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by Atty. Gabriel Ablola 🇵🇭

Tag: Void Ordinance

  • Can I Still Claim a Tax Refund Despite Procedural Lapses and a Missed Appeal Deadline?

    Dear Atty. Gab,

    From: Fernando Lopez <FernandoAsks_MustaAtty@email.com>
    To: Atty. Gab <AttyGab_LegalAdvice@gaboogle.com>
    Subject: Musta Atty! Question about Tax Refund and Missed Appeal Deadline

    Musta Atty! I hope this email finds you well. I am Fernando Lopez, a small bakery owner here in Malabon City. For the past two years, our city implemented a new ordinance, Ordinance No. 123, Series of 2022, which significantly increased the business tax rates. Like many other small businesses, we paid these increased taxes, albeit reluctantly, amounting to around PHP 85,000 for 2022 and 2023.

    Recently, I heard from a fellow business owner that a very similar tax ordinance in a neighboring city was declared invalid by the courts because it apparently didn’t follow the proper procedures for enactment and imposed rates beyond what the law allows. This got me thinking about our own situation in Malabon and the taxes we’ve paid under Ordinance No. 123.

    My main concern is that when we initially tried to question the assessment with the City Treasurer, our former bookkeeper, who was helping us, might have missed some procedural steps. I recall there was a document, I think a certification related to our challenge, that was submitted a bit late. Also, when the City Treasurer denied our initial informal query, we were told by someone at city hall that the 30-day period to appeal to the court was “strict and non-extendible,” so we didn’t pursue it further as we were already a few days late by then. We felt quite discouraged.

    Now, I’m wondering if there’s any chance we could still claim a refund for the excess taxes we paid, especially if Ordinance No. 123 is indeed problematic like the one in the other city. Will our previous procedural missteps, like the late document and missing the appeal deadline (if it was indeed non-extendible), completely prevent us from seeking a refund? We are a small business, and that PHP 85,000 is a significant amount for us, especially in these challenging times. Any light you can shed on this would be immensely helpful.

    Maraming salamat po,

    Fernando Lopez

    Dear Fernando,

    Musta Atty! Thank you for reaching out. I understand your concerns regarding the business taxes paid under Malabon City Ordinance No. 123 and the procedural issues you encountered. It’s indeed a significant amount for a small business, and it’s wise to explore your options.

    Generally, if a tax ordinance is declared null and void by a competent court, any taxes collected under it may be subject to a claim for refund, as the collection would have no legal basis. Regarding your procedural concerns, it’s important to know that while procedural rules are in place to ensure orderly legal processes, Philippine jurisprudence recognizes that these rules can sometimes be relaxed, especially when substantial justice is at stake. Moreover, the information you received about appeal periods being strictly non-extendible might not always be accurate, depending on the specific appeal route. For instance, appeals from Regional Trial Court (RTC) decisions in local tax cases to the Court of Tax Appeals (CTA) can, under certain conditions, be granted an extension.

    Understanding Tax Refunds and Procedural Considerations in Legal Claims

    Let’s delve deeper into the legal principles that could apply to your situation. The core issue is whether you can claim a refund for taxes paid under an ordinance that might be invalid, and whether past procedural issues, including a missed deadline based on potentially incorrect advice, can be overcome.

    A fundamental principle in taxation is that taxes must be levied pursuant to a valid law or ordinance. If an ordinance is subsequently found to be null and void (for example, because it exceeded the taxing powers of the local government unit or did not comply with prescribed publication requirements), then it is as if the ordinance never existed. Consequently, any taxes collected under such a void ordinance are considered erroneously or illegally collected, and taxpayers are generally entitled to a refund, subject to certain conditions like the prescriptive period for filing a claim.

    Regarding the procedural aspects, particularly the appeal period, it’s crucial to identify the correct legal framework. If your query to the City Treasurer was a formal protest and its denial would have been appealable to the Regional Trial Court (RTC), and then potentially from the RTC to the Court of Tax Appeals (CTA), the rules for appeals to the CTA are pertinent. Section 11 of Republic Act No. 9282, which expanded the jurisdiction of the CTA, provides guidance:

    SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. – Any party adversely affected by a decision, ruling or inaction of the Commissioner of Internal Revenue, the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry or the Secretary of Agriculture or the Central Board of Assessment Appeals or the Regional Trial Courts may file an Appeal with the CTA within thirty (30) days after the receipt of such decision or ruling or after the expiration of the period fixed by law for action as referred to in Section 7(a)(2) herein. Appeal shall be made by filing a petition for review under a procedure analogous to that provided for under Rule 42 of the 1997 Rules of Civil Procedure with the CTA within thirty (30) days from the receipt of the decision or ruling or in the case of inaction as herein provided, from the expiration of the period fixed by law to act thereon.

    The reference to a procedure “analogous to that provided for under Rule 42 of the 1997 Rules of Civil Procedure” is key. Rule 42 allows for an extension of time to file a petition for review. Jurisprudence has affirmed this interpretation:

    Following by analogy, Section 1, Rule 42 of the Revised Rules of Civil Procedure, the 30-day original period for filing a Petition for Review with the CTA under Section 11 of Republic Act No. 9282, as implemented by Section 3 (a), Rule 8 of the Revised Rules of the CTA, may be extended for a period of 15 days. No further extension shall be allowed thereafter, except only for the most compelling reasons, in which case the extended period shall not exceed 15 days.

