the old tax ordinance of Davao City, Ordinance No. 230, Series of 1990,
wholesalers and retailers were grouped as one, thus, the tax base and
tax rate imposed upon retailers were the same as that imposed upon
wholesalers. Subsequently, with the implementation of Republic Act No.
7160, otherwise known as the Local Government Code of the Philippines,
the latter authorized a difference in the tax treatment between
wholesale and retail businesses. Where before under the old tax
ordinance, Davao City retailers only paid ½ of 1% of the gross
sales/receipts exceeding P2,000,000.00, now under the new tax ordinance,
retailers would have to pay 1.25% of the gross sales/receipts exceeding
P400,000.00.
However, it must be emphasized that the assailed
new tax ordinance is actually the initial implementation by the Davao
City local government of the tax provisions of R.A 7160 (LGC)
considering that the old tax ordinance of Davao City was enacted in
1990, or prior to the effectivity of the LGC on January 1, 1992. It then
would explain why the old tax ordinance of Davao City lumped under one
business tax and under the same set of tax rates these two business
activities – retail and wholesale. There is no provision under Batas Pambansa Blg. 337,[17] the old LGC, which specifically define these business activities. Under Section 131 of R.A. 7160,[18] however, wholesale and retail are
now defined, classified and taxed differently. It cannot be said then
that Davao City, on its own, deliberately grouped these two business
activities under one business tax. To reiterate, it is only with the
implementation of R.A. 7160 that these two business activities, i.e., wholesale and retail,
were specifically defined, classified in different categories, and,
thus, taxed differently. Corollarily, it is only sound that by analogy, wholesalers and retailers
should likewise be treated and classified differently to provide
accuracy to the very meaning of its rootword and to give meaning to the
intention of the law.
Thus, considering that wholesale and retail
were defined and classified differently under the LGC, it is then
logical that they are, likewise, given separate and distinct tax base.
Article II, Sections 142 and 143 of the LGC provides:
ARTICLE I
Municipalities
Section 142. Scope of Taxing Powers. – Except as otherwise
provided in this Code, municipalities may levy taxes, fees, and charges
not otherwise levied by provinces.Section 143. Tax on Business. -The municipality may impose taxes on the following businesses:
x x x x
(b) On wholesalers, distributors, or dealers in any article of
commerce of whatever kind or nature in accordance with the following
schedule:
Tax Per Annum2,000,000.00 or more at a rate not exceeding fifty percent (50%) of one percent (1%). x x x x
(d) On retailers.
P400,000.00 or less
Provided, however, That barangays shall have the exclusive
power to levy taxes, as provided under Section 152 hereof, on gross
sales or receipts of the preceding calendar year of Fifty thousand pesos
(P50,000.00) or less, in the case of cities, and Thirty thousand pesos
(P30,000.00) or less, in the case of municipalities.[19]
From the foregoing, it can be shown that the assailed ordinance does
not violate the limitation imposed by Section 191 of the LGC on the
adjustment of tax rate for the following reasons:
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. To reiterate, the old tax
ordinance of Davao City was enacted before the LGC came into law. Thus,
the assailed new ordinance, Davao City Ordinance No. 158-05, Series of
2005 was actually the first to impose the tax on retailers in accordance
with the provisions of the LGC.
As to the second requirement,
the new tax ordinance (second ordinance) imposed the new tax base and
the new tax rate as provided by the LGC for retailers. It must be
emphasized that a tax has two components, a tax base and a tax rate.
However, Section 191 contemplates a situation where there is already an
existing tax as authorized under the LGC and only a change in the tax
rate would be effected. Again, the new ordinance Davao City provided,
not only a tax rate, but also a tax base that were appropriate for
retailers, following the parameters provided under the LGC. Suffice it
to say, the second requirement is absent. Thus, given the absence of the
above two requirements for the application of Section 191 of the LGC,
there is no reason for the latter to cover a situation where the
ordinance, as in this case, was an initial implementation of R.A. 7160.
