SC: Manila exceeded LGU power to tax

Saying the Manila City government exceeded its tax powers, the Supreme Court has scrapped a 21-year-old city regulation which required transportation firms, including local and international shipping and airline companies, to pay the local government business taxes on top of those levied by the national government.

In a 45-page en banc ruling, the high court said city officials violated limits set on the tax powers of local government units (LGUs) under the Local Government Code (LGC) when it enforced Section 21 (b) of the Manila Revenue Code.

The high court recalled that in January 1994, the city treasurer started collecting a three-percent tax on the gross annual sales or receipts of business subject to excise, value-added tax, or percentage taxes under the National Internal Revenue Code (NIRC). Alfredo Lim was then the city mayor.

The measure was amended after several months. From three percent, the rate was lowered to just 50 percent of one percent of the affected companies’ gross receipts.

Unenforced since 2013.

In the wake of the SC ruling, the city government, now under Mayor Joseph Estrada, has yet to estimate how much was collected under the tax measure. Some officials familiar with the case, however, claimed that the affected firms, which included Philippine-based and foreign shipping lines operating in Manila, were assessed taxes ranging from hundreds of thousands to millions of pesos.

The current city treasurer also clarified that the controversial provision in the local revenue code was no longer being enforced for the last two years.

“We’re not applying it anymore. That was from a long time ago. We already follow the new Revenue Code [which was enacted in 2013],” Liberty Toledo said.

Toledo declined to comment further on the case, saying she has yet to see the high court’s ruling.

“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 (beyond its powers),” the high tribunal said in the ruling penned by Associate Justice Teresita Leonardo-de Castro.

“…[I]t 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,” read the Dec. 10, 2014 ruling released through a press statement on Wednesday.

Double taxation

This, according to the high tribunal, was to prevent double taxation as the transportation firms were already paying the national government three percent of their gross sales or earnings under the NIRC.

The nullified section, approved in 1993, covered most forms of transportation for passenger or cargo conveyance for hire—whether land, air, or water—except for “bancas and animal-drawn two-wheel vehicles.”