Transport contractors, common carriers exempted from local business tax Posted at 02/18/2015 2:28 PM

MANILA – Transportation contractors and common carriers are exempted from paying local business tax following a decision by the Supreme Court (SC) declaring null and void a provision of the Manila Revenue Code (MRC) on the imposition of business tax.

In a 45-page ruling, the Court en banc ruled that Section 21 (b) of the MRC violated restrictions on the taxing powers of local government units (LGU) under the Local Government Code (LGC).

“Strictly assessed against the guidelines and limitations set forth in the LGC, Section 21 (b) of the Manila Revenue Code, as amended was enacted ultra vires (beyond the powers),” the Court said.

“It is already well-settled that although the power to tax is inherent in the State, the same is not true for the LGUs to whom the power must be delegated by Congress and must be exercised within the guidelines and limitations that Congress may provide,” it added.

Section 21 (b) of the MRC imposed a business tax of 50 percent of one 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 business only on January 1994.

However, the Malaysian Airline System (MAS) questioned the validity of the provision before the Regional Trial Court of Manila.

Petitions were also filed by other corporations that were assessed and/or compelled to pay under this provision.

In ruling in favor of the petitioners, the SC cited Section 133 (j) of the LGC that prevents 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 confusion stemmed from a phrase in Section 143 (h) of the LGC, “unless otherwise provided herein,” which the City interpreted as the power to impose tax on any business subject to excise, percentage or value-added tax.

The Court, however, said Section 133 (j) has more weight because it is a specific provision that explicitly withholds taxing power from the LGU while the latter merely 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 decision said.

The Court also 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.

“It is 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,” it said.

The decision was penned by Associate Justice Teresita J. Leonardo-de Castro.

Source: ABSCBN