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 speak
of. The resulting increase in the tax rate for retailers was merely
incidental. When Davao City enacted the assailed ordinance, it merely
intended to rectify the glaring error in the classification of
wholesaler and retailer in the old ordinance. Petitioners are retailers
as contemplated by the LGC. Petitioners never disputed their
classification as retailers.[20]
Thus, 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 ¼%)
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.
Indeed, as correctly pointed out by the appellate court,
Section 191 is a limitation upon the adjustment, specifically on the
increase in the tax rates imposed by the local government units. We
quote the appellate court’s ruling with approval, to wit:
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.[21]
Couched in similar conclusion is the ruling of the Office of the
President where in the same manner it agreed that the adjustment in the
tax rate of petitioners did not violate the provisions of the LGC and
the Constitution. The pertinent portion of the decision reads, thus:
Secondly, the office a quo correctly ruled that the City
Government of Davao merely reclassified taxpayers earlier treated as one
class into separate classes thus subjecting them to different tax bases
and tax rates such that “retailers” are no longer treated and taxed in
the same way as “wholesalers” unlike in the old ordinance. Distinctly
defined from each other, a different tax treatment for each class of
taxpayer is reasonable. Such being the case, the maximum tax rate and
tax base ceilings provided in Section 143, in relation to Section 151 of
the Local Government Code, is not in point as the
prohibition/limitation refers to an adjustment or increase in the tax
rate or tax base for the same class of taxpayer. As held in PLDT, Inc.
vs. City of Davao (399 SCRA 442), “statutes in derogation of sovereignty
such as those containing exemption from taxation should be strictly
construed in favor of the State.”[22]
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.[23] In
this case, however, strictly speaking, the new tax rate for petitioners
as retailers under the assailed ordinance is not a case where there was
an imposition of a new tax rate, rather 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. To rule otherwise is tantamount to pronouncing that
Davao City can no longer correct the apparent error in classifying
wholesaler and retailer in the same category under its old tax
ordinance. Such proposition runs counter to the well-entrenched
principle that estoppel does not apply to the government,
especially on matters of taxation. Taxes are the nation’s lifeblood
through which government agencies continue to operate and with which the
State discharges its functions for the welfare of its constituents.[24]
However, 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 by its initial implementation of the LGC. It is but fair and
reasonable that 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 rate on retailers will not be considered as
confiscatory or oppressive, considering that the reclassification of
wholesaler and retailer and their corresponding tax rate being observed
now is in accord with the LGC.
Furthermore, to clarify, the
old ordinance, because it remained unchanged until the new tax ordinance
was enacted in 2005, charged lower tax rates for retailers which
resulted in lower revenues of Davao City. Corollarily, while there
was an increase in the amount of taxes to be paid by petitioners as
retailers, it should not be overlooked that the retailer has, in fact,
benefited already for a long time under the old tax ordinance because it
paid lower taxes due to Davao City’s failure to immediately implement
the LGC. Davao City has already foregone a substantial loss in revenues
as a result of an unadjusted lower tax rate for retailers. Thus,
dictated by justice and fairness, in its initial attempt to implement
the LGC, Davao City should, at the very least, start with 1% (the
minimum tax rate) as provided under Section 143 (d) of the LGC.
Considering that 11 years had already elapsed from its implementing in
2006, Davao City could adjust its tax rate twice now which will make its
adjusted tax rate for retailers pegged at 1.2%, in accordance with
Section 191 of the LGC. To clarify, from 2006-2011 (first 5 years), the
initial tax rate should start with 1%; from 2011-2016 (next 5 years) –
1.1%, thus, for the years 2017-2021, the tax adjustment is 1.21%.
However, for this purpose, Davao City should pass an ordinance to give
effect to the above-discussed tax adjustments.