    This means that the advice you received about the 30-day period being strictly non-extendible might have been inaccurate if it pertained to an appeal from an RTC decision to the CTA. If your case involved an appeal directly from the City Treasurer’s denial to the RTC, the rules for that specific appeal would apply, but the principle of extendibility often exists in procedural rules, or at least, late filings can sometimes be excused for meritorious reasons.

    Now, concerning the late submission of a document, like a certification, this falls under the general category of procedural rules. While compliance is ideal, courts have often taken a liberal stance when substantive rights are at stake. The Supreme Court has emphasized that:

    Time and again, this Court has held that rules of procedure are established to secure substantial justice. Being instruments for the speedy and efficient administration of justice, they must be used to achieve such end, not to derail it. In particular, when a strict and literal application of the rules on non-forum shopping and verification will result in a patent denial of substantial justice, these may be liberally construed.

    This principle of prioritizing substantial justice over strict procedural adherence can be very relevant. If the ordinance under which you paid taxes is indeed invalid, denying your claim for a refund based solely on a minor procedural lapse, such as a slightly delayed submission of a supporting document, could be seen as a denial of substantial justice. For specific requirements like a certification against forum shopping, the rules can also be relaxed:

    As to certification against forum shopping, non-compliance therewith or a defect therein, unlike in verification, is generally not curable by its subsequent submission or correction thereof, unless there is a need to relax the Rule on the ground of “substantial compliance” or presence of “special circumstances or compelling reasons.”

    The ‘special circumstances or compelling reasons’ often include the merits of the case. If you have a strong case for a refund because the tax ordinance itself is invalid, this could be a compelling reason for a court to overlook minor procedural defects.

    Therefore, the potential invalidity of Ordinance No. 123 is a very important factor. If it can be established that the ordinance is void, then the legal basis for the collection of PHP 85,000 disappears, strengthening your argument for a refund and for a liberal application of procedural rules.

    Practical Advice for Your Situation

    • Verify the Status of Ordinance No. 123: The first step is to ascertain if Malabon City Ordinance No. 123 has indeed been challenged or declared invalid by any court, or if there are strong grounds to challenge its validity based on the reasons the similar ordinance in the neighboring city was voided.
    • Consult a Lawyer: Given the complexities of tax law and procedural rules, I strongly advise you to consult a lawyer specializing in local government taxation. They can properly assess the validity of the ordinance, the merits of your refund claim, and the impact of any past procedural lapses.
    • Gather All Documentation: Collect all relevant documents, including copies of Ordinance No. 123, official receipts for the tax payments, any correspondence with the City Treasurer’s office, and any documents related to your initial query or protest.
    • Assess the Appeal Period Information: Discuss with your lawyer the specific context of the “non-extendible” 30-day period you were told about. Determine what specific decision or action this period pertained to, and whether an extension could have indeed been sought.
    • Address the Late Document: Explain the circumstances of the late submission of the certification to your lawyer. If the substantive claim for refund is strong, this lapse might be excusable, especially if it was subsequently complied with or if there are compelling reasons for the delay.
    • Understand the Prescriptive Period for Refund: Generally, claims for refund of erroneously or illegally collected local taxes must be filed within two (2) years from the date of payment of such tax, fee, or charge (Section 196, Local Government Code). It’s crucial to determine if you are still within this period for the payments made.
    • Consider a Formal Claim: If viable, your lawyer can help you file a formal written claim for refund with the City Treasurer, clearly stating the grounds for your claim (e.g., invalidity of the ordinance).
    • Prepare for Possible Litigation: If the claim for refund is denied by the City Treasurer, or if no action is taken within the prescribed period, you may need to file a judicial claim for refund with the appropriate court.

    Your situation involves several interconnected legal issues, but there may be avenues available to you, especially if the tax ordinance in question is indeed invalid. The law provides for remedies, and procedural rules are not meant to defeat substantive rights without a fair hearing.

    Hope this helps!

    Sincerely,
    Atty. Gabriel Ablola

    For more specific legal assistance related to your situation, please contact me through gaboogle.com or via email at connect@gaboogle.com.

    Disclaimer: This correspondence is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please schedule a formal consultation.

  • Ordinance Invalidity: Cityhood Does Not Cure Defective Tax Laws – Pasig City Franchise Tax Case

    TL;DR

    The Supreme Court ruled that a franchise tax ordinance enacted by Pasig when it was a municipality was invalid because municipalities lacked the power to impose such taxes under the Local Government Code. Pasig’s subsequent conversion into a city did not retroactively validate this void ordinance. The Court emphasized that a void ordinance has no legal effect and cannot be enforced, even after the local government unit gains the power to enact such ordinances. This means local governments must ensure their ordinances are valid from the outset, as later changes in status do not automatically correct prior legal defects. Businesses are not obligated to pay taxes based on ordinances that were invalid when enacted, even if the local government’s powers later expanded.

