Local & Realty Taxes, Tax Remedies We find no error in the decision appealed from in so far as it holds that
d no error in the decision appealed from in so far as it holds that the ordinance in
by Prof. Eric Recalde
MAIN CONSTITUTIONAL TAX SOURCE
“SECTION 5. Each local government unit shall have 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, consistent with the basic policy of local
autonomy. Such taxes, fees, and charges shall accrue exclusively to the local
governments.
CAN THE LGU AFFORD NOT TO PASS A REVENUE ORDINANCE AND SIMPLY RELY
AND SAY THAT “ANYWAY ITS DELEGATED TO US BY THE CONSTITUTION AND
IMPLEMENTED BY THE LGU?”
No. because it is a delegated authority to impose the tax it is not a delegated tax. If that
particular LGU would want to collect, there must be a revenue ordinance and tehre is a
procedure in passing a revenue ordinance, both procedural (it has to go through the
legislative process) and substantive.
 Marinduque Iron Mines, Inc. v. Municipal Council of the Municipality of Hinabangan,
Samar (1964)
Facts:
Appeal from a declaratory decision of the Court of First Instance of Manila declaring
Municipal Ordinance No. 7, Series of 1960, of the Municipality of Hinabangan, Samar, null
and void.
On June 27, 1960, the Municipality of Hinabangan, through its duly constituted Municipal
Council, enacted Ordinance No. 7, Series of 1960, which in full reads as follows: the
petitioner, a corporation duly organized and existing under the laws of the Philippines and
operating the only mine within the jurisdiction of the municipality of Hinabangan, filed this
case of declaratory relief in the Court of First Instance of Manila questioning the validity of the
ordinance as enacted without authority and in violation of law. Respondents answered
averring the ordinance's validity with a counter-claim for damages; and petitioner having filed
an amended petition and answer to the counterclaim, which amended petition was
accordingly answered by respondents; the case was tried by the Court a quo on March 15,
1961, the parties filed respective memoranda, and on April 4, 1961 the Court a quo rendered
its decision declaring the ordinance in question illegal, from which judgment respondents in
due time perfected their appeal to this Court.
Issues:
questioning the validity of the ordinance as enacted without authority and in violation of law
Ruling:
question fails to levy any tax. Appellants admit in their brief that the main section (section 2)
of the ordinance "seems merely declaratory of authority", albeit they aver that a reading of it
as a whole leads to the conclusion that a tax was intended. It is, however, a well established
rule that "A statute will not be construed as imposing a tax unless it does so clearly,
expressly and unambiguously." (82 C.J.S., 956) (Italics supplied) and that It is an ancient
principle that a tax cannot be imposed without clear and express words for that purpose.
Accordingly, the general rule of requiring adherence to the letter in construing statutes
applies with peculiar strictness to tax laws and the provisions of a taxing act are not to
be extended by implication." (30 Am. Jur. 153; also McQuillin on Municipal Corp., Vol. 16,
p. 267; italics ours)
We further agree with the judgment appealed from that Ordinance No. 7, Ser. 1960, of
Hinabangan, Samar, is invalid because the same infringes upon the express restrictions
placed by the legislature upon the taxing power delegated to city and municipal councils.
Section 2, paragraph 1, of Republic Act No. 2264, after conferring power to cities,
municipalities, and municipal districts to impose license taxes and service fees or charges on
business and occupations, expressly limited said powers by the following proviso:
Explanation:
It simply says that whatever rates are found there in the law (then in the Local Autonomy Act
—Now in the LGC), the city as the case may be, must impose the specific tax rate but not
exceeding that. The law only provides the ceiling. It doesn’t follow that if you did not pass the
revenue ordinance, you can automatically claim the ceiling. It simply is a limitation on the
rate.
 CITY OF PASIG v. MERALCO GR No. 181710 – 7 March 2018 – Martires
Under the LGC of 199, a municipality is bereft of authority to levy and impose franchise
tax on franchise holders within its territorial jurisdiction. That authority belongs to the
provinces and cities only. A franchise tax levied by a municipality is, thus, null and
void. The nullity is not cured by the subsequent conversion on the municipality into a
city.