Again, based on
the foregoing, Davao City merely implemented the LGC, albeit it resulted
in – an increase in retailer’s tax liability – which nevertheless is
not covered by Section 191 of the LGC. In any case, an ordinance based
on reasonable classification does not violate the constitutional
guaranty of the equal protection of the law. The requirements for a
valid and reasonable classification are: (1) it must rest on substantial
distinctions; (2) it must be germane to the purpose of the law; (3) it
must not be limited to existing conditions only; and (4) it must apply
equally to all members of the same class. For the purpose of rectifying
the erroneous classification of wholesaler and retailer in the old
ordinance in order to conform to the classification and the tax rates as
imposed by the LGC is neither invalid nor unreasonable. The
differentiation of wholesaler and retailer conforms to the practical
dictates of justice and equity and is not discriminatory within the
meaning of the Constitution. It is inherent in the power to tax that a
State is free to select the subjects of taxation. Inequities which
result from a singling out of one particular class for taxation or
exemption infringe no constitutional limitation.[25]
Settled is the rule that every law, in this case an ordinance, is
presumed valid. To strike down a law as unconstitutional, petitioner has
the burden to prove a clear and unequivocal breach of the Constitution,
which petitioner miserably failed to do.[26]
In Smart Communications, Inc. v. Municipality of Malvar, Batangas,[27] citing Lawyers Against Monopoly and Poverty (LAMP) v. Secretary of Budget and Management,[28] the Court held, thus:
To justify the nullification of the law or its implementation,
there must be a clear and unequivocal, not a doubtful, breach of the
Constitution. In case of doubt in the sufficiency of proof establishing
unconstitutionality, the Court must sustain legislation because “to
invalidate [a law] based on x x x baseless supposition is an affront to
the wisdom not only of the legislature that passed it but also of the
executive which approved it.” This presumption of constitutionality can
be overcome only by the clearest showing that there was indeed an
infraction of the Constitution, and only when such a conclusion is
reached by the required majority may the Court pronounce, in the
discharge of the duty it cannot escape, that the challenged act must be
struck down.
WHEREFORE, the instant petition is PARTIALLY GRANTED.
The Decision dated August 29, 2013 and the Resolution dated January 22,
2014 of the Court of Appeals in CA-G.R. SP No. 101482 are hereby AFFIRMED with MODIFICATION in so far as the tax rate of 1.25% to be imposed on petitioners is REDUCED to 1.21%.
SO ORDERED.
Sereno, C.J., Carpio, Velasco, Jr., Leonardo-De Castro, Bersamin, Del Castillo, Mendoza,[*] Reyes, Perlas-Bernabe, Jardeleza, Caguioa, Martires,[**] and Tijam, JJ., concur.
Leonen, J., see separate concurring opinion.
NOTICE OF JUDGMENT
Sirs/Mesdames:
Please take notice that on June 6, 2017 a Decision/Resolution,
copy attached herewith, was rendered by the Supreme Court in the
above-entitled case, the original of which was received by this Office
on July 7, 2017 at 1:50 p.m.
|
Very truly yours,
|
|
|
(SGD.) FELIPA G. BORLONGAN-ANAMA
Clerk of Court |
[*] On official leave.
[**] On wellness leave.
[1] Rollo pp. 3-33.
[2] Penned by Court of
Appeals Associate Justice Victoria Isabel A. Paredes, with Associate
Justices Japar B. Dimaampao and Elihu A. Ybañez, concurring, id. at 45-61.
[3] Rollo, pp. 62-63.
[4] Id. at 9.
[5] Id. at 104.
[6] Id.
[7] Id. at 71.
[8] Id. at 150-156.
[9] Id. at 181-183.
[10] Id. at 461-463.
[11] Id. at 477-478.
[12] Id. at 500-537.
[13] Id. at 60. (Emphasis in the original)
[14] Id. at 62-63.
[15] Emphasis ours.
[16] Emphasis ours.
[17] An Act Enacting a Local Government Code; Approved: February 10, 1983.
[18] Section 131. Definition of Terms. – When used in this Title, the term:
x x x x
(w) “Retail” means a sale where the purchaser buys the commodity
for his own consumption, irrespective of the quantity of the commodity
sold;x x x x
(z) “Wholesale” means a sale where the purchaser buys or imports
the commodities for resale to persons other than the end user regardless
of the quantity of the transaction.
