Scope of the Taxing Powers of Local Government Units over PCSO or its Agents

DOJ OPINION NO. 017 , s. 2013 February 8, 2013 Government Corporate Counsel Raoul C. Creencia Office of the Government Corporate Counsel 3rd Floor MWSS Administration Building Katipunan Road, Balara, Quezon City Dear GCC Creencia : This refers to your request for opinion relating to the scope of taxing powers of local government units over Philippine Charity Sweepstakes Office (PCSO) or its agents. You state that on 23 April 2012, the City Legal Office of Marikina City wrote PCSO to assert its power to impose upon each "Lotto" outlet the obligation to secure a Mayor's Permit or Business Permit and to pay the necessary fees; and that the City Legal Office based its power to impose the said obligation from the Local Government Code of 1991. 1 You further state that the position of the PCSO, however, is that the city or municipal governments are mere agents of the national government and local sanggunians exercise delegated and limited legislative powers, and thus, the local sanggunians can neither overrule nor revise the act of Congress; that what the Congress expressly allows or limits by law, a city or municipal sanggunian cannot overrule or revise by ordinance or resolution; and that while the imposition of an obligation to secure a mayor's permit or business permit does not per se overrule or revise an act of Congress, the imposition itself subjects a congressional franchise to the local government's control (as the power to issue necessarily implies the power to withhold permits). As regard the imposed fees and charges, you noted that Section 133 of Republic Act No. 7160 (RA 7160), which provides for the common limitation on the taxing powers of local government units, has been applied in Basco vs. Philippine Amusement and Gaming Corporation , 2 wherein the Supreme Court held, as follows: AEScHa "Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a government owned or controlled corporation with an original charter, PD 1869. All of its shares of stocks are owned by the National Government. In addition to its corporate powers (Sec. 3, Title II, PD 1869) it also exercises regulatory powers thus: xxx xxx xxx "PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is governmental, which places it in the category of an agency or instrumentality of the Government. Being an instrumentality of the Government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to control by a mere local government. xxx xxx xxx "This doctrine emanates from the "supremacy" of the National Government over local governments. xxx xxx xxx "Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities may perceive to be undesirable activities or enterprise using the power to tax as "a tool for regulation" ( U.S. v. Sanchez , 340 US 42). "The power to tax which was called by Justice Marshall as the "power to destroy" (Mc Culloch v. Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield it." You likewise noted that in Opinion No. 71, series of 1995, this Department has opined that the PCSO and its lottery ticket sellers, including Lotto sales agents, are not required to secure business permits/licenses from the province, city or municipality where they may operate, and are also exempt from the authority of local government units to impose taxes, fees or charges on the Lotto outlets. ECcTaH Accordingly, you would like this Department to issue a clarificatory opinion on whether Opinion No. 71, series of 1995, wherein we had opined for such exemptions of PCSO and its lottery ticket sellers, including lotto sales agents, is still valid and subsisting. At the outset, we have to note that this Department would take that PCSO is challenging the validity and/or legality of the Ordinance of City of Marikina which regulates the operation of Lotto outlets. Based on the letter dated 12 April 2012 of Atty. Floreila Bandala Almarez, Officer-in-charge/Asst. City Attorney, City Legal Office, Marikina City, to Atty. Jose T. Malang, Manager, Legal Department, PCSO, it appears that the ordinance, which validity is being questioned by the PCSO, is the Marikina City Ordinance No. 111, series of 2004. In this regard, please be informed that we are constrained to decline to render an opinion since the power of the Secretary of Justice vis-a-vis the review of municipal ordinances is limited to tax ordinance and revenue measure elevated to this Department within thirty (30) days from the enactment thereof. 3 Moreover, assuming that the petition or request for review of City Ordinance No. 111, series of 2004, was elevated to this Department within 30 days from its enactment, we would not be able to properly formulate our resolution on the issue of validity and/or legality of Marikina City Ordinance No. 111 considering that we were not provided with the copy of the said ordinance. The resolution on the issue of validity of Marikina City Ordinance No. 111 would require an examination of entire provisions of the said ordinance. Thus, Department Circular No. 21, 4 dated 15 July 1992, Section 3, in particular, requires the submission to this Department of a legible and true copy of the tax ordinance or revenue measure. Furthermore, it may be significant to note that the Bureau of Local Government Finance (BLGF) had already rendered an opinion 5 affirming the authority of the City Government of Marikina in requiring the Mayor's permit on PCSO outlets, the pertinent portion of which is stated, to