BDB Laws Tax Law For Business appears in the opinion section of BusinessMirror every

Thursday. BDB Law is an affiliate of Punongbayan & Araullo (P&A).

Local tax refund
We have seen how many local governments, by virtue of local autonomy, have
responded to the challenges of development. Devolution has seen local governments
provide the enabling environment for local governments to grow. They are able to
encourage trade in their areas and exercise their power to tax. Businesses may only
operate if local governments are paid the corresponding business tax every year.
Unfortunately, some local governments abuse this power by imposing local business
taxes beyond their limitations.

For instance, the City of Manila deleted the phrase "PROVIDED, that all registered
businesses in the City of Manila that are already paying the aforementioned tax shall be
exempted from payment thereof" its new Revenue Code (Section 21 of Ordinance No.
7988). In effect, said deletion imposed additional business tax on businesses that are
already subject to business tax under the other sections, specifically Section 14, of
Ordinance No. 7988. Recently, the Supreme Court in Coca Cola Bottlers Philippines,
Inc. vs. City of Manila, GR No. 156252 struck down Section 21 of Ordinance No. 7988 of
the City of Manila as void for being illegal and unconstitutional.

Before Section 21 of Ordinance No. 7988 was declared void and unconstitutional by the
Supreme Court, businesses in the City of Manila were taxed twice for the same
transaction, i.e., Sections 14 and 21 of Ordinance 7988. Their only recourse is to claim
for refund.











What are the remedies available to taxpayers in claiming for refund of local business tax
payments made based on a void ordinance? Based on Section 196 of the Local
Government Code, to successfully sue in court for a refund of any local tax, fee, or
charge, two things must be done:

1. The taxpayer concerned must file a written claim for refund or credit with the local
treasurer; and
2. The case or proceeding for refund has to be filed within two years (a) from the
date of the payment of the tax, fee, or charge or (b) from the date the taxpayer is
entitled to a refund or credit.

It is clear, therefore, that prescription is not reckoned only from the date of payment, but
also from the date the taxpayer is entitled to a refund or credit.

As far as Section 21 of Tax Ordinance No. 7988 of the City of Manila is concerned, it
may be argued that the date a taxpayer is entitled to a refund or credit is from the time
the Supreme Court nullified the same, or from the time the case of Coca Bottlers
Philippines, Inc. vs. City of Manila, GR No. 156252 became final and executory. As
verified with the Supreme Court, the entry of judgment in this case was rendered on
October 27, 2008. Following the argument that prescription may be reckoned from the
date the taxpayer is entitled to a refund or credit, a taxpayer may still file for refund of
excess local tax paid on payments made since the Ordinance was enforced in year
2000.

This argument could find support in the Resolution of the Supreme Court in Allied
Banking Corp. vs. Quezon City Government, et al., G.R. No.154126, which states that a
claim for refund with the local government may be reckoned from the date the taxpayer
is entitled to refund or credit.
In the Alabang Supermarket Corporation vs. City Government of Muntinlupa, CTA EB
case No. 386, the Court of Tax Appeals En Banc argued that the Supreme Court
decision in Allied Bank is pro hac vice. The Court En Banc further opined that it is not
the intention of the taxpayers to grant judicial relief on business tax refunds beyond two
years from the time of payment.

But the law is clear. The case or proceeding for refund has to be filed within two years
not only from the date of the payment of the tax, fee, or charge but also from the date
the taxpayer is entitled to a refund or credit. A taxpayers entitlement to a refund or credit
may be reckoned from the date when the Supreme Court declares an ordinance as void
because it is only at this time that the presumption of regularity and legality of an
ordinance becomes a farce.

Local governments must know the limitations of their taxing power. They must return
whatever they have taken wrongfully, by mistake or malice, as a result of the abuse of
such power.