[19] Emphasis ours.
[20] Rollo, p. 7.
[21] Id. at 57-58.
[22] Id. at 462-463.
[23] Eric R. Recalde, The Philippine Local Tax and Tariff & Customs Laws, 163 (2011).
[24] Commissioner of Internal Revenue v. Petron Corporation, 685 Phil. 118, 147 (2012).
[25] See Ferrer, Jr. v. City Mayor of Quezon City, et al. G.R. No. 210551, June 30, 2015, 760 SCRA 652, 710.
[26] Lawyers Against Monopoly and Poverty (LAMP) v. Secretary of Budget and Management, 686 Phil. 357, 372-373 (2012).
[27] 727 Phil. 430, 447 (2014).
[28] Supra note 26, at 373.
SEPARATE CONCURRING OPINION
LEONEN, J.:
I concur in the result.
Respectfully, I disagree with the ponencia ‘s
conclusion that the tax rate imposed on retailers under Davao City
Ordinance No. 253, Series of 2006 is “a rectification of an erroneous
classification of taxpayers and tax rates”[1]
under Davao’s old tax code. The 1.25% tax levied on retailers is an
imposition of a new tax. Wholesalers and retailers were not grouped into
a single category under Davao’s old tax code. They were classified
separately, although taxed with the same rate.
However, I agree that Davao City, in its initial attempt to
implement the tax rates under the Local Government Code of 1991 (Local
Government Code), can impose the minimum tax rate of one percent (1%) on
retailers reckoned from 2006 to 2011. I also agree that Davao City may
adjust the tax rate on a staggered basis due to the lapse of a
considerable length of time from the enactment of its new tax ordinance.
Hence, the tax rate on retailers should be 1.1% from taxable years 2011
to 2016 and 1.21% for taxable years 2017 to 2021, in accordance with
the limitation under Section 191 of the Local Government Code.
Section 69(d) of Davao City Ordinance No. 253, Series of 2006,
which immediately imposed a 1.25% tax rate on retailers, violates the
Local Government Code in that it exceeds the allowable adjustment of tax
rates. Any adjustment in the tax rates of local government units must
conform to the limitations under Section 191 of the Local Government
Code.[2]
To strengthen local autonomy and decentralization and to lessen dependence on the national government,[3] Article X, Section 5 of the Constitution grants local government units the power to create their own sources of revenue.[4]
The Local Government Code is an innovative piece of legislation[5]
designed to give life to the basic policy of local autonomy. In the
field of taxation, local government units are given enough flexibility
to widen their tax base and impose tax rates depending on their
respective needs.[6]
However, the power of local government units to tax is not
absolute. Rather, it is subject to the statutory guidelines provided by
Congress.[7] The Local
Government Code was enacted not just to amplify the power of local
governments to create their own sources of revenue but also to ensure
that taxpayers will not be “overburdened or saddled with multiple and
unreasonable impositions.”[8] Thus, the imposition of taxes by local government units is subject to the following common limitations under Sections 130,[9] 132,[10] 133,[11] and 186[12] of the Local Government Code.
Cities are granted wide taxing powers. Except in certain
instances, they can levy taxes, fees, and charges that provinces and
municipalities may impose.[13]
Cities are also authorized to impose tax rates by more than fifty
percent (50%) of what provinces and municipalities may impose except for
professional taxes and amusement taxes.[14]
Cities may levy business taxes under Section 151 in relation
to Section 143 of the Local Government Code. Section 143 of the Local
Government Code recognizes distinct types of businesses that are treated
and taxed differently.[15]
Pertinent to this case is the distinction between the tax rates
imposed on wholesalers and retailers. Section 143, paragraphs (b) and
(d) of the Local Government Code provides:
ARTICLE II
Municipalities
SECTION 143. Tax on Business. — The municipality may impose taxes on the following businesses:
. . . .
