Legal Opinion: Validity of Section 21 of the New Makati Revenue Code

I. Summary

The business tax assessment under Section 21 of the new Makati Revenue Code is INVALID. The provision constitutes an ultra vires exercise of the city's taxing power because (1) it lacks statutory authority under the Local Government Code (RA 7160), (2) it violates Section 151 limitations on local taxing power, and (3) it works double taxation on the same gross sales already subject to the basic business tax under Section 17 (or Section 15). The integrating proviso on exemption does not cure these fatal defects.

II. Backgrounder

The City of Makati enacted a new Revenue Code imposing a four-layer tax burden on business establishments selling liquor, wine, spirits, and beer:

1. Section 15 – Tax on wholesalers, distributors, or dealers (mirrors Sec. 147, LGC);
2. Section 17 – Tax on retailers at 1% of gross sales (mirrors Sec. 145, LGC);
3. Section 21 – Tax of 50% of 1% (i.e., 0.5%) on gross sales of businesses "subject to excise, value-added or percentage taxes under the NIRC"; and
4. The proviso exempting "all registered businesses in the City of Makati already paying the aforementioned tax."

Platinum Grocery, Inc. (Platinum) is a retailer. It paid the 1% tax under Section 17 on January 5, 2026, and reluctantly paid under protest the Section 21 tax to secure its 2026 business permit renewal.

III. Structured Analysis

A. Governing Legal Framework

(1) Local Government Code (RA 7160):

• Sec. 5 (a) and Art. X, 1987 Constitution – LGUs enjoy local autonomy limited by law.
• Sec. 143, LGC – LGU revenue shall be derived only from sources provided in the LGC or by other laws.
• Sec. 145, LGC – Tax on business (basic community tax). For retailers, this is the basic business tax.
• Sec. 147, LGC – Tax on wholesalers, distributors, or dealers.
• Sec. 151, LGC – Express limitations on local taxing powers, including taxes on transactions already subject to national taxes (VAT, percentage tax, and excise tax).

(2) Doctrine of Double Taxation (Phil. jurisprudence):

"Double taxation in its strict sense means taxing the same person twice for the same taxable event for the same purpose by the same taxing authority within the same jurisdiction during the same period."

B. Application of Law to Platinum's Case

FIRST – Section 21 is ultra vires Makati's powers.

The Philippine Supreme Court has consistently invalidated local impositions imposed outside of the specific taxes enumerated in the LGC. In City of Manila v. Coca-Cola Bottlers Phils., Inc., G.R. No. 191203 (March 10, 2014), the Court struck down the essentially identical Section 21 of the Manila Revenue Code, holding that LGUs cannot impose a business tax beyond what the LGC authorizes, even if styled differently.

Section 21 of Makati's Code is virtually a carbon copy of the Manila ordinance – both impose a tax of a percentage of gross sales on businesses "already subject to excise, VAT, or percentage tax under the NIRC." The substantive defect that voided Manila's provision is identical here. The Supreme Court's ruling is on point and should have guided Makati's drafters away from copying Manila's invalidated provision.

SECOND – Section 21 violates the rule against double taxation.

Applied to the elements of double taxation:

All six elements are satisfied. Platinum is taxed twice on the same gross sales, by the same city, within the same fiscal year, for a revenue-raising purpose. This is double taxation in the strict sense.

THIRD – Section 21 violates Sec. 151, LGC.

Section 151 explicitly limits what LGUs may tax. While Makati is empowered under Sec. 145 (LGC) to collect a business tax on gross sales, it is NOT authorized to layer an additional, second tax of identical incidence (gross sales of goods already subject to NIRC's excise, VAT, or percentage taxes) on top of the basic business tax. This renders Section 21 a legislatively unauthorized surcharge.

FOURTH – The proviso does not save Section 21.

