CASE DIGEST : Pepsi-Cola Bottling Company of the Philippines, Inc. v. Municipality of Tanauan, Leyte G.R. No. L-31156, February 27, 1976 En Banc — Martin, J.

 

FACTS

On February 14, 1963, Pepsi-Cola Bottling Company of the Philippines, Inc. filed a complaint before the Court of First Instance of Leyte seeking to declare Section 2 of Republic Act No. 2264, otherwise known as the Local Autonomy Act, unconstitutional for allegedly being an undue delegation of taxing power. Pepsi-Cola likewise sought to declare Municipal Ordinances Nos. 23 and 27, series of 1962, of the Municipality of Tanauan, Leyte, null and void. The challenge arose after the municipal government sought to impose a production tax on soft drinks manufactured within the municipality.

Ordinance No. 23 imposed upon soft-drink producers and manufacturers a tax of 1/16 of a centavo for every bottle of soft drink corked. Ordinance No. 27, meanwhile, imposed a tax of one centavo (₱0.01) for every gallon of soft drinks produced or manufactured within the municipality. Both ordinances denominated the levy as a "municipal production tax." The parties stipulated that the two ordinances covered substantially the same subject matter and that their production-tax rates were practically the same.

The Court of First Instance of Leyte dismissed Pepsi-Cola's complaint and upheld the constitutionality of Section 2 of R.A. No. 2264 and the validity of Ordinances Nos. 23 and 27. It ordered Pepsi-Cola to pay the taxes due under the ordinances. Pepsi-Cola appealed, and the Court of Appeals certified the case to the Supreme Court because the appeal involved pure questions of law.

Pepsi-Cola raised three principal objections: first, that Section 2 of R.A. No. 2264 constituted an undue delegation of legislative taxing power and that the resulting tax was confiscatory and oppressive; second, that the ordinances constituted double taxation and imposed a percentage or specific tax contrary to law; and third, that the tax was unjust and unfair. The Supreme Court therefore examined both the validity of the delegation of taxing authority to municipalities and the validity of the particular municipal tax imposed by Tanauan.

ISSUE

The first issue was whether Section 2 of R.A. No. 2264 constituted an unconstitutional delegation of the legislative power to tax. The general rule is that the power of taxation is legislative in character and ordinarily cannot be delegated by Congress to another branch of government. The Court, however, considered whether the same prohibition applies when Congress delegates taxing authority to municipal corporations or local governments for matters of local concern.

The Court also had to determine whether the delegation under R.A. No. 2264 was so broad as to be confiscatory or oppressive. Section 2 granted municipalities and municipal districts broad authority to impose taxes, fees, or charges on matters not specifically reserved by law to the national government. The question was whether the breadth of this authority rendered the statutory delegation invalid.

The second issue was whether Municipal Ordinances Nos. 23 and 27 constituted double taxation. Pepsi-Cola argued that the municipal production tax resulted in an additional tax burden on the same subject already subject to national taxation. The Court therefore examined the nature of the municipal tax and whether the constitutional or statutory prohibition against double taxation was violated.

The third issue was whether the municipal production tax was unjust, unfair, confiscatory, or oppressive. The Court considered the nature and amount of the tax, the purpose of municipal taxation, and the limitations imposed by law and the Constitution on the exercise of delegated taxing power.

HELD

The Supreme Court AFFIRMED the decision of the Court of First Instance of Leyte and upheld the validity of the challenged municipal taxing power. It held that Section 2 of R.A. No. 2264 was constitutional. Although taxation is inherently a legislative power, the Court explained that the prohibition against delegation does not apply in the same manner to municipal corporations, because the legislative power to create political subdivisions for purposes of local self-government necessarily includes the authority to confer upon them appropriate powers of taxation.

The Court explained that taxation is an essential and inherent attribute of sovereignty and is primarily legislative in character. Nevertheless, Congress may delegate taxing authority to municipalities for matters of local concern. The Court found the delegation under the Local Autonomy Act sufficiently broad to provide municipalities with meaningful fiscal autonomy, but held that it was not unconstitutional merely because the delegation was broad. The municipality remained subject to constitutional and statutory limitations on the exercise of its taxing power.

The Court also rejected Pepsi-Cola's argument that the ordinances constituted double taxation. The Court explained that there was no prohibited double taxation merely because the same property or activity was subjected to taxation by different governmental authorities. For double taxation to be objectionable in the constitutional sense, the same subject must generally be taxed twice for the same purpose by the same taxing authority within the same jurisdiction and taxing period. The municipal production tax was imposed by the municipality pursuant to authority granted by law and did not constitute prohibited double taxation.

The Court likewise rejected the claim that the tax was confiscatory, oppressive, unjust, or unfair. It found no sufficient basis to conclude that the tax imposed by Tanauan exceeded the municipality's lawful taxing authority. The Court recognized that municipalities require sufficient sources of revenue to perform their governmental functions and that the Constitution and law permit local governments to exercise delegated taxing powers subject to established limitations. Ordinance No. 27 was therefore sustained as valid and constitutional