PETRON CORPORATION,
G.R. No. 158881
Petitioner,
Present:
-
versus - QUISUMBING,
J.,
Chairperson,
CARPIO
MORALES,
TINGA,
MAYOR
TOBIAS M. TIANGCO, VELASCO,
JR, and
and MUNICIPAL TREASURER BRION, JJ.
MANUEL T. ENRIQUEZ of
the
METRO
Respondents.
Promulgated:
x----------------------------------------------------------------------------x
Tinga, J.:
The
novel but important issue before us is whether a local government unit is
empowered under the Local Government Code (the LGC) to impose business taxes on
persons or entities engaged in the sale of petroleum products.
I.
The
present Petition for Review on Certiorari under Rule 45 filed by petitioner Petron
Corporation (Petron) directly assails the Decision of the Regional Trial Court (RTC) of Malabon,
Branch 74, which dismissed petitioner’s complaint for cancellation of
assessment made by the then municipality (now City) of Navotas (Navotas) for
deficiency taxes, and ordering the payment of P10,204,916.17 pesos in
business taxes to Navotas. As the issues raised are pure questions of law, we
need not dwell on the facts at length.
Petron
maintains a depot or bulk plant at the Navotas Fishport Complex in Navotas.
Through that depot, it has engaged in the selling of diesel fuels to vessels
used in commercial fishing in and around P6,259,087.62, a figure derived from the gross
sales of the depot during the years in question. The computation sheets[3]
that were attached to the letter made reference to Ordinance 92-03, or the New
Navotas Revenue Code (Navotas Revenue Code), though such enactment was not
cited in the letter itself.
Petron
duly filed with Navotas a letter-protest to the notice of assessment pursuant
to Section 195 of the Code. It argued
that it was exempt from local business taxes in view of Art. 232(h) of the
Implementing Rules (IRR) of the Code, as well as a ruling of the Bureau of
Local Government Finance of the Department of Finance dated
Thus, on
On
On
II.
As earlier stated, Petron has opted
to assail the RTC Decision directly before this Court since the matter at hand involves
pure questions of law, a characterization conceded by the RTC Decision itself.
Particularly, the controversy hinges on the correct interpretation of Section
133(h) of the LGC, and the applicability
of Article 232 (h) of the IRR.
Section 133(h) of the LGC reads as
follows:
Sec. 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:
xxx
(h)
Excise taxes on articles enumerated under the National Internal Revenue Code,
as amended, and taxes, fees or charges on petroleum products;
Evidently, Section 133 prescribes the
limitations on the capacity of local government units to exercise their taxing
powers otherwise granted to them under the LGC. Apparently, paragraph (h) of
the Section mentions two kinds of taxes which cannot be imposed by local
government units, namely: “excise taxes on articles enumerated under the
National Internal Revenue Code [(NIRC)], as amended;” and “taxes, fees or
charges on petroleum products.”
The power of a municipality to impose
business taxes is provided for in Section 143 of the LGC. Under the provision,
a municipality is authorized to impose business taxes on a whole host of
business activities. Suffice it to say, unless there is another provision of
law which states otherwise, Section 143, broad in scope as it is, would
undoubtedly cover the business of selling diesel fuels, or any other petroleum
product for that matter.
Nonetheless, Article 232 of the IRR
defines with more particularity the capacity of a municipality to impose taxes
on businesses. The enumeration that follows is generally a positive list of
businesses which may be subjected to business taxes, and paragraph (h) of Article
232 does allow the imposition of local business taxes “[o]n any business not
otherwise specified in the preceding paragraphs which the sanggunian concerned
may deem proper to tax,” but subject to this important qualification, thus:
“xxx provided further, that in
line with existing national policy, any business engaged in the production,
manufacture, refining, distribution or sale of oil, gasoline and other
petroleum products shall not be subject to any local tax imposed on this
article.
Notably, the Malabon RTC declared Art. 232(h) of the IRR void
because the Code purportedly does not contain a provision prohibiting the
imposition of business taxes on petroleum products.[13]
This submission warrants close examination as well.