wit: "The applicable provision of law in this particular issue is Article 233 of the Implementing Rule and Regulations (IRR), implementing Section 147 of the Local Government Code of 1991 (LGC) and in line with Section 150 thereof, which provides as follows: EAcTDH Article 233. Fees and Charges. The municipal government may impose and collect such reasonable fees and charges on businesses and occupation and except as reserved to the province under Article 228 of this Rule. . . . provided that such fees and charges shall only be commensurate to the cost of issuing the license or permit and the expenses incurred in the conduct of the necessary inspection or surveillance. "No such fee or charge shall be based on capital investment or gross sales or receipts of the person or business liable thereof." " On the basis of the above-quoted provisions, it is clear that the Lotto outlets are required to secure a Mayor's Permit and subject to other regulatory fees that the City of Marikina may impose . However, it is clarified that, such regulatory fees shall not be based on the commission, which operators derive from the sale of lotto tickets. The provision of law is also clear that "such fees and charges shall only be commensurate to the cost of issuing the license or permit and the expense incurred in the conduct of the necessary inspection or surveillance . . ." [underscoring for emphasis] xxx xxx xxx Lastly, bearing in mind that PCSO is challenging the validity of Marikina City Ordinance No. 111, series of 2004, the issuance by this Department of the requested opinion would not resolve the issue. The reason is that the opinion of the Secretary of Justice is merely advisory in nature, hence, need not bind the local government unit (LGU) concerned, in this case, the City of Marikina, if it so decides to formally adopt the position it takes on the issue raised and assume responsibility therefor. 6 The PCSO, however, may file an appropriate action before the courts if it still intends to challenge the validity and/or constitutionality of Marikina City Ordinance No. 111, series of 2004. The foregoing notwithstanding, for your guidance and enlightenment , your attention is invited to the following discussions: TcDAHS In Opinion No. 71, series 1995, we opined that the specific authority of municipality or city to enact ordinances and issue business permits for the general welfare of the inhabitants of the municipality or city, as the case may be, pursuant to Section 16 of the Local Government Code (LGC), is provided under Sections 447 (a) (3) (ii) and 458 (a) (3) (ii), respectively, of the same Code, to wit: " Section 447. Powers, Duties, Functions and Compensation. (a) The sangguniang bayan , as the legislative body of the municipality, shall enact ordinances , approve resolutions and appropriate funds for the general welfare of the municipality and its inhabitants pursuant to Section 16 of this Code and in the proper exercise of the corporate powers of the municipality as provided for under Section 22 of this Code, and shall: xxx xxx xxx (3) Subject to the provisions of Book II of this Code , grant franchises, enact ordinances authorizing the issuance of permits or licenses, or enact ordinances levying taxes, fees and charges upon such conditions and for such purposes intended to promote the general welfare of the inhabitants of the municipality , and pursuant to this legislative authority shall: xxx xxx xxx (ii) Regulate any business, occupation, or practice of profession or calling which does not require government examination within the municipality and the conditions under which the license for said business or practice of profession may be issued or revoked; HScAEC xxx xxx xxx " Section 458. Powers, Duties, Functions and Compensation. (a) The sangguniang panlungsod , as the legislative body of the city, shall enact ordinances , approve resolutions and appropriate funds for the general welfare of the city and its inhabitants pursuant to Section 16 of this Code and in the proper exercise of the corporate powers of the city as provided for under Section 22 of this Code, and shall: xxx xxx xxx (3) Subject to the provisions of Book II of this Code, enact ordinances granting franchises and authorizing the issuance of permits or licenses, upon such conditions and for such purposes intended to promote the general welfare of the inhabitants of the city and pursuant to this legislative authority shall: xxx xxx xxx (ii) Regulate or fix license fees for any business or practice of profession within the city and the conditions under which the license for said business or practice of profession may be revoked and enact ordinances levying taxes thereon; xxx xxx xxx (Emphasis supplied) The afore-quoted provisions empower the municipality or city to regulate any business within its territorial jurisdiction in line with the general welfare clause under Section 16 of the LGC. To make this power more effective, the LGU concerned are further vested with the authority to impose permit/license fees incident to regulation. However, said authority is not absolute in character. The reason is that Sections 447 and 458, above-quoted, make the statutory grant of power to regulate and impose permit/license fees "subject to the provisions of Book II of the Code". IDSaEA Section 133 of Book II, in particular, expressly prohibits local governments from imposing any kind of taxes, fees or charges on the national government instrumentalities. Section 133 (o) states: "SEC. 