(b) On wholesalers, distributors, or dealers in any article of
commerce of whatever kind or nature in accordance with the following
schedule:
With gross sales or receipts for the preceding calendar year in the amount of :
of Tax
Per
AnnumLess than P1,000.00 P1,000.00 or more but less than 2,000.00 or more but less than 3,000.00 or more but less than 4,000.00 or more but less than 5,000.00 or more but less than 6,000.00 or more but less than 7,000.00 or more but less than 8,000.00 or more but less than 10,000.00 or more but less than 15,000.00 or more but less than 20,000.00 or more but less than 30,000.00 or more but less than 40,000.00 or more but less than 50,000.00 or more but less than 75,000.00 or more but less than 100,000.00 or more but less than 150,000.00 or more but less than 200,000.00 or more but less than 300,000.00 or more but less than 500,000.00 or more but less than 750,000.00 or more but less than 1,000,000.00 or more but less than 2,000,000.00 or more at a rate not exceeding fifty percent (50%) of one percent (1%). (d) On retailers.
Per AnnumP400,000.00 or less
The Local Government Code, however, does not prescribe fixed tax
rates that local government units should impose “but merely specifies
the minimum and maximum tax rates” that can be imposed.[16] Local government units, through their respective sanggunians, are given wide discretion in determining the actual tax rates.[17]
The wholesale and retail businesses were categorized differently in Davao’s old tax code.[18]
Wholesalers were taxed under Section 1(b) while retailers were taxed
under Section 1(d). Despite this distinction, retailers were
deliberately taxed in the same manner and at the same rate as
wholesalers under Davao’s old tax code:[19]
ARTICLE 5. TAX ON FEES FOR BUSINESS,
TRADE AND OCCUPATION
Section 1. Business Tax. – There is hereby imposed on the
following business in the City of Davao an annual tax collectible
quarterly, except on those for which fixed taxes are already provided
for as follows:. . . .
(b) On WHOLESALERS, DISTRIBUTORS, OR DEALERS, in any article of
commerce of whatever kind or nature in accordance with the following
schedules:
. . . .
At a rate of fifty (50%) percent of one percent (1%)(d) On RETAILERS: amended as per Ordinance 718, included under paragraph (b) of this section[20]
The Local Government Code does not prohibit the imposition of the
same tax rate on wholesalers and retailers. What is proscribed is the
imposition of a tax rate greater than that provided by law. Pursuant to
Section 151[21] in relation to Section 143(d)[22]
of the Local Government Code, a city may impose a maximum tax rate of
1.5% on retailers with gross sales or receipts of more than P400,000.00.[23] Thus, Davao City may increase the tax rate imposed on retailers from the old rate of 50% of 1% or 0.5% to 1.5%.
Although local government units may adjust their tax rates,
there are two (2) limitations to this power. The first limitation refers
to the frequency by which local government units may adjust their tax
rates. The second limitation pertains to the amount of each adjustment.
Section 191 of the Local Government Code provides:
CHAPTER V
Miscellaneous Provisions
. . . .
Section 191. Authority of Local Government Units to Adjust Rates of Tax Ordinances.
— Local government units shall have the authority to adjust the tax
rates as prescribed herein not oftener than once every five (5) years,
but in no case shall such adjustment exceed ten percent (10%) of the
rates fixed under this Code.
Should local government units decide to adjust their tax rates,
Section 191 of the Local Government Code limits the amount of each
adjustment and the frequency by which this authority may be exercised.
Local government units can only adjust tax rates once every five (5)
years. Moreover, the amount of adjustment should not exceed ten percent
(10%) of the rates fixed under the Local Government Code.[24]
In its old tax code, Davao City distinguished between
wholesalers and retailers but deliberately subjected them to the same
tax rate.[25] The immediate
imposition of the 1.25% tax rate on retailers under Davao City Ordinance
No. 158-05, Series of 2005, as amended by City Ordinance No. 253,
Series of 2006, cannot be considered as a correction of an erroneous
classification. It is an upward adjustment in the tax rate, which falls
under Section 191 of the Local Government Code. Assuming that the
imposition of a 1.25% tax on retailers was brought about by the
reclassification, it should still be considered as an upward adjustment
in the tax rate.
