FACTS
Section 21(B) of the Manila Revenue Code originally provided:
Section 21. Tax on Businesses Subject to the Excise, Value-Added or Percentage Taxes Under the NIRC. On any of the following businesses and articles of commerce subject to the excise, value-added or percentage taxes under the National Internal Revenue Code, hereinafter referred to as NIRC, as amended, a tax of three percent (3%) per annum on the gross sales or receipts of the preceding calendar year is hereby imposed:
x x x x
B) On the gross receipts of keepers of garages, cars for rent or hire driven by the lessee, transportation contractors, persons who transport passenger or freight for hire, and common carriers by land, air or water, except owners of bancas and owners of animal-drawn two-wheel vehicle.
Shortly thereafter, Ordinance No. 7807 was enacted by the City Council of Manila and approved by Mayor Lim, already amending several provisions of the Manila Revenue Code. Section 21 of the Manila Revenue Code, as amended, imposed a lower tax rate on the businesses that fell under it, and paragraph (B) thereof read as follows:
Section 21. Tax on Business Subject to the Excise, Value-Added or Percentage Taxes Under the NIRC On any of the following businesses and articles of commerce subject to the excise, value-added or percentage taxes under the National Internal Revenue Code hereinafter referred to as NIRC, as amended, a tax of FIFTY PERCENT (50%) OF ONE PERCENT (1%) per annum on the gross sales or receipts of the preceding calendar year is hereby imposed:
x x x x
B) On the gross receipts of keepers of garages, cars for rent or hire driven by the lessee, transportation contractors, persons who transport passenger or freight for hire, and common carriers by land, air or water, except owners of bancas and owners of animal-drawn two-wheel vehicle.
The City of Manila, through its City Treasurer, began imposing and collecting the business tax under Section 21(B) of the Manila Revenue Code, as amended.
Because they were assessed and/or compelled to pay business taxes pursuant to Section 21(B) of the Manila Revenue Code, as amended, before they were issued their business permits for 1994, several corporations, with principal offices in Manila, filed their respective petitions before the Manila RTC against the City of Manila, et al. Said petitions were later consolidated in RTC-Branch 32.
Several more corporations with principal offices in Manila filed petitions/complaints-in-intervention in the pending cases.
Petitioner and intervenor corporations essentially sought among others, the declaration of Section 21(B) of the Manila Revenue Code, as void/invalid for being contrary to the Constitution and the Local Government Code (LGC) of 1991; and the issuance of a TRO, etc. to enjoin the implementation of Section 21(B) of the Manila Revenue Code.
The RTC issued a TRO in favor of 6 petitioners. RTC-Branch 32 upheld the power of the respondent City of Manila, as an LGU, to levy the business tax, consistent with the basic policy of local autonomy.
Maersk, et al., filed a direct appeal before the Court praying for issuance of a writ of preliminary injunction and TRO.
Maersk, et al.,, also filed with RTC-Branch 32 a Motion to Stay or Restore Writ of Preliminary Injunction, presenting a Memorandum issued by City Treasurer Acevedo already ordering the collection of the business tax, which the RTC-Branch 32 granted.
The 10 cases were consolidated at different times and stages.
ISSUE:
Whether or not section 21(b) of [the Manila Revenue Code, as amended,] is valid and constitutional.
RULING:
The Court rules in favor of MAS; Maersk, et al.,; Eastern Shipping; William Lines, et al.,; PSTC; OFSI; Cosco, et al.,; Sulpicio Lines; AISL; and Dongnama and Kyowa. Section 21(B) of the Manila Revenue Code, as amended, was null and void for being beyond the power of the City of Manila and its public officials to enact, approve, and implement under the LGC.
It is already well-settled that although the power to tax is inherent in the State, the same is not true for the LGUs to whom the power must be delegated by Congress and must be exercised within the guidelines and limitations that Congress may provide.
The Court expounded in Pelizloy Realty Corporation v. The Province of Benguet that:
The power to tax “is an attribute of sovereignty,” and as such, inheres in the State. Such, however, is not true for provinces, cities, municipalities and barangays as they are not the sovereign; rather, they are mere “territorial and political subdivisions of the Republic of the Philippines”.
The rule governing the taxing power of provinces, cities, municipalities and barangays is summarized in Icard v. City Council of Baguio:
It is settled that a municipal corporation unlike a sovereign state is clothed with no inherent power of taxation. The charter or statute must plainly show an intent to confer that power or the municipality, cannot assume it. And the power when granted is to be construed in strictissimi juris. Any doubt or ambiguity arising out of the term used in granting that power must be resolved against the municipality. Inferences, implications, deductions all these have no place in the interpretation of the taxing power of a municipal corporation.
Therefore, the power of a province to tax is limited to the extent that such power is delegated to it either by the Constitution or by statute. Section 5, Article X of the 1987 Constitution is clear on this point:
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.
Per Section 5, Article X of the 1987 Constitution, “the power to tax is no longer vested exclusively on Congress; local legislative bodies are now given direct authority to levy taxes, fees and other charges.” Nevertheless, such authority is “subject to such guidelines and limitations as the Congress may provide”.
In conformity with Section 3, Article X of the 1987 Constitution, Congress enacted Republic Act No. 7160, otherwise known as the Local Government Code of 1991. Book II of the LGC governs local taxation and fiscal matters.
Among the common limitations on the taxing power of LGUs is Section 133(j) of the LGC, which states that “[u]nless otherwise provided herein,” the taxing power of LGUs shall not extend to “[t]axes on the gross receipts of 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[.]”
Section 133(j) of the LGC clearly and unambiguously proscribes LGUs from imposing any tax on the gross receipts of transportation contractors, persons engaged in the transportation of passengers or freight by hire, and common carriers by air, land, or water.
The City of Manila and its public officials insisted that said clause recognized the power of the municipality or city, under Section 143(h) of the LGC, to impose tax “on any business subject to the excise, value-added or percentage tax under the NIRC, as amended.”
The Court is not convinced. Section 133(j) of the LGC prevails over Section 143(h) of the same Code, and Section 21(B) of the Manila Revenue Code, as amended, was manifestly in contravention of the former.