SEPARATE CONCURRING OPINION
LEONEN, J.:
I concur in the result.
Respectfully, I disagree with the ponencia 's conclusion that the tax rate imposed on retailers under Davao City Ordinance No. 253, Series 2006 is "a rectification of an erroneous classification of taxpayers and tax rates" 1 under Davao's old tax code. The 1.25% tax levied on retailers is an imposition of a new tax. Wholesalers and retailers were not grouped into a single category under Davao's old tax code. They were classified· separately, although taxed with the same rate.
However, I agree that Davao City, in its initial attempt to implement the tax rates under the Local Government Code of 1991 (Local Government Code), can impose the minimum tax rate of one percent (1%) on retailers reckoned from 2006 to 2011. I also agree that Davao City may adjust the tax rate on a staggered basis due to the lapse of a considerable length of time from the enactment of its new tax ordinance. Hence, the tax rate on retailers should be 1.1 % from taxable years 2011 to 2016 and 1.21 % for taxable years 2017 to 2021, in accordance with the limitation under Section 191 of the Local Government Code.
Section 69(d) of Davao City Ordinance No. 253, Series of 2006, which immediately imposed a 1.25% tax rate on retailers, violates the Local Government Code in that it exceeds the allowable adjustment of tax rates. Any adjustment in the tax rates of local government units must conform to the limitations under Section 191 of the Local Government Code. 2
To strengthen local autonomy and decentralization and to lessen dependence on the national government, 3 Article X, Section 5 of the Constitution grants local government units the power to create their own sources of revenue. 4
The Local Government Code is an innovative piece of legislation 5 designed to give life to the basic policy of local autonomy. In the field of taxation, local government units are given enough flexibility to widen their tax base and impose tax rates depending on their respective needs. 6
However, the power of local government units to tax is not absolute. Rather, it is subject to the statutory guidelines provided by Congress.7 The Local Government Code was enacted not just to amplify the power of local governments to create their own sources of revenue but also to ensure that taxpayers will not be "overburdened or saddled with multiple and unreasonable impositions." 8 Thus, the imposition of taxes by local government units is subject to the following common limitations under Sections 130, 9 132, 10 133, 11 and 186 12 of the Local Government Code.
Cities are granted wide taxing powers. Except in certain instances, they can levy taxes, fees, and charges that provinces and municipalities may impose. 13 Cities are also authorized to impose tax rates by more than fifty percent (50%) of what provinces and municipalities may impose except for professional taxes and amusement taxes. 14
Cities may levy business taxes under Section 151 in relation to Section 143 of the Local Government Code.1âwphi1 Section 143 of the Local Government Code recognizes distinct types of businesses that are treated and taxed differently. 15
Pertinent to this case is the distinction between the tax rates imposed on wholesalers and retailers. Section 143, paragraphs (b) and (d) of the Local Government Code provides:
ARTICLE II
Municipalities
SECTION 143. Tax on Business. -The municipality may impose taxes on the following businesses:
(b) On wholesalers, distributors, or dealers in any article of commerce of whatever kind or nature in accordance with the following schedule:
With gross sales or receipts for the Amount
preceding calendar year in the of: |
Amount of Tax
Per Annum |
| Less than ₱l,000.00 |
|
₱18.00 |
| ₱l,000.00 or more but less than |
₱2,000.00 |
33.00 |
| 2,000.00 or more but less than |
3,000.00 |
50.00 |
| 3,000.00 or more but less than |
4,000.00 |
72.00 |
| 4,000.00 or more but less than |
5,000.00 |
100.00 |
| 5,000.00 or more but less than |
6,000.00 |
121.00 |
| 6,000.00 or more but less than |
7,000.00 |
143.00 |
| 7,000.00 or more but less than |
8,000.00 |
165.00 |
| 8,000.00 or more but less than |
10,000.00 |
187.00 |
| 10,000.00 or more but less than |
15,000.00 |
220.00 |
| 15,000.00 or more but less than |
20,000.00 |
275.00 |
| 20,000.00 or more but less than |
30,000.00 |
330.00 |
| 30,000.00 or more but less than |
40,000.00 |
440.00 |
| 40,000.00 or more but less than |
50,000.00 |
660.00 |
| 50,000.00 or more but less than |
75,000.00 |
990.00 |
| 75,000.00 or more but less than |
100,000.00 |
1,320.00 |
| 100,000.00 or more but less than |
150,000.00 |
1,870.00 |
| 150,000.00 or more but less than |
200,000.00 |
2,420.00 |
| 200,000.00 or more but less than |
300,000.00 |
3,300.00 |
| 300,000.00 or more but less than |
500,000.00 |
4,400.00 |
| 500,000.00 or more but less than |
750,000.00 |
6,600.00 |
| 750,000.00 or more but less than |
1,000,000.00 |
8,800.00 |
| 1,000,000.00 or more but less than |
2,000,000.00 |
10,000.00 |
| 2,000,000.00 or more |
|
at a rate not
exceeding
fifty percent
(50%) of one
percent (1 %). |
(d) On retailers.