Davao’s old tax code was implemented before the effectivity in
1991 of the Local Government Code, which does not provide any transitory
provision that creates an exemption for existing ordinances. Any
amendment introduced to these ordinances will still be subject to the
limitations under the Local Government Code. The reclassification, which
aims to conform to the Local Government Code, still results in an
increase in the tax rate. What cannot be done directly cannot be done
indirectly.
Davao City cannot immediately increase the tax rate on
retailers to 1.25% without violating Section 191 of the Local Government
Code. Evidently, it will take time before Davao City can impose the
maximum rate of 1.5% on retailers. However, this is a necessary
limitation on the local government unit’s power of taxation. Otherwise,
taxpayers will be prejudiced. That Davao City decided to amend its tax
code 14 years[26] after the effectivity of the Local Government Code cannot justify an immediate increase in its tax rates.
ACCORDINGLY, I concur in the result. Davao City may
impose a tax rate of one percent (1%) on retailers from taxable years
2006 to 2011. Davao City may then adjust the tax rate on retailers on a
staggered basis from 1% to 1.1% for taxable years 2011 to 2016 and from
1.1% to 1.21% for taxable years 2017 to 2021.
[1] Ponencia, p. 12.
[2] Local Gov. Code, sec. 191 provides:
Section 191. Authority of Local Government Units to Adjust Rates of Tax Ordinances.
— Local government units shall have the authority to adjust the tax
rates as prescribed herein not oftener than once every five (5) years,
but in no case shall such adjustment exceed ten percent (10%) of the
rates fixed under this Code.
[3] National Power Corporation v. City of Cabanatuan, 449 Phil. 233, 248-249 (2003) [Per J. Puno, Third Division].
[4] CONST., art. X, sec. 5 provides:
Section 5. Each local government unit shall have the power to
create its own sources of revenues and to levy taxes, fees, and charges
subject to such guidelines and limitations as the Congress may provide,
consistent with the basic policy of local autonomy. Such taxes, fees,
and charges shall accrue exclusively to the local governments.
[5] National Power Corporation v. City of Cabanatuan, 449 Phil. 233, 250 (2003) [Per J. Puno, Third Division].
[6] Id. at 250.
[7] CONST., art. X, sec. 5.
[8] Ferrer v. Bautista, 760 Phil. 652, 698 (2015) [Per J. Peralta, En Banc], citing Manila Electric Company v. Province of Laguna, 366 Phil. 428 (1999) [Per J. Vitug, Third Division].
[9] Local Gov. Code, sec. 130 provides:
Section 130. Fundamental Principles. — The following
fundamental principles shall govern the exercise of the taxing and other
revenue-raising powers of local government units:(a) Taxation shall be uniform in each local government unit;
(b) Taxes, fees, charges and other impositions shall:
(1) be equitable and based as far as practicable on the taxpayer’s ability to pay;
(2) be levied and collected only for public purposes;
(3) not be unjust, excessive, oppressive, or confiscatory;
(4) not be contrary to law, public policy, national economic policy, or in restraint of trade;
(c) The collection of local taxes, fees, charges and other impositions shall in no case be let to any private person;(d) The revenue collected pursuant to the provisions of this Code
shall inure solely to the benefit of, and be subject to the
disposition by, the local government unit levying the tax, fee, charge
or other imposition unless otherwise specifically provided herein; and,
(e) Each local government unit shall, as far as practicable, evolve a progressive system of taxation.
[10] Local Gov. Code, sec. 132 provides:
Section 132. Local Taxing Authority. — The power to impose a tax, fee, or charge or to generate revenue under this Code shall be exercised by the sanggunian of the local government unit concerned through an appropriate ordinance.
