Legality of Municipal Tax Ordinance Imposing an Environmental Protection Fee on the Extraction of Sand, Gravel and Other Quarry Resources

May 14, 2014 DILG LEGAL OPINION NO. 017-14 Hon. Dindo Codoy Mayor The Sangguniang Bayan of Llorente Thru: Hon. Tany Hugo Vice-Mayor & Presiding Officer Municipality of Llorente, Eastern Samar Dear Gentlemen/Mesdames : We write regarding the 04 February 2014 letter of Rosie I. Becina, n et al. , sand and gravel operators of Llorente, Eastern Samar, which request this Department action in relation to Section 5F-02 (a) of Municipal Tax Ordinance No. 02, s. 2011. Based on Ms. Besina, et al.'s letter, the Municipality of Llorente, Eastern Samar enacted Municipal Tax Ordinance No. 02, s. 2011 (hereinafter, the "Ordinance") imposing an annual environmental protection fee of one hundred pesos (P100.00) per cubic meter of mineral from mining operators of ordinary stones, sand, gravel, earth and other quarry resources extracted from public lands or from beds of seas, lakes, rivers, streams, creeks and other public waters within its territorial jurisdiction. Ms. Besina, et al. question the legality and constitutionality of Section 5F-02 (a) 1 of the Ordinance on the following grounds: 1) The Ordinance was allegedly enacted without the benefit of a public hearing, publication and the sending of written notices to interested or affected parties pursuant to Section 276 of the Implementing Rules and Regulations (IRR) of Republic Act No. 7160 (the "Code" for brevity); 2) The fee imposed by the Ordinance is allegedly unreasonable and is based on "per cubic meter" which violates Sections 227, 231, 233, 274 of the IRR of the Code. The present local price of gravel and sand is P400.00 per cubic meter. The P100.00 per cubic meter fee is 400% higher than what is being currently taxed by the province which is only P25.00 per cubic meter of sand and gravel. Moreover, the P100.00 fee per cubic meter is actually a tax in the guise of a fee since the Municipality cannot collect tax on sand and gravel as this power is vested with the province; and 3) The fee imposed is anti-business, anti-labor, violates the equal protection clause and constitutes double taxation. Hence, this request. At the outset, it should be emphasized that this Department's mandate does not extend to matters that are justiciable in nature, and neither does it extend to the determination of the validity or legality of presumptively valid acts, 2 such as ordinances enacted by the local sanggunians . ISDHEa Nonetheless, this Department has the duty to ensure that the acts of LGUs are within the scope of their prescribed powers and functions pursuant to this Department's power of supervision over the same. Hence, on this note, the Department shall limit its discussion and/or comments on the issue in relation to the pertinent provisions of the Code: Scope of the Taxing and Regulatory Authority of LGUs Pursuant to Section 129 of the Code and Article 274 of its IRR, LGUs may exercise the power to levy taxes, fees and charges pursuant to their respective taxing authority, i.e. , Sections 134-141 of the Code for Provinces; Sections 142-149 and Section 156 for Municipalities; Sections 132-149 and Section 156 for Cities pursuant to Section 151; and Section 152 for Barangays. LGUs may also levy fees and charges pursuant to Sections 153-155 of the Code. In addition to the foregoing, LGUs have residual taxing powers pursuant to Section 186 of the Code as they have the power to levy other taxes, fees or charges on any base not otherwise specifically enumerated in the Code or taxed under the provisions of the National Internal Revenue Code, as amended, or other applicable laws, subject to certain limitations. The taxing power of LGUs, being a subordinate taxing power, are governed by the fundamental principles enumerated under Section 130 3 of the Code, and are subject to the limitations imposed by the Constitution, common limitations set forth under Section 133 4 of the Code, the procedural requirements provided under Sections 187 5 and 188 6 thereof, and the preemption or exclusionary rule as explained in Victorias Milling Co., Inc. vs. Municipality of Victorias, Negros Occidental (L-21168, 27 September 1968). 7 Basis of the LGUs Taxing and Regulatory Power on Extraction of Sand, Gravel and other Quarry Resources The authority of provinces or highly urbanized cities (HUCs) or independent component cities (ICCs) to levy and collect not more than ten percent (10%) of the fair market value in the locality per cubic meter of ordinary stones, sand, gravel, earth, and other quarry resources extracted from public lands and public waters within its territorial jurisdiction pursuant to Section 138 8 of the Code is dual-purpose as it is not only imposed for revenue generation but also for regulation as part of the devolved function of the Department of the Environment and Natural Resources (DENR) pursuant to Section 17 (a) and (b) (3) (iii) of the Code in relation to Republic Act (RA) No. 7942 (The Philippine Mining Act) and RA No. 7076 (Small Scale Mining Act) and other applicable laws and regulations on environment and natural resources. This is evident on the second paragraph of Section 138 of the Code, which highlights the authority of the provincial governor 9 to act on applications for extraction of sand, gravel and other quarry resources pursuant to an ordinance. Moreover, unlike other subject or base of tax, the proceeds of the taxes collected pursuant thereto does not exclusively accrue to the LGU, but is distributed in accordance with the sharing percentage provided under the last paragraph of Section 138. This Department's Observation on Section 5F-02 (a) of Municipal Tax Ordinance No. 02, s. 2011 Section 5F-02 (a) of Municipal Tax Ordinance No. 02, s. 2011 (hereinafter, the "Ordinance") appears to be patterned after the 1st paragraph of Section 138 of the Code, save for the rate of the tax/fee imposed and the name of the