With all the relevant provisions of law laid out, we address
the core issues submitted by Petron,
namely: first, is the challenged tax on sale of the diesel fuels an excise tax
on an article enumerated under the NIRC, thusly prohibited under Section 133(h)
of the Code?; second, is the challenged tax prohibited by Section 133(h) under
the proviso, “taxes, fees or charges
on petroleum products”? and; third, does Art. 232(h) of the IRR similarly
prohibit the imposition of the challenged tax?
III
As earlier observed, Section 133(h)
provides two kinds of taxes which cannot be imposed by local government units:
“excise taxes on articles enumerated” under the NIRC, as amended; and “taxes, fees
or charges on petroleum products.” There is no doubt that among the excise
taxes on articles enumerated under the NIRC are those levied on petroleum
products, per Section 148 of the NIRC.
We first consider Petron’s argument
that the “business taxes” on its sale of diesel fuels partakes of an excise
tax, which if true, could invalidate the challenged tax solely on the basis of
the phrase “excise taxes on articles
enumerated under the [NIRC].” To support
this argument, it cites Cordero v. Conda,[14] Allied Thread Co. Inc. v. City Mayor of
Petron’s argument is fraught with
far-reaching implications, for if it were sustained, it would mean that local
government units are barred from imposing business taxes on any of the articles
subject to excise taxes under the NIRC. These would include alcohol products,[20]
tobacco products,[21]
mineral products[22]
automobiles,[23] and
such non-essential goods as jewelry, goods made of precious metals, perfumes,
and yachts and other vessels intended for pleasure or sports.[24]
Admittedly, the proffered definition
of an excise tax as “a tax upon the performance, carrying on, or exercise of
some right, privilege, activity, calling or occupation” derives from the compendium
American Jurisprudence, popularly
referred to as Am Jur,,[25]
and has been cited in previous decisions of this Court, including those cited by
Petron itself. Such a
definition would not have been
inconsistent with previous
incarnations of our Tax Code, such as the NIRC of 1939,[26]
as amended, or the NIRC of 1977[27]
because in those laws the term “excise tax” was not used at all. In contrast,
the nomenclature used in those prior
laws in referring to taxes imposed on specific articles was “specific tax.”[28]
Yet beginning with the National Internal Revenue Code of 1986, as amended, the
term “excise taxes” was used and defined as applicable “to goods manufactured
or produced in the
The change in perspective brought
forth by the use of the term “excise tax” in a different connotation was not
lost on the departed author Jose Nolledo as he accorded divergent treatments in
his 1973 and 1994 commentaries on our tax laws. Writing in 1973, and essentially
alluding to the Am Jur definition of
“excise tax,” Nolledo observed:
Are specific
taxes, taxes on property or excise taxes –
In the case of Meralco v. Trinidad ([G.R.] 16738, 1925) it was held that specific
taxes are property taxes, a ruling which seems to be erroneous. Specific taxes
are truly excise taxes for the fact that the value of the property taxed is
taken into account will not change the nature of the tax. It is correct to say
that specific taxes are taxes on the privilege to import, manufacture and
remove from storage certain articles specified by law.[31]
In contrast, after the tax code was
amended to classify specific taxes as a subset of excise taxes, Nolledo, in his
1994 commentaries, wrote:
1. Excise taxes, as used in
the Tax Code, refers to taxes applicable to certain specified goods or articles
manufactured or produced in the Philippines for domestic sale or consumption or
for any other disposition and to things imported into the Philippines. They are
either specific or ad valorem.
2. Nature of excise taxes. – They are imposed directly on certain
specified goods. (infra) They are,
therefore, taxes on property. (see
A tax is not excise where it does not subject directly the produce or
goods to tax but indirectly as an incident to, or in connection with, the
business to be taxed.[32]
In their 2004 commentaries, De Leon
and De Leon restate the Am Jur
definition of excise tax, and observe that the term is “synonymous with
‘privilege tax’ and [both terms] are often used interchangeably.”[33]
At the same time, they offer a caveat that “[e]xcise tax, as [defined by Am Jur], is not to be confused with
excise tax imposed [by the NIRC] on certain specified articles manufactured or
produced in, or imported into, the
It is evident that Am Jur aside, the current definition of
an excise tax is that of a tax levied on a specific article, rather than one
“upon the performance, carrying on, or the exercise of an activity.” This
current definition was already in place when the Code was enacted in 1991, and
we can only presume that it was what the Congress had intended as it specified
that local government units could not impose “excise taxes on articles enumerated
under the [NIRC].” This prohibition must pertain to the same kind of excise
taxes as imposed by the NIRC, and not those previously defined “excise taxes”
which were not integrated or denominated as such in our present tax law.