The proviso exempting "all registered businesses in the City of Makati already paying the aforementioned tax" suffers from a fatal interpretive defect:

• Literal reading: The "aforementioned tax" naturally refers back to Section 21 itself. This makes the proviso circular and would exempt everyone by default, effectively reducing Section 21 to a dead-letter provision.
• Practical reading: If the proviso meant to exempt those already paying Sections 15 or 17, then Section 21 would apply only to businesses that don't fall under any other Makati business-tax provision. But this leaves no meaningful class of taxpayers to whom Section 21 can validly apply—because practically every business in Makati selling goods or services is already subject to either Section 15 (wholesalers) or Section 17 (retailers). Section 21 would have no rational, valid reach.

The attempted remedial proviso thus reveals Section 21's structural invalidity: either it has no effect (literal reading) or it reaches no one because the LGC does not authorize an additional tax on a class already subject to the basic business tax (substantive reading). A proviso cannot cure an ultra vires provision; severability would not save Section 21 because the whole is irretrievably defective.

C. Procedural Posture: Did Platinum Protest Correctly?

Yes. Under Sec. 195, LGC, a taxpayer may protest administratively by filing a written protest with the City Treasurer within 30 days from payment under protest. The City Treasurer has 60 days to decide. Under Sec. 196, LGC, no court shall entertain an action assailing the validity of a local imposition unless the tax was paid under protest. Platinum's compliance with these requirements is properly observed.

IV. Critical Thinking Questions

1. What if Makati re-enacted Section 21 without the proviso? Would the absence of the proviso strengthen or weaken the argument that the tax is invalid? (It would arguably strengthen the double-taxation argument because the second layer would be unqualified.)

2. Is Section 21 a species of franchise tax under Sec. 137, LGC? No – a franchise tax is regulated by specific franchise laws (e.g., RA 11234 for water districts, franchise grants under RA 1161). Section 21 is an all-purpose surcharge on gross sales that has no anchor in any franchise statute.

3. Does Mandanas-Garcia doctrine (G.R. Nos. 208265 & 208966, July 23, 2022) relieve LGUs to impose more taxes? No. Mandanas v. City of Manila (and the related City of Naga v. Province of Cebu companion ruling) expanded LGU revenue shares from the national internal revenue but did not expand LGUs' authority to impose new taxes that the LGC does not allow. The validity of Section 21 is unaffected.

4. What if the Section 17 tax were uncollected or contested? Even if Section 17 were deemed invalid for some reason, Section 21 would still be invalid because there is no LGC provision independently authorizing it. The two taxes stand or fall on different grounds – Section 17 on grounds related to the LGC's basic business tax framework, and Section 21 on the additional-basis defect.

V. Actionable Recommendations & Takeaways

For Platinum (and similarly situated taxpayers):

For Tax Law Practitioners and Bar Examinees:

1. Memorize: The LGC's enumerated taxes (Secs. 132, 133, 134, 142, 145, 147, 157, etc.) and the limitations in Sec. 151.
2. Apply the Coca-Cola test: Is the challenged local imposition (a) a tax on the privilege of engaging in business, (b) computed on a basis already used by another valid tax by the same authority, or (c) tagging onto a national tax base? → It is invalid.
3. Use the six-element test for double taxation (same person, same event, same purpose, same authority, same jurisdiction, same period) with confidence in bar exams.
4. Understand the difference between (a) the basic business tax under Sec. 145, (b) the wholesale tax under Sec. 147, and (c) the prohibited additional business surtax layer invalidated by the Supreme Court.

VI. Conclusion

The business tax assessment under Section 21 of the Makati Revenue Code is void and of no effect. It violates the LGC, constitutes double taxation, and falls squarely within the doctrinal condemnation of City of Manila v. Coca-Cola Bottlers Phils., Inc. The proviso does not rehabilitate it. Platinum should pursue a refund through the protests and appeals procedure under Secs. 195–196 of the LGC, and on the merits, is entitled to restitution of the sum involuntarily paid to secure its 2026 business permit renewal.

Suggested further study: Annotate and compare (a) City of Manila v. Coca-Cola Bottlers Phils., Inc., G.R. No. 191203 (March 10, 2014); (b) Mandanas v. City of Manila, G.R. Nos. 208265 & 208966 (July 23, 2022); and (c) current Secs. 143, 145, 147, 151, 195, and 196 of RA 7160.