imposition. Moreover, the Ordinance's base or subject, i.e. , extraction of sand, gravel and other quarry sources, is similar to Section 138 of the Code. As discussed above, the power of LGUs to levy taxes, fees and charges are subject to certain limitations. Hence, notwithstanding their residual taxing powers under Section 186 of the Code, LGUs are precluded from imposing taxes, fees or charges on base or subjects which other LGUs are particularly authorized to impose pursuant to the Code and the same applies to taxes imposed under the provisions of the National Internal Revenue Code and other laws, viz. : "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 laws : 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. " TAIDHa Moreover, the fundamental principle that the taxes, fees, charges, and other impositions shall not be unjust, excessive, oppressive, or confiscatory should be observed in addition to the mandatory requirement of a prior public hearing. Based on the foregoing, it appears that the Municipality exceeded its authority when it imposed an "environmental protection fee" on the extraction of sand, gravel and other quarry resources, a base or subject that is already taxed by the Province pursuant to Section 138 of the Code. Moreover, the fees imposed appears to be excessive based on the Ordinance and the factual allegation of the complainants. In view thereof and pursuant to this Department's power of supervision and the correlative duty of ensuring that the acts of LGUs are within the scope of their prescribed powers and functions, may we request your comments in relation to the issue and/or corrective action in relation thereto, i.e. , review and amendment/repeal of the questioned provision in the Ordinance in accordance with the pertinent provisions of the Code. Your immediate action on this matter is highly appreciated. Very truly yours, (SGD.) AUSTERE A. PANADERO Undersecretary Footnotes 1. "Sec. 5F-01. Collection of Fees. There shall be collected (sic) the following fees: (a) From mining operators of ordinary stones, sand, gravel, earth and other quarry resources extracted from public lands or from the beds of seas, lakes, rivers, streams, creeks and other public waters within its territorial jurisdiction, an environmental protection fee at the rate of one hundred pesos (Php100.00) per cubic meter of mineral per year. xxx xxx xxx" 2. Memorandum Order No. 2010-02. 3. Section 130. Fundamental Principles. The following fundamental principles shall govern the exercise of the taxing and other revenue-raising powers of local 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 taxpayers 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 the 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. 4. 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 or 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. 5. Section 187. Procedure for Approval and Effectivity of Tax, Ordinances and Revenue Measures; Mandatory Public Hearings. The procedure for approval of local tax ordinances and revenue measures shall be in accordance with the provisions of this Code: Provided, That public hearings shall be conducted for the purpose prior to the enactment thereof: Provided, further, That any question on the constitutionality or legality of tax ordinances or revenue measures may be raised on appeal within thirty (30) days from the effectivity thereof to the Secretary of Justice who shall render a decision within sixty (60) days from the date of receipt of the appeal: Provided, however, That such appeal shall not have the effect of suspending the effectivity of the ordinance and the accrual and payment of the tax, fee, or charge levied therein: Provided, finally, That within thirty (30) days after receipt of the decision or the lapse of the sixty-day period without the Secretary of Justice acting upon the appeal, the aggrieved party may file appropriate proceedings with a court of competent jurisdiction. 6. Section 188 . Publication of Tax Ordinances and Revenue Measures. Within ten (10) days after their approval, certified true copies of all provincial, city, and municipal tax ordinances or revenue measures shall be published in full for three (3) consecutive days in a newspaper of local circulation: Provided, however, That in provinces, cities and municipalities where there are no newspapers of local circulation, the same may be posted in at least two (2) conspicuous and publicly accessible places. 7. Refers to an instance wherein the National Government elects to tax a particular area, impliedly withholding from the local government the delegated power to tax the same field. This doctrine principally rests upon the intention of Congress. Conversely, should Congress allow municipal corporations to cover fields of taxation it already occupies then the doctrine of preemption will not apply. 8. Section 138. Tax on Sand, Gravel and Other Quarry Resources. The province may levy and collect not more than ten percent (10%) of fair market value in the locality per cubic meter of ordinary stones, sand, gravel, earth, and other quarry resources, as defined under the National Internal Revenue Code, as amended, extracted from public lands or from the beds of seas, lakes, rivers, streams, creeks, and other public waters within its territorial jurisdiction. The permit to extract sand, gravel and other quarry resources shall be issued exclusively by the provincial governor, pursuant to the ordinance of the sangguniang panlalawigan. The proceeds of the tax on sand, gravel and other quarry resources shall be distributed as follows: (1) Province Thirty percent (30%); (2) Component City or Municipality where the sand, gravel, and other quarry resources are extracted Thirty percent (30%); and (3) Barangay where the sand, gravel, and other quarry resources are extracted Forty percent (40%). 9. Or the Mayor of HUCs and ICCs pursuant to Section 151 of the Code. n Note from the Publisher: Copied verbatim from the official document.