It is quite apparent, therefore, that
our current body of taxation law does not explicitly accommodate the
traditional definition of excise tax offered by Petron. In fact, absent any
statutory adoption of the traditional definition, it may be said that starting
in 1986 excise taxes in this jurisdiction refer exclusively to specific or ad valorem taxes imposed under the NIRC.
At the very least, it is this concept of excise tax which we can reasonably assume
that Congress had in mind and actually adopted when it crafted the Code. The
palpable absurdity that ensues should the alternative interpretation prevail
all but strengthens this position.
Thus, Petron’s argument concerning
excise taxes is founded not on what the NIRC or the Code actually provides, but
on a non-statutory definition sourced from a legal paradigm that is no longer
applicable in this jurisdiction. That such definition was referred to again in
our 1998 decision in Province of Bulacan
v. Court of Appeals[35]
is ultimately of little consequence, and so is Petron’s reliance on such
ruling. The Court therein had correctly nullified, on the basis of Section
133(h) of the Code, a province-imposed tax “of 10% of the fair market value in
the locality per cubic meter of ordinary stones, sand, gravel, earth and other
quarry resources xxx extracted from public lands,” because it noted that under
Section 151 of the NIRC, all nonmetallic minerals and quarry resources were
assessed with excise taxes of “two percent (2%) based on the actual market
value of the gross output thereof at the time of removal, in case of those
locally extracted or produced”.[36]
Additionally, the Court also observed that the case had emanated from an
attempt to impose the said tax on quarry resources from private lands, despite
the clear language of the tax ordinance
limiting the tax to such resources extracted from public lands.[37]
On that score alone, the case could have been correctly decided.
It is true that the Court had
additionally reasoned in Province of
Bulacan that “[t]he tax imposed by the Province of Bulacan is an excise
tax, being a tax upon the performance, carrying on, or exercise of an
activity.” As earlier noted, such definition of excise tax however was not explicitly
carried over into the NIRC and was even superseded beginning with the 1986
amendments thereto. To insist on utilizing this definition simply because it
had been reiterated in Province of
Bulacan, unnecessary as such reiteration may have been to the resolution of
that case, would have the unfortunate effect of infusing life into a concept
that is diametrically inconsistent with the present state of the law.
We thus can assert with clear comfort
that excise taxes, as imposed under the NIRC, do not pertain to “the
performance, carrying on, or exercise of an activity,” at least not to the
extent of equating excise with business taxes.
IV.
We
next consider whether the clause “taxes, fees or charges on petroleum products”
in Section 133(h) precludes local government units from imposing business taxes
based on the sale of petroleum products.
The
power of a municipality to impose business taxes derives from Section 143 of
the Code that specifically enumerates several types of business on which it may
impose taxes, including manufacturers, wholesalers, distributors, dealers of
any article of commerce of whatever nature;[38]
those engaged in the export or commerce of essential commodities;[39] retailers;[40] contractors
and other independent contractors;[41]
banks and financial institutions;[42]
and peddlers engaged in the sale of any merchandise or article of commerce.[43]
This obviously broad power is further supplemented by paragraph (h) of Section 143 which authorizes
the sanggunian to impose taxes on any
other businesses not otherwise specified under Section 143 which the sanggunian
concerned may deem proper to tax.[44]
This
ability of local government units to impose business or other local taxes is
ultimately rooted in the 1987 Constitution. Section 5, Article X assures that
“[e]ach local government unit shall have the power to create its own sources of
revenues and to levy taxes, fees and charges,” though the power is “subject to
such guidelines and limitations as the Congress may provide.” There is no doubt
that following the 1987 Constitution and the Code, the fiscal autonomy of local
government units has received greater affirmation than ever. Previous decisions
that have been skeptical of the viability, if not the wisdom of reposing fiscal
autonomy to local government units have fallen by the wayside.