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 : xxx xxx xxx (o) Taxes, fees or charges of any kinds on the National Government, its agencies and instrumentalities , and local government units." (Emphasis supplied) In addition, under Section 131 of Book II, the term "fee" is understood to mean, as follows: "Section 131. Definition of Terms. When used in this Title, the term: xxx xxx xxx (l) " Fee " means a charge fixed by law or ordinance for the regulation or inspection of a business or activity ;" xxx xxx xxx (Emphasis supplied) Evidently, while Section 133 of the Code speaks of the limitation on the taxing powers of the LGU, it appears that it similarly limits the power of the LGU to impose permit/license fees through an ordinance for the purpose of regulation or inspection of any business or activity. This interpretation may be bolstered by the fact that Sections 447 and 458 of the Code, which provide for the power of the municipality or city to regulate any business or activity, in relation to Section 16 thereof, are likewise subject to the limitations of the provisions of Book II. Hence, the limitations provided under Section 133 are equally applicable on the authority of the LGU to regulate any business or activity and impose permit/license fees through an ordinance although it speaks of limitations on the taxing powers of the LGU. HcSDIE Consequently, the authority of the municipality or city to charge, impose or fix permit/license fees on any business or activity through an ordinance enacted for the purpose of regulation or inspection of such business or activity pursuant to Section 447 and Section 458, as the case may be, in relation to the general welfare clause under Section 16 of the LGC, cannot be exercised upon the "National Government, its agencies and instrumentalities", of which the PCSO is one. The rationale for considering the PCSO and its lottery ticket sellers, including its lotto sales agents, as an instrumentality of the national government, would not be explained anymore in this opinion since said issue had been extensively discussed in our Opinion No. 71, series of 1995. Besides, it appears that the City of Marikina had already acknowledged that the PCSO and its agents are considered as government instrumentalities because they admitted in their letter dated 12 April 2012 to PCSO that they cannot impose taxes on the sale of lotto tickets. Simply put, the government instrumentality status of the PCSO and its agents is not an issue with, or being questioned by, the City of Marikina. Applied to the instant case, this Department is still of the opinion that the PCSO and its lottery ticket sellers, including its lotto sales agents, are not only exempted from the authority of the LGU to impose taxes and other charges but are likewise exempted from the payment of regulatory permit/license fees i.e. , Business or Mayor's Permit fees. It bears to reiterate that the limitations provided under Section 133 of Book II of the Code are equally applicable on the authority of the LGU to regulate any business or activity and impose permit/license fees through an ordinance although it speaks of limitations on the taxing powers of the LGU. Although the PCSO and its lottery ticket sellers, including its lotto sales agents, are exempted from the payment of the regulatory permit/license fees, they are, however, not exempted from securing Business or Mayor's Permit from the LGU like the City of Marikina. In this regard, we partly concede to the position of the City of Marikina that it is not precluded from requiring PCSO lotto agents or outlets from securing Business or Mayor's Permit for the purpose of registration and submission to health, sanitation and safety standards and regulations. IEHSDA For one, the exemption granted to the PCSO and its lottery ticket sellers and lotto agents under Section 133 of Book II, among others, pertains only on the payment of the LGU regulatory permit/license fees. For another, to say that the PCSO and its lottery ticket sellers and lotto sales agents are also exempted from securing Business or Mayor's Permit for the purpose of registration and submission to health, sanitation and safety standards and regulations, would expose the public to great physical harm or danger. Registration and submission to health, sanitation and safety standards and regulations are legitimate public interests which the LGU is mandated to promote and protect under Section 16 of the Code. In sum, while the LGU may require the PCSO and its lottery ticket sellers, including its lotto sales agents, to secure Business or Mayor's Permits, the latter are exempted from the payment of fees in connection with the issuance thereof. In view of the foregoing, Opinion No. 71, series of 1995, is hereby partly modified. Please be guided accordingly. Very truly yours, (SGD.) LEILA M. DE LIMA Secretary Footnotes 1. Republic Act No. 7160. 2. 197 SCRA 52. 3. Section 187, R.A. No. 7160. 4. Rules of Procedure Governing Appeals Questioning the Constitutionality or Legality of Tax Ordinances or Revenue Measure of Local Government Units under Section 187 of Republic Act No. 7160, the Local Government Code of 1991. 5. See Letter dated 23 April 2012 of Atty. Floreila Bandala Almarez, Assistant City Attorney, City of Marikina, to Atty. Jose T. Malang, Manager, Legal Department, PCSO. 6. Secretary of Justice Opinion Nos. 63, 19, s. 2007; Nos. 40, 35, 32, 6, s. 2009; No. 14, s. 2010.