SC thumbs down LGU taxes on oil production, distribution

MANILA, Philippines - Local government units (LGUs) cannot impose and collect business taxes on individuals and companies engaged in the production and distribution of petroleum products, the Supreme Court (SC) ruled.

In a 14-page decision, the High Court’s third division upheld a 2009 ruling of the Court of Tax Appeals which cleared major oil firm Pilipinas Shell of P405 million in business tax liability.

The amount represents the tax the Batangas City government wants to collect from Shell, which operates an oil refinery and depot in Tabagao, Batangas City.

The SC cited Sec. 133 (h) of the Local Government Code which states that LGUs cannot impose taxes, fees or charges on petroleum products.

It explained that while LGUs have the  power to impose business taxes, the same is subject to the restrictions provided for under Section 133 (h).

In seeking the reversal of the CTA ruling, the Batangas City government argued that any activity that involves the production and distribution any kind or nature as a means of livelihood or with a view to profit can be taxed by LGUs.

The Batangas City government likewise claimed that Section 133 (h) does not include business taxes.

The SC, however, was not convinced, pointing out that while the power to tax is inherent in the state, the same could not be said for LGUs.

It explained LGUs’ mandate to impose taxes is not encompassing as
it is subject to limitations as stated in Sec. 5, Article X of the Constitution, which states  “each LGU shall have the power to create its own sources of revenues and to levy taxes, fees, and charges subject to limitations as the Congress may provide.”

The case stemmed from the notice of assessment issued on Feb. 20,
2001, by the Batangas City, demanding payment of P92.37 million and P312.65 million as business taxes for Shell’s manufacture and distribution of petroleum products.

Pilipinas Shell, however, filed a protest on April 17, 2002, contending
among others it is not liable for the payment of the local business tax either as a manufacturer or distributor of petroleum products.