Unless otherwise provided herein

By constitutional fiat, local government units (LGUs) have the power to create their own sources of revenues and to levy taxes, fees and charges. However, the exercise of this power is subject to the parameters as Congress may provide, consistent with the basic policy of local autonomy. While the power of taxation is inherent in the State, the same is not true for barangays, municipalities, cities and provinces.

When Congress enacted the Local Government Code of 1991 (LGC), the limitations in the taxing powers of LGUs were set. One of the common limitations can be found in Section 133(j) of the LGC which provides that “unless otherwise provided herein”, the taxing power of the LGUs shall not extend to the levy of “taxes 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”. It is clear, therefore, that the taxes 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 are beyond the scope of the taxing powers of LGUs. However, the phrase “unless otherwise provided herein” found at the beginning of the said provision caused confusion and various local business tax assessments were made which eventually became the subject of the cases brought before the Supreme Court.

In the said cases, the City of Manila imposed and collected business tax on transportation contractors, persons engaged in the transportation of passengers or freight by hire and common carriers by air, land or water as provided under Section 21(B) of the Manila Revenue Code. Businesses which involve the transportation of passengers and cargo for hire assailed the said imposition of business tax. The City of Manila insisted that the abovementioned phrase “unless otherwise provided herein” recognized the power of the city or municipality to impose tax “on any business subject to the excise, value-added or percentage tax under the Tax Code” as provided under Section 143(h) of the LGC.

The Supreme Court, speaking through Associate Justice Teresita Leonardo-De Castro, gave the following reasons in ruling that Section 21(B) of the Manila Revenue Code is null and void for being in violation of the guidelines and limitations on the taxing powers of the LGUs under the LGC.

First, 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. It is basic in statutory construction that specific provisions must prevail over general ones.

Generalia specialibus non derogant. The sanggunian of the City of Manila was already specifically prohibited under Section 133(j) of the LGC from enacting an ordinance imposing business 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. Hence, the said sanggunian cannot enact such ordinance.

Second, both Sections 133(j) and 143(h) of the LGC were given effect by the construction adopted by the Supreme Court. Despite the prohibition under Section 133(j) of the LGC for LGUs to impose 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 Tax Code provides other multiple businesses subject to excise, value-added, or percentage tax, which the municipalities and cities can still tax pursuant to Section 143(h) of the LGC such as hotels, motels, caterers, dealers in securities, franchise holders, among others. Such interpretation by the Supreme Court reconciled both provisions, not making one of them worthless and inoperative.

Third, Section 5(b) of the LGC provides that in case of doubt, any tax ordinance or revenue measure shall be construed strictly against the LGU enacting it and liberally in favor of the taxpayer. Hence, the Court strictly construes Section 21(B) of the Manila Revenue Code, as amended, against the City of Manila and liberally in favor of the transportation contractors, persons engaged in the transportation of passengers or freight by hire, and common carriers by air, land, or water.

Lastly, it was mentioned during the deliberations conducted in the House of Representatives on the LGC that the legislative intent in excluding the taxing power of the LGU the imposition of business tax against common carriers is to prevent a duplication of the so-called “common carrier’s tax”. Therefore, the construction adopted by the Court is in accordance with the intention of the laws to withhold from LGUs the power to tax transportation contractors, persons engaged in the transportation of passengers or freight by hire, and common carriers by air, land, or water.

With the decision on the cases, it is clear that transportation businesses are beyond the reach of the taxing power of the LGU. Nothing can justify the imposition of business tax on transportation contractors, persons engaged in the transportation of passengers or freight by hire, and common carriers by air, land, or water, not even the clause “unless otherwise provided herein” found in Section 133(j) of the LGC.

Roxanne Marie A. Mendoza is a supervisor from the tax group of R.G. Manabat & Co. (RGM&Co.), the Philippine member firm of KPMG International.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or RGM&Co. For comments or inquiries, please email ph-inquiry@kpmg.com or rgmanabat@kpmg.com.

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