    From Municipality to City: Can a Void Tax Ordinance Be Revived?

    This case revolves around the Manila Electric Company’s (MERALCO) challenge to Pasig City’s demand for franchise taxes from 1996 to 1999. The crux of the issue lies in whether a tax ordinance, initially enacted by Pasig when it was a municipality and thus lacked the authority to impose franchise taxes, became valid when Pasig became a city in 1995. The City of Pasig argued that its cityhood cured the defect of the prior ordinance, enabling it to collect franchise taxes from MERALCO. However, MERALCO contended that the original ordinance was void from the beginning and remained unenforceable, regardless of Pasig’s change in status. The legal framework governing this dispute is the Local Government Code (LGC) of 1991, which delineates the taxing powers of provinces, municipalities, and cities.

    The Supreme Court unequivocally sided with MERALCO, affirming the Court of Appeals’ decision. The Court anchored its ruling on the clear provisions of the LGC. Section 137 of the LGC explicitly grants provinces the power to impose franchise taxes, while Section 142 restricts municipalities from levying taxes assigned to provinces. Section 151, however, empowers cities to levy taxes, fees, and charges that provinces or municipalities can impose. Crucially, in 1992, when Pasig enacted Ordinance No. 25 imposing the franchise tax, it was still a municipality and therefore acted beyond its legal authority. The ordinance was thus void ab initio – void from the outset – because it contravened the express limitations of the LGC. The Court cited Article 5 of the Civil Code, which states that “acts executed against the provisions of mandatory or prohibitory laws shall be void.”

    The City of Pasig’s central argument rested on the notion that its conversion into a city by virtue of Republic Act No. 7829 in 1995 retroactively validated Ordinance No. 25. They pointed to Section 45 of R.A. No. 7829, which states that municipal ordinances existing at the time of cityhood shall remain in force. However, the Supreme Court rejected this interpretation. The Court reasoned that Section 45 pertains only to ordinances that were valid when enacted. A void ordinance, like Section 32 of Ordinance No. 25, has no legal existence and cannot be “continued in force” because it never had force to begin with. The cityhood law cannot breathe life into something that was legally null from its inception. The Court emphasized the principle that “a void ordinance…is what it is – a nullity that produces no legal effect. It cannot be enforced; and no right could spring forth from it.”

    Furthermore, the Court addressed Pasig’s invocation of local autonomy and the principle that ambiguities in tax laws should be resolved in favor of local government units. While acknowledging the importance of local fiscal autonomy, the Court clarified that this principle is not absolute and is subject to limitations set by Congress. Section 142 of the LGC, which withholds franchise tax power from municipalities, is a valid limitation imposed by Congress. Moreover, the Court reiterated the established doctrine that any doubt or ambiguity in the grant of taxing power must be construed against the local government unit and in favor of the taxpayer. In this case, there was no ambiguity in the law; municipalities were clearly prohibited from imposing franchise taxes when Ordinance No. 25 was enacted.

    The practical implication of this ruling is significant for both local government units and businesses. Local governments must ensure that their tax ordinances are enacted within the bounds of their legal authority at the time of enactment. Subsequent changes in their status or powers do not automatically cure defects in previously void ordinances. Businesses, on the other hand, are protected from illegal or unauthorized taxation. They have the right to challenge tax demands based on ordinances that were invalid from their inception, even if the local government later acquired the power to impose such taxes. This case underscores the importance of strict adherence to the Local Government Code and the principle of legality in local taxation.

    FAQs

    What was the key issue in this case? The central issue was whether a franchise tax ordinance enacted by Pasig City when it was a municipality, and thus lacked the power to impose such tax, became valid upon Pasig’s conversion into a city.
    What is a franchise tax? A franchise tax is a tax imposed on businesses that are operating under a franchise, typically a legislative franchise granted by Congress or a local franchise.
    Who has the power to impose franchise taxes under the Local Government Code? Under the LGC, provinces and cities have the power to impose franchise taxes, but municipalities do not.
    Why was Pasig City’s ordinance initially invalid? Pasig City Ordinance No. 25 was initially invalid because it was enacted in 1992 when Pasig was still a municipality, and municipalities were prohibited from levying franchise taxes under the LGC.
    Did Pasig City’s conversion to a city validate the ordinance? No, the Supreme Court ruled that Pasig City’s conversion to a city in 1995 did not validate the previously void ordinance. A void ordinance remains void and cannot be given legal effect retroactively.
    What is the significance of the term “void ab initio”? “Void ab initio” means void from the beginning. It signifies that the ordinance was never legally valid and had no legal effect from the moment it was enacted.
    What was the Court’s ruling in this case? The Supreme Court affirmed the Court of Appeals’ decision, declaring that Pasig City’s demand for franchise taxes from MERALCO for the period 1996-1999 was invalid because it was based on a void ordinance.

    For inquiries regarding the application of this ruling to specific circumstances, please contact Atty. Gabriel Ablola through gaboogle.com or via email at connect@gaboogle.com.

    Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
    Source: City of Pasig v. MERALCO, G.R. No. 181710, March 07, 2018