CASE: CITY OF MANILA, ET AL VS.

JUDGE COLET, AND MALAYSIAN AIRLINE SYSTEM

G.R. No. 120051
December 10, 2014

FACTS:
The case involves 10 consolidated petitions involving several corporations operating as
“transportation contractors, persons who transport passenger or freight for hire, and common carriers by
land, air or water” with principal offices in Metro Manila, and City of Manila’s Ordinance No. 7807 which
amended Sec. 21 (B) of the Manila Revenue Code. Sec.21 (B) imposed business tax on “transportation
contractors, persons who transport passenger or freight for hire, and common carriers by land, air or
water”; while the subject ordinance amended such by lowering the tax rate from 3% per annum to .5% per
annum. The City of Manila, through its City Treasurer, began imposing and collecting the business tax
under Section 21(B) of the Manila Revenue Code, as amended, beginning January 1994.

Because they were assessed and/or compelled to pay business taxes pursuant to Section 21(B) of
the Manila Revenue Code before they were issued their business permits for 1994, several corporations
questioned the constitutionality of Sec. 21 (B) for being contrary to the Constitution and the Local
Government Code, and asked for the refund of what they had paid as business tax.

The City of Manila, argued that it was constitutional and valid; and such position was adopted by
the RTC and the CA when the case reached the respective fora. The City argued that the enactment of
Sec. 21 (B) is based on the exempting clause found at the beginning of Sec. 133, in conjunction with Section
143(h), of the LGC.

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:

xxxx

(j) 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;

SEC. 143. Tax on Business. – The municipality may impose taxes on the following businesses:
xxxx

(h) On any business, not otherwise specified in the preceding paragraphs, which the sanggunian
concerned may deem proper to tax: Provided, That on any business subject to the excise, value-added
or percentage tax under the National Internal Revenue Code, as amended, the rate of tax shall not
exceed two percent (2%) of gross sales or receipts of the preceding calendar year.

The Sanggunian concerned may prescribe a schedule of graduated tax rates but in no case to exceed the
rates prescribed herein. (Emphases supplied by the Supreme Court)

ISSUE:
Is Sec. 21 (B) of the Manila Revenue Code, as amended, unconstitutional?

HELD:
Yes. The power to tax is not inherent in LGUs to whom the power must be delegated by Congress
and must be exercised within the guidelines and limitations that Congress may provide.

Sec. 5 of Article X of the Constitution granted LGUs the “power to create its own sources of
revenues and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress
may provide...” In conformity with said constitutional provision, the Local Gov’t Code was enacted by
Congress.

Sec. 130 of the LGC provides for the fundamental principles governing the taxing powers of LGUs.
 Sec. 133 provides for the common limitations on the taxing powers of LGUs. Among the common
limitations on the taxing power of LGUs is Section 133(j) of the LGC, which states that “unless otherwise
provided herein,” the taxing power of LGUs shall not extend to “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.”

Section 133(j) of 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, or water. Yet, confusion arose from the phrase “unless
otherwise provided herein,” found at the beginning of the said provision, and the City of Manila anchors
the validity of Sec. 21 (B) on said phrase.

However, the Court is not convinced with the City’s contention. Sec. 133(j) of the LGC prevails over Sec.
143(h) of the same Code, and Sec. 21(B) of the Manila Revenue Code, as amended, was manifestly in
contravention of the former.

Sec. 133(j) of the LGC is a specific provision that explicitly withholds from any LGU the power to tax the
gross receipts of transportation contractors, common carriers, persons engaged in the transportation of
passengers or freight by hire, and common carriers by air, land, or water. In contrast, Sec. 143 of the
LGC defines the general power of the municipality (as well as the city, if read in relation to Section
151 of the same Code) to tax businesses within its jurisdiction.

The succeeding proviso of Section 143(h) of the LGC, viz., “Provided, That on any business subject to the
excise, value-added or percentage tax under the National Internal Revenue Code, as amended, the rate
of tax shall not exceed two percent (2%) of gross sales or receipts of the preceding calendar year,” is not
a specific grant of power to the municipality or city to impose business tax on the gross sales or receipts
of such a business. Rather, the proviso only fixes a maximum rate of imposable business tax in case the
business taxed under Section 143(h) of the LGC happens to be subject to excise, value added, or
percentage tax under the NIRC.

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.

In the case at bar, the sanggunian of the municipality or city cannot enact 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, when said sanggunian was
already specifically prohibited from doing so.

Such construction gives effect to both Sections 133(j) and 143(h) of the LGC. Also, Sec. 5(b) of the LGC
itself, on Rules of Interpretation, provides that in case of doubt, any tax ordinance shall be construed
strictly against the LGU enacting it, and liberally in favor of the taxpayer. Furthermore, such a construction
is pursuant to the legislative intent to exclude from the taxing power of the LGU the imposition of business
tax against common carriers to prevent a duplication of the so-called “common carrier’s tax.”