CITY OF PASIG v. MANILA ELECTRIC COMPANY GR No. 181710 – 7 March 2018 –
Martires (3rd Division) TOPIC: Effects and application of laws; Acts executed against
mandatory or prohibitory laws (NCC 5) NATURE OF THE ACTION: Annulment of the
demand for payment of franchise tax with prayer for a TRO and a writ of preliminary
injunction before the RTC; Petition for review under Rule 45 before the SC.
FACTS:  1992: The Sangguniang Bayan of the Municipality of Pasig enacted Ordinance No.
25, which imposed a franchise tax on all business venture operations carried out through a
franchise within the municipality.  1995: The Municipality of Pasig was converted into a
highly urbanized city by virtue of R.A. 7829.  2001: The Treasurer’s Office of the City
Government of Pasig informed MERALCO, a grantee of a legislative franchise, that it is liable
to pay taxes for the period 1996 to 1999, pursuant to Municipal Ordinance No. 25. The city,
thereafter, on two separate occasions, demanded payment of the said tax exclusive of
penalties.
MERALCO protested the validity of the demand and subsequently instituted an action before
the RTC for the annulment of the said demand with prayer for a temporary restraining order
and a writ of preliminary injunction.
RTC: ruled in favor of the City of Pasig. Upon appeal, CA reversed the RTC ruling. Hence,
this instant appeal.
ISSUE: Whether or not Section 32 of Municipal Ordinance No. 25 is void for being in direct
contravention with Section 142 of the LGC (prohibitory law). YES.
HELD: W/N the Municipality of Pasig can impose franchise taxes. No. RATIO:
Unlike a city, a municipality is bereft of authority to levy franchise tax, thus, the ordinance
enacted for that purpose is void. The conversion of the municipality into a city does not lend
validity to the void ordinance. Neither does it authorize the collection of the tax under said
ordinance. The LGC further provides that the power to impose a tax, fee, or charge or to
generate revenue shall be exercised by the Sanggunian of the local government unit
concerned through an appropriate ordinance. However, an ordinance must pass the test of
constitutionality and the test of consistency with the prevailing laws. Otherwise, it shall be
void. It is not disputed that at the time the ordinance in question was enacted in 1992, the
local government of Pasig, then a municipality, had no authority to levy franchise tax. Article
5 of the Civil Code explicitly provides, "acts executed against the provisions of
mandatory or prohibitory laws shall be void, except when the law itself authorizes their
validity." Section 32 of Municipal Ordinance No. 25 is, thus, void for being in direct
contravention with Section 142 of the LGC. Being void, it cannot be given any legal effect. An
assessment and collection pursuant to the said ordinance is, perforce, legally infirm.
DISPOSITIVE PORTION: WHEREFORE, the petition is DENIED for lack of merit. The 28
August 2007 Decision and the 8 February 2008 Resolution of the Court of Appeals in CA-
G.R. CV No. 81255 are hereby AFFIRMED.
FUNDAMENTAL PRINCIPLES
SECTION 130, READ NOW AND MEMORIZE!
Section 130.
Fundamental Principles. - The following fundamental principles shall govern the exercise of
the taxing and other revenue-raising powers of local government units:
(a) Taxation shall be uniform in each local government unit;
(b) Taxes, fees, charges and other impositions shall:
(1) be equitable and based as far as practicable on the taxpayer's ability
to pay;
(2) be levied and collected only for public purposes;
(3) not be unjust, excessive, oppressive, or confiscatory;
(4) not be contrary to law, public policy, national economic policy, or in the restraint of
trade;
(c) The collection of local taxes, fees, charges and other impositions shall in no case be let to
any private person;
(d) The revenue collected pursuant to the provisions of this Code shall inure
solely to the benefit of, and be subject to the disposition by, the local
government unit levying the tax, fee, charge or other imposition unless
otherwise specifically provided herein; and,
(e) Each local government unit shall, as far as practicable, evolve a progressive
system of taxation.
