SC says local gov't units can't tax oil firm

MANILA, Philippines - The Supreme Court on Monday ordered the Navotas City government to stop its plan to close the Petron depot after the oil firm failed to pay its tax deficiency amounting to P10.2 million. In a 26-page decision penned by Associate Justice Dante Tinga, the SC's Second Division also barred the local government from interfering with the oil firm's operations. This came as the SC granted a Petron petition assailing the decision of the Malabon Regional Trial Court Branch 74 which had earlier affirmed the legality of the assessment for deficiency taxes by the Navotas government. The SC ruled that local government units are not authorized to impose business taxes on oil firms or other entities engaged in the sale of petroleum products, saying subjecting the sale of petroleum products to local taxation will lead to the increase in oil prices. It held that if LGUs were authorized to impose business taxes on manufacturers and retailers of petroleum products, their expected losses would be passed on to the consumers, "triggering the chain of increases that accompany the increase in oil prices." "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 year of oil deregulation -- the increase of oil prices," the Court ruled. The high court also gave merit to the argument of Petron that Section 133 (h) of the Local Government Code enjoins LGUs from levying business taxes on petroleum products. Said provision states that "the exercise of the taxing powers of province, cities, municipalities and barangay shall not extend to the levy of excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and taxes, fees, or charges on petroleum products." Thus, the prohibition with respect to the petroleum products extends not only to excise taxes thereon, but all taxes, fees and charges. It explained that earlier reference in paragraph (h) to excise taxes comprehends a wider range of subjects of taxation like all the articles already covered by excise taxation under the NIRC, such as alcohol products, tobacco products, mineral products, automobiles, 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 articles of the many subjects of excise taxes, specifically, petroleum products. The Court stressed that the assessed amount is prohibited by Section 133 under the provision taxes, fees, or charges on petroleum products. "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 ëtaxes, fees or charges on petroleum products. Accordingly, the subject tax assessment is ultra vires and void," the SC said. Court records showed that Petron, which maintains a depot or bulk plant at the Navotas Fishport Complex, received a letter from respondent Navotas Mayor Tobias Tiangco, wherein the firm was assessed taxes covering its sale of diesel from 1997 to 2001. The Navotas city government is demanding payment of P10.2 million representing Petron's deficiency taxes. Petron 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 Article 232 of the Implementing Rules of the LGC as well as the ruling of the Bureau of Local Government Finance of the Department of Finance (DOF). Due to the denial of its protest, Petron file with the Malabon RTC a complaint for cancellation of assessment for deficiency taxes with prayer for the issuance of a temporary restraining order and preliminary injunction. On May 5, 2003, the Malabon RTC rendered its decision dismissing Petron's complaint and ordering the payment of the assessed amount. After 11 days, Petron received a closure order from the Tiangco, directing it to cease and desist from operating the bulk plant. - GMANews.TV