With gross sales or receipts
for the preceding calendar year of |
Rate of Tax
Per Annum |
P400,000.00 or less
more than P400,000.00 |
2%
1% |
The Local Government Code, however, does not prescribe fixed taxi rates that local government units should impose "but merely specifies the minimum and maximum tax rates" that can be imposed. 16 Local government units, through their respective sanggunians, are given wide discretion in determining the actual tax rates. 17
The wholesale and retail businesses were categorized differently in: Davao's old tax code. 18 Wholesalers were taxed under Section l (b) while' retailers were taxed under Section 1 (d). Despite this distinction, retailers were deliberately taxed in the same manner and at the same rate as wholesalers under Davao's old tax code: 19
ARTICLE 5. TAX ON FEES FOR BUSINESS, TRADE AND OCCUPATION
Section 1. Business Tax. - There is hereby imposed on the following business in the City of Davao an annual tax collectible quarterly, except on those for which fixed taxes are already provided for as follows:
(b) On WHOLESALERS, DISTRIBUTORS, OR DEALERS, in any article of commerce of whatever kind or nature in accordance with the following schedules:
| Gross Sales/Receipts for the Preceding Calendar Year |
Amount of Tax per Annum |
| In excess [of] 2,000,000.00 |
At a rate of fifty
(50%) percent of
one percent (1 % ) |
(d) On RETAILERS: amended as per Ordinance 718, included under paragraph (b) of this section 20
The Local Government Code does not prohibit the imposition of the same tax rate on wholesalers and retailers. What is proscribed is the imposition of a tax rate greater than that provided by law. Pursuant to Section 151 21 in relation to Section 143(d) 22 of the Local Government Code, a city may impose a maximum tax rate of 1.5% on retailers with gross sales or receipts of more than P400,000.00. 23 Thus, Davao City may increase the tax rate imposed on retailers from the old rate of 50% of 1 % or 0.5% to 1.5%.
Although local government units may adjust their tax rates, there are two (2) limitations to this power. The first limitation refers to the frequency by which local government units may adjust their tax rates. The second limitation pertains to the amount of each adjustment. Section 191 of the Local Government Code provides:
CHAPTER V
Miscellaneous Provisions
Section 191. Authority of Local Government Units to Adjust Rates of Tax Ordinances. - Local government units shall have the authority to adjust the tax rates as prescribed herein not oftener than once every five (5) years, but in no case shall such adjustment exceed ten percent (10%) of the rates fixed under this Code.
Should local government units decide to adjust their tax rates, Section 191 of the Local Government Code limits the amount of each adjustment and the frequency by which this authority may be exercised. Local government units can only adjust tax rates once every five (5) years. Moreover, the amount of adjustment should not exceed ten percent (10%) o the rates fixed under the Local Government Code. [[24]
In its old tax code, Davao City distinguished between wholesalers and retailers but deliberately subjected them to the same tax rate.25 Thel immediate imposition of the 1.25% tax rate on retailers under Davao City' Ordinance No. 158-05, Series of 2005, as amended by City Ordinance No. 253, Series of 2006, cannot be considered as a correction of an erroneous classification. It is an upward adjustment in the tax rate, which falls under Section 191 of the Local Government Code. Assuming that the imposition of a 1.25% tax on retailers was brought about by the reclassification, it should still be considered as an upward adjustment in the tax rate.
Davao's old tax code was implemented before the effectivity in 1991 of the Local Government Code, which does not provide any transitory provision that creates an exemption for existing ordinances. Any I amendment introduced to these ordinances will still be subject to thei limitations under the Local Government Code. The reclassification, which aims to conform to the Local Government Code, still results in an increase in the tax rate. What cannot be done directly cannot be done indirectly.
Davao City cannot immediately increase the tax rate on retailers to 1.25% without violating Section 191 of the Local Government Code. Evidently, it will take time before Davao City can impose the maximum rate of 1.5% on retailers. However, this is a necessary limitation on the local government unit's power of taxation. Otherwise, taxpayers will be prejudiced. That Davao City decided to amend its tax code 14 years 26 after the effectivity of the Local Government Code cannot justify an immediate increase in its tax rates.
ACCORDINGLY, I concur in the result. Davao City may impose a tax rate of one percent (1%) on retailers from taxable years 2006 to 2011. Davao City may then adjust the tax rate on retailers on a staggered basis from 1 % to 1.1 % for taxable years 2011 to 2016 and from 1.1 % to 1.21 % for taxable years 201 7 to 2021.
MARVIC M.V.F. LEONEN
Associate Justice
Footnotes
1 Ponencia, p. 12.
2 LOCAL GOV. CODE, sec. 191 provides: Section 191. Authority of Local Government Units to Adjust Rates of Tax Ordinances. - Local government units shall have the authority to adjust the tax rates as prescribed herein not oftener than once every five (5) years, but in no case shall such adjustment exceed ten percent (10%) of the rates fixed under this Code.
3 National Power Corporation v. City of Cabanatuan, 449 Phil. 233, 248-249 (2003) [Per J. Puno, Third Division]. 4 CONST., art. X, sec. 5 provides: 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.