 FILM DEVELOPMENT COUNCIL OF PHILIPPINES v. COLON HERITAGE REALTY
CORPORATION, GR No. 203754, 2015-06-16
Facts:
Sometime in 1993, respondent City of Cebu, in its exercise of its power to impose
amusement taxes under Section 140 of the Local Government Code[2] (LGC)anchored on
the constitutional policy on local autonomy,[3] passed City Ordinance No. LXIX otherwise
known as the “Revised Omnibus Tax Ordinance of the City of Cebu (tax ordinance).” Central
to the case at bar are Sections 42 and 43, Chapter XI thereof which require proprietors,
lessees or operators of theatres, cinemas, concert halls, circuses, boxing stadia, and other
places of amusement, to pay an amusement tax equivalent to thirty percent (30%) of the
gross receipts of admission fees to the Office of the City Treasurer of Cebu City. Said
provisions read:
CHAPTER XI – Amusement Tax
Section 42. Rate of Tax. – There shall be paid to the Office of the City Treasurer by the
proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing stadia
and other places of amusement, an amusement tax at the rate of thirty percent (30%) of the
gross receipts from admission fees.[4]
Section 43. Manner of Payment. – In the case of theaters or cinemas, the tax shall first be
deducted and withheld by their proprietors, lessees, or operators and paid to the city
treasurer before the gross receipts are divided between said proprietor, lessees, operators,
and the distributors of the cinematographic films.
Secs. 13 and 14 of RA 9167 provided for the tax treatment of certain graded films as follows:
Section 13. Privileges of Graded Films. – Films which have obtained an “A” or “B” grading
from the Council pursuant to Sections 11 and 12 of this Act shall be entitled to the following
privileges:
Amusement tax reward. – A grade “A” or “B” film shall entitle its producer to an incentive
equivalent to the amusement tax imposed and collected on the graded films by cities and
municipalities in Metro Manila and other highly urbanized and independent component cities
in the Philippines pursuant to Sections 140 to 151 of Republic Act No. 7160 at the following
rates:
For grade “A” films – 100% of the amusement tax collected on such film; and
For grade “B” films – 65% of the amusement tax collected on such films. The remaining
thirty-five (35%) shall accrue to the funds of the Council.
Section 14. Amusement Tax Deduction and Remittance. - All revenue from the amusement
tax on the graded film which may otherwise accrue to the cities and municipalities in
Metropolitan Manila and highly urbanized and independent component cities in the
Philippines pursuant to Section 140 of Republic Act. No. 7160 during the period the graded
film is exhibited, shall be deducted and withheld by the proprietors, operators or lessees of
theaters or cinemas and remitted within thirty (30) days from the termination of the exhibition
to the Council which shall reward the corresponding amusement tax to the producers of the
graded film within fifteen (15) days from receipt thereof.
In said letters, the proprietors and cinema operators, including private respondent Colon
Heritage Realty Corp. (Colon Heritage), operator of the Oriente theater, were given ten (10)
days from receipt thereof to pay the aforestated amounts to FDCP the city finally filed on May
18, 2009 before the RTC, Branch 14 a petition for declaratory relief with application for a writ
of preliminary injunction, docketed as Civil Case No. CEB-35529 (City of Cebu v. FDCP). In
said petition, Cebu City sought the declaration of Secs. 13 and 14 of RA 9167 as invalid and
unconstitutional. Colon Heritage filed before the RTC, Branch 5 Civil Case No. CEB-35601
(Colon Heritage v. FDCP), seeking to declare Sec. 14 of RA 9167 as unconstitutional.
Issues:
whether or not the RTC (Branches 5 and 14) gravely erred in declaring Secs. 13 and 14 of
RA 9167 invalid for being unconstitutional.
Ruling:
RA 9167 violates local fiscal autonomy
Principles:
Material to the case at bar is the concept and scope of local fiscal autonomy. In Pimentel v.
Aguirre,[23] fiscal autonomy was defined as “the power [of LGUs] to create their own
sources of revenue in addition to their equitable share in the national taxes released
by the national government, as well as the power to allocate their resources in
accordance with their own priorities. It extends to the preparation of their budgets, and
local officials in turn have to work within the constraints thereof.”
RA 9167, Sec. 14 states:
Section 14. Amusement Tax Deduction and Remittance. - All revenue from the amusement
tax on the graded film which may otherwise accrue to the cities and municipalities in
Metropolitan Manila and highly urbanized and independent component cities in the
Philippines pursuant to Section 140 of Republic Act. No. 7160 during the period the graded
film is exhibited, shall be deducted and withheld by the proprietors, operators or lessees of
theaters or cinemas and remitted within thirty (30) days from the termination of the exhibition
to the Council which shall reward the corresponding amusement tax to the producers of the
graded film within fifteen (15) days from receipt thereof.
