The Supreme Court has ruled that Local Government Units cannot impose business tax on transportation contractors and common carriers as it upheld congressional power on the two sectors.
In a 45-page decision penned by Associate Justice Teresita J. Leonardo-de Castro, the SC nullified Section 21 (B) of the Manila Revenue Code as amended, for being ultra vires (beyond its power).
Enacted and approved in 1993, Section 21(b) of the Manila Revenue Code imposes a business tax of 50% of one percent per annum on the “gross receipts of garages, cars for rent or hire driven by lessee, transportation contractors, persons who transport passenger or freight for hire, and common carriers by land, air or water, except owners of bancas and owners of animal-drawn two-wheel vehicles.”
The City Treasurer of Manila began imposing and collecting business tax in January 1994.
In ruling against the Manila, the SC ruled that the provision violated restrictions on the taxing powers of LGUs under the Local Government Code (LGC).
“Strictly assessed against the guidelines and limitations set forth in the LGC, Section 21 (b) of the Manila Revenue Code, as amended was enacted ultra vires,” the high court ruled.
“It is already well-settled that although the power to tax is inherent in the State, the same is not true for the [local government units] to whom the power must be delegated by Congress and must be exercised within the guidelines and limitations that Congress may provide,” the SC said.
Arguing that they are exempted, Malaysian Airline System (MAS) challenged the validity of Section 21 (B) before the Regional Trial Court of Manila. Several corporations also filed separate petitions before the SC after they were assessed and compelled to pay under this provision.
The SC cited the limitations on the taxing power of LGUs provided under the LGC, specifically, Sec 133 (j), which “clearly and unambiguously proscribes LGUs from imposing any tax on the gross receipts of transportation contractors, persons engaged in the transportation of passengers or freight by hire, and common carriers by air, land and water.”
The confusion arose from a phrase in Section 143 (h) of the LGC, “unless otherwise provided herein,” which the Manila City government interpreted as an authority to impose tax on any business subject to excise, percentage or value-added tax.
However, the high tribunal disagreed, saying Section 133 (j) prevails over Section 143 (h) because the former is a specific provision that explicitly withholds taxing power from the LGU, the latter, on the other hand, defines the general power of the municipality.
“The omnibus grant of power to municipalities and cities under Section 143(h) of the LGC cannot overcome the specific exception/exemption in Section 133(j) of the same Code. This is in accord with the rule on statutory construction that specific provisions must prevail over general ones,” the SC ruled.
Citing provisions from the former Local Tax Code and Republic Act 7716, or the E-VAT Law, as well as Congress deliberations on the LGC, the Court emphasized that this interpretation is consistent with the intention of the laws to withhold from the LGUs the power to tax persons engaged in transportation.
“It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called ‘common carrier’s tax.’ Petitioner is already paying three percent common carrier’s tax on its gross sales/earnings under the National Internal Revenue Code. To tax petitioner again . . . would defeat the purpose of the Local Government Code,” the SC declared.