5 National Power Corporation v. City of Cabanatuan, 449 Phil. 233, 250 (2003) [Per J. Puno, Third Division].
6 Id. at 250.
7 CONST., art. x, sec. 5.
8 Ferrer v. Bautista, 760 Phil. 652, 698 (2015) [Per J. Peralta, En Banc], citing Manila ElectricCompany v. Province of Laguna, 366 Phil. 428 (1999) [Per J. Vitug, Third Division].
9 LOCAL Gov. CODE, sec. 130 provides: Section 130. Fundamental Principles. - The following fundamental principles shall govern the exercise of the taxing and other revenue-raising powers oflocal 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 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.
10 LOCAL Gov. CODE, sec. 132 provides: Section 132. Local Taxing Authority. - The power to impose a tax, fee, or charge or to generate revenue under this Code shall be exercised by the sanggunian of the local government unit concerned through an appropriate ordinance.
11 LOCAL Gov. CODE, sec. 133 provides: 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:
(a) Income tax, except when levied on banks and other financial institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except as otherwise provided herein;
(d) Customs duties, registration fees of vessel and wharfage on wharves, tonnage dues, and all other kinds of customs fees, charges and dues except wharfage on wharves constructed and maintained by the local government unit concerned;
(e) Taxes, fees, and charges and other impositions upon goods carried into or out of, or passing through, the territorial jurisdictions of local government units in the guise of charges for wharfage, tolls for bridges or otherwise, or other taxes, fees, or charges in any form whatsoever upon such goods or merchandise;
(f) Taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers or fishermen;
(g) Taxes on business enterprises certified to by the Board of Investments as pioneer or non-pioneer for a period of six (6) and four (4) years, respectively from the date of registration;
(h) Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and taxes, fees or charges on petroleum products;
(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on goods or services except as otherwise provided herein;
(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;
(k) Taxes on premiums paid by way of reinsurance or retrocession;
(l) Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof, except tricycles;
(m) Taxes, fees, or other charges on Philippine products actually exported, except as otherwise provided herein;
(n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives duly registered under R.A. No. 6810 and Republic Act Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938) otherwise known as the "Cooperative Code of the Philippines" respectively; and
(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local government units.
12 LOCAL Gov. CODE, sec. 186 provides: Section 186. Power To Levy Other Taxes, Fees or Charges. - Local government units may exercise the power to levy taxes, fees or charges on any base or subject not otherwise specifically enumerated herein or taxed under the provisions of the National Internal Revenue Code, as amended, or other applicable Jaws: Provided, That the taxes, fees, or charges shall not be unjust, excessive, oppressive, confiscatory or contrary to declared national policy: Provided, further, That the ordinance levying such taxes, fees or charges shall not be enacted without any prior public hearing conducted for the purpose.
13 LOCAL Gov. CODE, sec. 151, par. 1 provides: Section 151. Scope a/Taxing Powers. - Except as otherwise provided in this Code, the city, may levy the taxes, fees, and charges which the province or municipality may impose: Provided, however, That the taxes, fees and charges levied and collected by highly urbanized and independent component cities shall accrue to them and distributed in accordance with the provisions of this Code.
14 LOCAL Gov. CODE, sec. 151, par. 2 provides: Section 151. Scope of Taxing Powers The rates of taxes that the city may levy may exceed the maximum rates allowed for the province ormunicipality by not more than fifty percent (50%) except the rates of professional and amusementtaxes.
15 See Cagayan Electric Power and Light Co., Inc. v. City of Cagayan de Oro, 698 Phil. 788, 811 (2012) [Per J. Carpio, Second Division].
16 National Power Corporation v. City of Cabanatuan, 449 Phil. 233, 250 (2003) [Per J. Puno, Third Division].
17 Id.
18 Rollo, pp. 1042-1043, Reply.
19 Id. at 133, Comment.
20 Id. at 132-133.
21 LOCAL Gov. CODE, sec. 151, par. 2 provides: Section 151. Scope of Taxing Powers. - ... The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or municipality by not more than fifty percent (50%) except the rates of professional and amusement taxes.
22 LOCAL Gov. CODE, sec. 143(d), provides: Section 143. Tax on Business. - The municipality may impose taxes on the following businesses: (d) On retailers. With gross sales or receipts for the preceding calendar year of Rate of Tax Per Annum P400,000.00 or less 2% more than P400,000.00 1 %
23 Fifty percent of I% is 0.5%, which is added to the rate imposed by law to arrive at the maximum tax rate that a city may impose. This may be summed up using the following equation: 0.5(x/l 00) + x = y, where: x is the rate imposed under the Local Government Code y is the maximum tax rate that a city may impose (multiplied by 100 to arrive at the percentage)
24 Local Gov. Code, sec. 191.
25 Rollo, p. 133, Respondents' Comment on the Appeal to the Department of Justice.
26 The Local Government Code of 1991 took effect on January 1, 1992. Meanwhile, Davao City amended its old tax code in 2006.
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