A reading of the challenged provision reveals that the power to impose amusement taxeswas
NOT removed from the covered LGUs, unlike what Congress did for the taxes enumerated in
Sec. 133, Article X of the LGC,[35] which lays down the common limitations on the taxing
powers of LGUs. Thus:
Section 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:
From the above, the difference between Sec. 133 and the questioned amendment of Sec.
140 of the LGC by RA 9167 is readily revealed. In Sec. 133, what Congress did was to
prohibit the levy by LGUs of the enumerated taxes. For RA 9167, however, the covered LGUs
were deprived of the income which they will otherwise be collecting should they impose
amusement taxes, or, in petitioner’s own words, “Section 14 of [RA 9167] can be viewed as
an express and real intention on the part of Congress to remove from the LGU’s delegated
taxing power, all revenues from the amusement taxes on graded films which would otherwise
accrue to [them] pursuant to Section 140 of the [LGC].”[36]
In other words, per RA 9167, covered LGUs still have the power to levy amusement taxes,
albeit at the end of the day, they will derive no revenue therefrom. The same, however,
cannot be said for FDCP and the producers of graded films since the amounts thus levied by
the LGUs––which should rightfully accrue to them, they being the taxing authority––will be
going to their coffers. As a matter of fact, it is only through the exercise by the LGU of said
power that the funds to be used for the amusement tax reward can be raised. Without said
imposition, the producers of graded films will receive nothing from the owners, proprietors
and lessees of cinemas operating within the territory of the covered LGU.
Taking the resulting scheme into consideration, it is apparent that what Congress did in this
instance was not to exclude the authority to levy amusement taxes from the taxing power of
the covered LGUs, but to earmark, if not altogether confiscate, the income to be received by
the LGU from the taxpayers in favor of and for transmittal to FDCP, instead of the taxing
authority. This, to Our mind, is in clear contravention of the constitutional command that taxes
levied by LGUs shall accrue exclusively to said LGU and is repugnant to the power of
LGUs to apportion their resources in line with their priorities.
Section 130. Fundamental Principles. - The following fundamental principles shall govern the
exercise of the taxing and other revenue-raising powers of local government units: x xx x
(d) The revenue collected pursuant to the provisions of this Code shall inure solely to the
benefit of, and be subject to the disposition by, the local government unit levying the tax, fee,
charge or other imposition unless otherwise specifically provided therein.
As in Pimentel,[38] the Court elucidated that local fiscal autonomy includes the power of
LGUs to allocate their resources in accordance with their own priorities. By earmarking the
income on amusement taxes imposed by the LGUs in favor of FDCP and the producers of
graded films, the legislature appropriated and distributed the LGUs’ funds––as though it were
legally within its control––under the guise of setting a limitation on the LGUs’ exercise of their
delegated taxing power. This, undoubtedly, is a usurpation of the latter’s exclusive
prerogative to apportion their funds, an impermissible intrusion into the LGUs’ constitutionally-
protected domain which puts to naught the guarantee of fiscal autonomy to municipal
corporations enshrined in our basic law.
 Batangas Power Corporation vs. Batangas City, G.R. No. 152675, April 28, 2004
Facts:
In the early 1990’s, power outages lasted 8-12 hours daily and power generation was badly
needed. The government, through the National Power Corporation (NPC), sought to attract
investors in power plant operations by providing them with incentives, one of which was
through the NPC’s assumption of payment of their taxes in the Build Operate and Transfer
(BOT) Agreement.
On June 29, 1992, Enron Power Development Corporation (Enron) and petitioner NPC
entered into a Fast Track BOT Project. Enron agreed to supply a power station to NPC and
transfer its plant to the latter after ten (10) years of operation. Section 11.02 of the BOT
Agreement provided that NPC shall be responsible for the payment of all taxes that may be
imposed on the power station, except income taxes and permit fees. Subsequently, Enron
assigned its obligation under the BOT Agreement to petitioner Batangas Power Corporation
(BPC).
