This Supreme Court decision clarifies the limits of local government units’ (LGUs) power to impose taxes on the petroleum industry. The Court affirmed that LGUs cannot levy taxes, fees, or charges on petroleum products, even if they have the general authority to tax businesses within their jurisdiction. This ruling protects the petroleum industry from potentially burdensome local taxes, ensuring a stable and predictable tax environment. It reinforces the principle that specific legal provisions restricting taxing powers prevail over general grants of authority.

Fueling Controversy: Can Local Governments Tax the Petroleum Industry?

The case arose when Batangas City assessed Pilipinas Shell Petroleum Corporation significant business taxes for manufacturing and distributing petroleum products, along with Mayor’s Permit Fees. Pilipinas Shell protested, arguing that these taxes were illegal and excessive. The City, however, maintained its authority under the Local Government Code (LGC) to impose such taxes. The dispute reached the Court of Tax Appeals (CTA), which sided with Pilipinas Shell, prompting the City to appeal to the Supreme Court. The central legal question was whether the LGC empowers LGUs to impose business taxes on entities engaged in the petroleum industry, considering specific limitations on their taxing powers.

The Supreme Court began by emphasizing that while LGUs have the constitutional power to create their own revenue sources and levy taxes, this power is subject to limitations set by Congress. The Court cited Section 5, Article X of the 1987 Constitution, which allows LGUs to levy taxes subject to congressional guidelines. Building on this principle, the Court referenced previous rulings that LGUs’ taxing powers are not inherent but delegated by Congress, as highlighted in City of Manila, et al. v. Hon. Colet:

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.

The Court then focused on Section 133(h) of the LGC, which lists common limitations on the taxing powers of LGUs. This section explicitly prohibits LGUs from levying:

Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and taxes, fees or charges on petroleum products.

The Court interpreted this provision to mean that LGUs cannot impose any taxes, fees, or charges on petroleum products. While LGUs derive their power to impose business taxes from Section 143 of the LGC, this power is curtailed by the explicit prohibition in Section 133(h). Thus, even though petroleum products are subject to excise tax, they are specifically excluded from the broad power granted to LGUs to impose business taxes. The Court noted that the prohibition in Section 133(h) extends beyond excise taxes to include all “taxes, fees or charges” on petroleum products.

Furthermore, the Court clarified the scope of Section 133(h) by contrasting it with the broader range of articles subject to excise taxes under the National Internal Revenue Code (NIRC). While LGUs can impose taxes, fees, and charges on other goods covered by excise taxes (such as alcohol, tobacco, and non-essential goods), they are specifically barred from levying any such taxes on petroleum products. This distinction underscores the legislative intent to provide special protection to the petroleum industry from local taxation.

The Court emphasized that the specific exemption provided under Section 133 of the LGC prevails over the general taxing power outlined in Section 143. Section 133 is a specific provision that explicitly withholds from LGUs the power to impose taxes, fees, and charges on petroleum products. On the other hand, Section 143 defines the general power of LGUs to tax businesses within their jurisdiction. Therefore, the omnibus grant of power to LGUs under Section 143 cannot override the specific exception or exemption in Section 133. This aligns with the principle of statutory construction that specific provisions prevail over general ones, as encapsulated in the maxim Generalia specialibus non derogant.

To further support its interpretation, the Court cited Article 232(h) of the Implementing Rules and Regulations (IRR) of the LGC, which reinforces the prohibition on local taxation of the petroleum industry:

[A]ny business engaged in the production, manufacture, refining, distribution or sale of oil, gasoline, and other petroleum products shall not be subject to any local tax imposed in this Article.

This provision explicitly states that businesses involved in the petroleum industry are exempt from local taxes imposed under Article 232 of the IRR. This interpretation ensures a consistent application of the law and protects the petroleum industry from potentially conflicting local tax regulations.

FAQs

What was the key issue in this case?	The central issue was whether local government units (LGUs) in the Philippines have the power to impose business taxes on entities engaged in the manufacture and distribution of petroleum products, considering the limitations outlined in the Local Government Code.
What did the Supreme Court decide?	The Supreme Court ruled that LGUs do not have the power to impose taxes, fees, or charges on petroleum products due to the explicit limitations in Section 133(h) of the Local Government Code (LGC), even though they have the general authority to tax businesses.
What is Section 133(h) of the Local Government Code?	Section 133(h) of the LGC is a provision that lists common limitations on the taxing powers of LGUs, specifically prohibiting them from levying “excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and taxes, fees or charges on petroleum products.”
Why is the petroleum industry treated differently from other businesses?	The petroleum industry is treated differently due to the specific exemption provided in Section 133(h) of the LGC, which reflects a policy decision to protect the industry from potentially burdensome local taxation and to ensure a stable and predictable tax environment.
Does this ruling affect excise taxes on petroleum products?	No, the ruling does not affect excise taxes imposed by the national government on petroleum products. It only restricts LGUs from imposing additional taxes, fees, or charges on these products.
What is the significance of the Latin maxim Generalia specialibus non derogant in this case?	The maxim Generalia specialibus non derogant means that specific provisions prevail over general ones. In this case, the specific exemption in Section 133(h) of the LGC overrides the general taxing power granted to LGUs under Section 143 of the same Code.
What is the role of the Implementing Rules and Regulations (IRR) in this case?	The IRR of the LGC, particularly Article 232(h), reinforces the prohibition on local taxation of the petroleum industry, further supporting the Court’s interpretation of the LGC.
What was the basis of Batangas City’s claim to impose taxes on Pilipinas Shell?	Batangas City based its claim on Section 143 of the LGC, which grants LGUs the power to tax businesses within their jurisdiction, arguing that Pilipinas Shell’s manufacturing and distribution activities were subject to local business taxes.
Did the Supreme Court address the issue of Mayor’s Permit Fees?	Yes, the Court affirmed the CTA’s finding that the Mayor’s Permit Fees imposed by Batangas City were excessive and ordered a refund of the excessive portion of the fees to Pilipinas Shell.

In conclusion, the Supreme Court’s decision reaffirms the limitations on LGUs’ taxing powers concerning the petroleum industry. This ruling provides clarity and stability for businesses operating in this sector, ensuring they are not subjected to potentially conflicting or excessive local taxes. It underscores the importance of adhering to specific legal provisions that restrict general grants of authority, maintaining a balanced approach to local autonomy and national economic policy.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Batangas City vs. Pilipinas Shell Petroleum Corporation, G.R. No. 187631, July 08, 2015