Respondents
cite our declaration in City Government
of San Pablo v. Reyes[45]
that following the 1987 Constitution the rule thenceforth “in interpreting
statutory provisions on municipal fiscal powers, doubts will have to be
resolved in favor of municipal corporations.”[46]
Such policy is also echoed in Section 5(a) of the Code, which states that “[a]ny provision on a power of a local government
unit shall be liberally interpreted in its favor, and in case of doubt, any
question thereon shall be resolved in favor of devolution of powers and of the
lower local government unit.” But somewhat conversely, Section 5(b) then
proceeds to assert that “[i]n case of doubt, any tax ordinance or
revenue measure shall be construed strictly against the local government unit
enacting it, and liberally in favor of the taxpayer.”[47] And
this latter qualification has to be respected as a constitutionally authorized
limitation which Congress has seen fit to provide. Evidently, local fiscal autonomy should not
necessarily translate into abject deference to the power of local government
units to impose taxes.
Congress
has the constitutional authority to impose limitations on the power to tax of
local government units, and Section 133 of the Code is one such limitation. Indeed,
the provision is the explicit statutory impediment to the enjoyment of absolute taxing power by local government
units, not to mention the reality that such power is a delegated power. To cite
one example, under Section 133(g), local government units are disallowed from
levying business taxes on “business enterprises certified to by the Board of
Investments as pioneer or non-pioneer for a period of six (6) and (4) four
years, respectively from the date of registration.”
Section
133(h) states that local government units “shall not extend to the levy of xxx
taxes, fees or charges on petroleum products.” Respondents assert that the
phrase “taxes, fees or charges on petroleum products” pertains to the
imposition of direct or excise taxes on petroleum products, and not business
taxes. If the phrase actually pertains to excise taxes, then it would be an
exercise in utter redundancy, since the preceding phrase already prohibits the
imposition of excise taxes on articles already subject to such taxes under the
NIRC, such as petroleum products. There would be no sense on the part of the
legislature to twice emphasize in the same sentence that excise taxes on
petroleum products are beyond the pale of local government taxation.
It
appears that this argument of respondents was fashioned on the basis of the pronouncement
of the Court in Philippine Petroleum
Corporation v. Municipality of Pililla, thus:[48]
xxx [W]hile Section 2 of P.D. 436 prohibits the imposition of
local taxes on petroleum products, said decree did not amend Sections 19 and 19
(a) of P.D. 231 as amended by P.D. 426, wherein the municipality is granted the
right to levy taxes on business of manufacturers, importers, producers of any
article of commerce of whatever kind or nature. A tax on business is distinct from a tax on the article itself. Thus,
if the imposition of tax on business of manufacturers, etc. in petroleum
products contravenes a declared national policy, it should have been expressly
stated in P.D. No. 436.
The
dicta that “[a] tax on a business is
distinct from a tax on the article itself” might at first blush somehow lend
support to respondents’ position, yet that dicta
has not since been reprised by this Court. It is likewise worth observing
that Pililla did involve a tax
ordinance that imposed business taxes on an enterprise engaged in the
manufacture and storage of petroleum products.
Significantly,
the legal milieu governing Pililla is
vastly different from that existing at bar, to the extent that the earlier case
could not be presently controlling.
At
the time the taxes sought to be collected in Pililla were imposed, there was no national law in place similar to
Section 133(h) of the Code that barred local “taxes, fees or charges on
petroleum products.” There were circulars to that effect issued by the Finance
Department, yet the Court could not validate such issuances since under the tax
laws then in
place
“no exemptions were given
to
manufacturers, wholesalers,
retailers, or dealers in petroleum products.”[49]
In fact, the Court tellingly observed that “if the imposition of tax on
business of manufacturers, etc. in petroleum products contravenes a declared
national policy, it should have been expressly stated in P.D. No. 436.”[50]
Such expression conspiciously missing in P.D. No. 436
is now found in Section 133(h).
In
view of the difference in statutory paradigm between this case and Pililla, the latter case is severely
diminished as applicable precedent at bar. The Court then was correct in
observing that a mere administrative circular could not prohibit a local tax that
is not otherwise barred under a national statute, yet in this case that
conflict is not present since the Code explicitly prohibits the imposition of several
classes of local taxes, including those on petroleum products. The final and
only straw Pililla provides that respondents
can still grasp at is the bare statement that “[a] tax on a business is
distinct from a tax on the article itself,”[51] a
sentence which could have been omitted from that decision without any effect.