[11] Local Gov. Code, sec. 133 provides:
Section 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 the following:
vessel and wharfage on wharves, tonnage dues, and all other kinds of
customs fees, charges and dues except wharfage on wharves constructed
and maintained by the local government unit concerned;
impositions upon goods carried into or out of, or passing through, the
territorial jurisdictions of local government units in the guise of
charges for wharfage, tolls for bridges or otherwise, or other taxes,
fees, or charges in any form whatsoever upon such goods or merchandise;
certified to by the Board of Investments as pioneer or non-pioneer for a
period of six (6) and four (4) years, respectively from the date of
registration;
under the National Internal Revenue Code, as amended, and taxes, fees or
charges on petroleum products;
sales, barters or exchanges or similar transactions on goods or services
except as otherwise provided herein;
transportation contractors and persons engaged in the transportation of
passengers or freight by hire and common carriers by air, land or water,
except as provided in this Code;
registration of motor vehicles and for the issuance of all kinds of
licenses or permits for the driving thereof, except tricycles;
and Barangay Business Enterprises and cooperatives duly registered
under R.A. No. 6810 and Republic Act Numbered Sixty-nine hundred
thirty-eight (R.A. No. 6938) otherwise known as the “Cooperative Code of
the Philippines” respectively; and
[12] Local Gov. Code, sec. 186 provides:
Section 186. Power To Levy Other Taxes, Fees or Charges.
— Local government units may exercise the power to levy taxes, fees or
charges on any base or subject not otherwise specifically enumerated
herein or taxed under the provisions of the National Internal Revenue
Code, as amended, or other applicable laws: Provided, That the
taxes, fees, or charges shall not be unjust, excessive, oppressive,
confiscatory or contrary to declared national policy: Provided, further,
That the ordinance levying such taxes, fees or charges shall not be
enacted without any prior public hearing conducted for the purpose.
[13] Local Gov. Code, sec. 151, par. 1 provides:
Section 151. Scope of Taxing Powers. — Except as
otherwise provided in this Code, the city, may levy the taxes, fees, and
charges which the province or municipality may impose: Provided, however,
That the taxes, fees and charges levied and collected by highly
urbanized and independent component cities shall accrue to them and
distributed in accordance with the provisions of this Code.
[14] Local Gov. Code, sec. 151, par. 2 provides:
Section 151. Scope of Taxing Powers. — . . .
The rates of taxes that the city may levy may exceed the maximum
rates allowed for the province or municipality by not more than fifty
percent (50%) except the rates of professional and amusement taxes.
[15] See Cagayan
Electric Power and Light Co., Inc. v. City of Cagayan de Oro, 698 Phil.
788, 811 (2012) [Per J. Carpio, Second Division].
[16] National Power Corporation v. City of Cabanatuan, 449 Phil. 233, 250 (2003) [Per J. Puno, Third Division].
[17] Id.
[18] Rollo, pp. 1042-1043, Reply.
[19] Id. at 133, Comment.
[20] Id. at 132-133.
[21] Local Gov. Code, sec. 151, par. 2 provides:
Section 151. Scope of Taxing Powers. — . . .
The rates of taxes that the city may levy may exceed the maximum
rates allowed for the province or municipality by not more than fifty
percent (50%) except the rates of professional and amusement taxes.
[22] Local Gov. Code, sec. 143(d), provides:
Section 143. Tax on Business. — The municipality may impose taxes on the following businesses:
. . . .
(d) On retailers.
With gross sales or receipts for the preceding calendar year of: Rate of Tax Per Annum P400,000.00 or less 2% more than P400,000.00 1%
[23] Fifty percent of 1%
is 0.5%, which is added to the rate imposed by law to arrive at the
maximum tax rate that a city may impose. This may be summed up using the
following equation: 0.5(x/100) + x = y, where:
x is the rate imposed under the Local Government Code
y is the maximum tax rate that a city may impose (multiplied by 100 to arrive at the percentage)
[24] Local Gov. Code, sec. 191 .
[25] Rollo, p. 133, Respondents’ Comment on the Appeal to the Department of Justice.
[26] The Local Government Code of 1991 took effect on January 1, 1992. Meanwhile, Davao City amended its old tax code in 2006.