On September 23, 1992, the BOI issued a certificate of registration to BPC as a pioneer
enterprise entitled to a tax holiday for a period of six (6) years. On October 12, 1998,
Batangas City sent a letter to BPC demanding payment of business taxes and penalties,
commencing from the year 1994, BPC refused to pay, citing its tax-exempt status as a
pioneer enterprise for six (6) years under Section 133 (g) of the Local Government Code
(LGC). The city’s tax claim
was modified and demanded payment of business taxes from BPC only for the years 1998-
1999. BPC still refused to pay the tax. It insisted that its 6-year tax holiday commenced from
the date of its commercial operation on July 16, 1993, not from the date of its BOI registration
in September 1992.
In the alternative, BPC asserted that the city should collect the tax from the NPC as the latter
assumed responsibility for its payment under their BOT Agreement. On August 26, 1999, the
NPC intervened. While admitting assumption of BPC’s tax obligations under their BOT
Agreement, NPC refused to pay BPC’s business tax as it allegedly constituted an indirect tax
on NPC which is a tax-exempt corporation under its Charter.
BPC filed a petition for declaratory relief12 with the Makati RTC against Batangas City and
NPC. It alleged that under the BOT Agreement, NPC is responsible for the payment of such
taxes but as NPC is exempt from taxes, both the BPC and NPC are not liable for its payment.
Makati RTC dismissed the petition and held that: (1) BPC is liable to pay business taxes to
the city; (2) NPC’s tax exemption was withdrawn with the passage of R.A. No. 7160 (The
Local Government Code); and, (3) the 6-year tax holiday granted to pioneer business
enterprises starts on the date of registration with the BOI as provided in Section 133
(g) of R.A. No. 7160, and not on the date of its actual business operations.
Issue:
Whether or not NPC’s tax exemption privileges under its Charter were withdrawn by Section
193 of the Local Government Code (LGC).
Held:
Yes. The effect of the LGC on the tax exemption privileges of the NPC has already been
extensively discussed and settled in the recent case of National Power Corporation v. City of
Cabanatuan. In said case, this Court
recognized the removal of the blanket exclusion of government instrumentalities from local
taxation as one of the most significant provisions of the 1991 LGC. Specifically, we stressed
that Section 193 of the LGC, an express and general repeal of all statutes granting
exemptions from local taxes, withdrew the sweeping tax privileges previously enjoyed by the
NPC under its Charter.
The power to tax is no longer vested exclusively on Congress; local legislative bodies are
now given direct authority to levy taxes, fees and other charges pursuant to Article X, section
5 of the 1987 Constitution. The LGC is considered as the most revolutionary piece of
legislation on local autonomy, the LGC effectively deals with the fiscal constraints faced by
LGUs. It widens the tax base of LGUs to include taxes which were prohibited by previous
laws.
Neither can the NPC successfully rely on the Basco case as this was decided prior to the
effectivity of the LGC, when there was still no law empowering local government units to tax
instrumentalities of the national government.
Thus, while BPC remains to be the entity doing business in said city, it is the NPC that is
ultimately liable to pay said taxes under the provisions of both the 1992 BOT Agreement and
the 1991 Local Government Code.
Other Issue: Whether BPC’s 6-year tax holiday commenced on the date of its BOI registration
as a pioneer enterprise or on the date of its actual commercial operation as certified by the
BOI.
Sec. 133 (g) of the LGC, which proscribes local government units (LGUs) from levying taxes
on BOI-certified pioneer enterprises for a period of six years from the date of registration,
applies specifically to taxes imposed by the local government, like the business tax imposed
by Batangas City on BPC in the case at bar. The 6-year tax exemption of BPC should thus
commence from the date of BPC’s registration with the BOI.

 City of Manila, Hon. Alfredo S. Lim, as mayor of the City of Manila vs. Hon. Angel
Valera Colet, Presiding Judge, RTC Manila

The Court ruled in favor of the petitioners and held that section 21(B) is unconstitutional. It is
a well-settled rule that although the power to tax is inherent in the State, the same is not true
for the LGUs to whome the power must be delegated by Congress and must be exercised
within the guidelines and limitations that Congress may provide. Among the common
limitations on the taxing power of LGUs is Sec. 133 (j) of the LGC which states that unless
otherwise provdied, the taxing power of LGUs shall not extend to taxes on the gross receipts
of transportation contractors and persons engaged in the transportation in the transportation
of passengers or freight by hire and common carriers by air, land or water, except as
provided by in this Code.