We
can concede that a tax on a business is distinct from a tax on the article
itself, or for that matter, that a business tax is distinct from an excise tax.
However, such distinction is immaterial insofar as the latter part of Section
133(h) is concerned, for the phrase “taxes, fees or charges on petroleum
products” does not qualify the kind of taxes, fees or charges that could
withstand the absolute prohibition imposed by the provision. It would have been
a different matter had Congress, in crafting Section 133(h), barred “excise
taxes” or “direct taxes,” or any category of taxes only, for then it would be
understood that only such specified taxes on petroleum products could not be
imposed under the prohibition. The absence of such a qualification leads to the
conclusion that all sorts of taxes on petroleum products, including business
taxes, are prohibited by Section 133(h). Where the law does not distinguish, we
should not distinguish.
The
language of Section 133(h) makes plain that the prohibition with respect to
petroleum products extends not only to excise taxes thereon, but all “taxes,
fees and charges.” The earlier reference in paragraph (h) to excise taxes comprehends
a wider range of subjects of taxation: all articles already covered by excise
taxation under the NIRC, such as alcohol products, tobacco products, mineral
products, automobiles, and such non-essential goods as jewelry, goods made of
precious metals, perfumes, and yachts and other vessels intended for pleasure
or sports. In contrast, the later reference to “taxes, fees and charges”
pertains only to one class of articles of the many subjects of excise taxes,
specifically, “petroleum products”. While local government units are authorized
to burden all such other class of goods with “taxes, fees and charges,”
excepting excise taxes, a specific prohibition is imposed barring the levying
of any other type of taxes with respect to petroleum products.
V.
We no longer need to dwell on the arguments centering on Article 232
of the IRR. As earlier stated, the provision explicitly stipulates that “in
line with existing national policy, any business engaged in the production,
manufacture, refining, distribution or sale of oil, gasoline and other
petroleum products shall not be subject to any local tax imposed on this
article [on business taxes].” The RTC went as far as to declare Article 232 as
“invalid” on the premise that the prohibition was not similarly warranted under
the Code.
Assuming that the Code does
not, in fact, prohibit the imposition of business taxes on petroleum products, we would agree that the IRR could not impose such
a prohibition. With our ruling that Section 133(h) does indeed prohibit the
imposition of local business taxes on petroleum products, however, the RTC
declaration that Article 232 was invalid is, in turn, itself invalid. Even
absent Article 232, local government units cannot impose business taxes on
petroleum products. If anything, Article 232 merely reiterates what the Code itself
already provides, with the additional explanation that such prohibition was “in
line with existing national policy.”
VI.
We
have said all that need be said for the resolution of this case, but there is
one more line of argument raised by respondents that deserves a remark. Respondents
argue, “assuming... that the Oversight Committee [that drafted the IRR] can
legislate, that the “existing national policy” referred to in Article 232 had
been superseded by Republic Act No. 8180, or the Oil Deregulation Law. Boiled down
to its essence, the argument is that since the oil industry is presently
deregulated the basis for exempting petroleum products from business taxes no
longer exists.
Of
course, the starting premise for this argument, that the IRR can establish a
tax or an exemption, is false and has been flatly rejected by this Court
before.[52]
The Code itself does not connect its prohibition on taxation of petroleum
products with any existing or future national oil policy, so the change in such
national policy with the regime of oil deregulation is ultimately of no moment.
Still, we can divine the reasoning behind singling out petroleum products,
among all other commodities, as beyond the power of local government units to
levy local taxes.
