Navotas loses P10-M tax fight vs Petron

Local government units (LGUs) are not authorized to impose business taxes on firms engaged in the sale of petroleum products, the Supreme Court ruled yesterday.

In a 26-page decision penned by Associate Justice Dante Tiñga, the Court’s Second Division granted a petition filed by Petron Corp. seeking to set aside the ruling of the Malabon Regional Trial Court Branch 74, which upheld the legality of the assessment for tax deficiency issued by the Navotas City government against the oil firm in the amount of P10.2 million.

The High Court also made permanent the temporary restraining order it had issued on Aug. 4, 2003, enjoining Navotas City from closing Petron’s depot and interfering in its operations for its failure to pay the supposed tax deficiency.

The Court, in its decision, agreed with Petron’s argument that Section 133 (h) of the Local Government Code enjoins LGUs from levying business taxes on petroleum products.

Section 133 states that: “that the exercise of the taxing powers of province, cities, municipalities and barangay shall not extend to the levy of excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and taxes, fees, or charges on petroleum products.”

The Court also noted that the language of Section 133 (h) makes plain that the prohibition with respect to the petroleum products “extends not only to excise taxes thereon, but all taxes, fees and charges.”

It explained that earlier reference in paragraph (h) to excise taxes comprehends a wider range of subjects of taxation like all the articles already covered by excise taxation under the NIRC, such as alcohol products, tobacco products, mineral products, automobiles, goods made of precious metals, perfumes, and yatchs and other vessels intended for pleasure or sports.

The Court said that if LGUs were authorized to impose business taxes on manufacturers and retailers of petroleum products, their expected losses would be passed on to the consumers, “triggering the chain of increases that accompany the increase in oil prices.”

Court records showed that Petron, which maintains a depot at the Navotas Fishport Complex in Navotas, received a letter from Navotas Mayor Toby Tiangco, demanding P10.2 million as taxes for its sale of diesel from 1997 to 2001.

Petron then filed with the Navotas government a letter-protest arguing that it was exempt from local business taxes in view of Article 232 of the implementing rules of the Local Government Code as well as the ruling of the Bureau of Local Government Finance of the Department of Finance (DOF).

After its protest was denied, Petron then filed with the Malabon RTC a complaint for cancellation of assessment for tax deficiency with prayer for the issuance of a temporary restraining order and preliminary injunction.

On May 5, 2003, the Malabon RTC issued its judgment and dismissed Petron’s complaint, ordering the oil firm to pay the assessed amount. Eleven days later, Petron received a closure order from the Navotas government, directing it to cease and desist from operating the depot.