SC: LGUs can’t impose business tax on transport contractors, common carriers

The Supreme Court has ruled that local government cannot impose business tax on transportation contractors and common carriers.

In a 45-page decision penned by Associate Justice Teresita J. Leonardo-de Castro, the tribunal nullified Section 21(b) of the Manila Revenue Code as amended.

 

Enacted and approved in 1993, Section 21(b) imposed a business tax of 50 percent of 1 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 this business tax on January 1994.

 

But in its latest ruling, the high court stressed that “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.”

            

Malaysian Airline System (MAS) originally challenged the validity of Section 21 (b) before the Manila Regional Trial Court of Manila.

 

Separate petitions were later filed by other companies that were also compelled to pay taxes under this provision. 

 

In its ruling, the SC cited Section 133(j) of the Local Government Code which sets limits on the tqxong power of local government units.

 

The SC said the particular section in 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 and water.”

 

The Manila local government the phrase in Section 143 (h) of the LGC, “unless otherwise provided herein,” as an authority to impose tax on any business subject to excise, percentage or value-added tax.

 

The high court, however, disagreed and said that Section 133(j) prevails over Section 143(h) because the former is a specific provision that explicitly withholds taxing power from the LGU, whereas the latter 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 decision read.

 

Citing provisions from the former Local Tax Code and Rep Act 7716 (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.

 

The SC said it was 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 said. — RSJ, GMA News