Why
the special concern over petroleum products? The answer is quite evident to all
sentient persons. In this age where unfortunately dependence on petroleum as
fuel has yet no equally feasible alternative, the cost of petroleum products,
though fully controlled by private enterprise, remains an area of public
concern. To be blunt about it, there is an inevitable link between the
fluctuation of oil prices and the prices of every other commodity. The reality,
indeed, is oil is a political commodity. Such fact has received recognition
from this Court. “[O]il [is] a commodity
whose supply and price affect the ebb and flow of the lifeblood of the
nation. Its shortage of supply or a
slight, upward spiral in its price shakes our economic foundation. Studies show that the areas most impacted by
the movement of oil are food manufacture, land transport, trade, electricity
and water.”[53] “[T]he
upswing and downswing of our economy
materially depend on the oscillation of oil.”[54] “Fluctuations
in the supply and price of oil products have a dramatic effect on economic
development and public welfare.”[55]
It
can be reasonably presumed that if municipalities, cities and provinces were
authorized to impose business taxes on manufacturers and retailers of petroleum
products, the resulting losses to these enterprises would be passed on to the
consumers, triggering the chain of increases that normally accompany the
increase in oil prices. No similarly massive trigger effect would ensue upon
the imposition of business taxes on other commodities, including those already
subject to excise taxation under the NIRC.
It may very well be that the policy
of deregulation, which was not yet in effect at the time of the enactment of
the Local Government Code, has changed the complexion of the issue, for unlike
before, oil companies are free at will to increase oil prices, thus mitigating
the similarly arbitrary consequences that could develop if petroleum products
were subject to local taxes. Still, it cannot be denied that subjecting
petroleum products to business taxes apart from the taxes already imposed by
Congress in this age of deregulation would lead to the same result had they
been so taxed during the era of oil regulation – the increase of oil prices. We
do not discount the authority of Congress to enact measures that facilitate the
increase in oil prices; witness the Oil Deregulation Law and the most recent
Expanded VAT Law. Yet these hard choices are presumably made by Congress with
the expectation that the negative effects of increased oil prices are offset by
the other economic benefits promised by those new laws (i.e., a more vibrant oil industry; increased government revenue).
The Court defers to the other
branches of government in the formulation of oil policy, but when the choices
are made through legislation, the Court expects that the choices are
deliberate, considering that the stakes are virtually all-in. Herein, respondents
may be bolstered by the constitutional and statutory policy favoring local
fiscal autonomy, but it would be utter indolence to reflexively affirm such
policy when the inevitable effect is an increase in oil prices. Any prudent
adjudication should fully ascertain the mandate of local government units to
impose taxes on petroleum products, and such mandate should be cast in so
specific terms as to leave no dispute as to the legislative intendment to
extend such power in the name of local autonomy. What we have found instead,
from the plain letter of the law is an explicit disinclination on the part of the
legislature to impart that particular taxing power to local government units.
While Section 133(h) does not
generally bar the imposition of business taxes on articles burdened by excise
taxes under the NIRC, it specifically prohibits local government units from
extending the levy of any kind of “taxes, fees or charges on petroleum products.”
Accordingly, the subject tax assessment is ultra
vires and void.
WHEREFORE,
the Petition is GRANTED. The Decision of the
deficiency taxes on petitioner is
ordered CANCELLED. The Temporary Restraining Order dated
SO
ORDERED.
DANTE O. TINGA
Associate Justice
WE CONCUR:
LEONARDO A. QUISUMBING
Associate Justice
Chairperson
CONCHITA CARPIO MORALES
PRESBITERO J. VELASCO, JR.
Associate
Justice Associate Justice
ARTURO D. BRION
Associate Justice
ATTESTATION
I attest that the conclusions in the above
Decision had been reached in consultation before the case was assigned to the
writer of the opinion of the Court’s Division.
LEONARDO A. QUISUMBING
Associate
Justice
Chairperson,
Second Division
CERTIFICATION
Pursuant to Section 13, Article VIII
of the Constitution, and the Division Chairperson’s Attestation, it is hereby
certified that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Court’s Division.
REYNATO S. PUNO
Chief Justice
[16]G.R. No. L-52019,
[25]See Footnote No. 27, Cordero v. Conda, 124 Phil. 926, 937 (1966); citing 51 Am. Jur., pp. 1068-1069.
[37]
[47]Section
5(b) also provides, “Any tax exemption,
incentive or relief granted by any local government unit pursuant to the
provisions of this Code shall be construed strictly against the person claiming
it; xxx” This proviso should find no application to this case, since the
tax exemption invoked by Petron was not granted or legislated by Navotas, but
bestowed by the Congress through the Local Government Code.