Can barangay (village) officials assess and collect amusement fees based on gross sales and receipts of business establishments like movie theaters operating within their jurisdiction?
No, declared the Court of Tax Appeals (CTA) in a decision which granted the petition of SM Prime Holdings, Inc. that operates movie theaters at its SM City San Lazaro in Manila.
The CTA said that the New Revenue Code under Ordinance No. 02 series of 2016 of Barangay 350, Zone 35, District III of Manila violated Article 233 of the Implementing Rules and Regulations (IRR) of the Local Government Code (LGC).
The tax court said that under Article 233 of the LGC-IRR, a municipality may impose and collect reasonable fees and charges on business and occupations, except those reserved to the province “provided that such fees or 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.”
However, it said that “no such fee or charge shall be based on capital investment or gross sales or receipts of the person or business liable therefor.”
On Dec. 5, 2016, Barangay 350 enacted its New Revenue Code. On Jan 15, 2018, SM Prime Holdings received a letter from the barangay demanding the payment of P1,051,872 as 2018 amusement fees for the operation of the firm’s movie theaters in SM City San Lazaro.
The amusement fee under Section 13 of the Barangay Revenue Code was computed at P2 for every ticket or charge on admission at the movie theaters.
On March 8, 2018, SM Prime Holdings protested as it pointed out that the Barangay Revenue Code failed to comply with the mandatory requirements of the LGC and that the barangay has no authority to assess amusement fees.
When SM Prime Holdings and Barangay 350 failed to resolve the issue, the firm filed a case before the Manila regional trial court (RTC).
The issue underwent mediation but to no avail. The RTC dismissed SM Prime Holdings case for lack of jurisdiction and failure to exhaust administrative remedies. The firm elevated the issue before the CTA on Dec. 1, 2022.
In a decision written by Presiding Justice Roman G. Del Rosario with the concurrence of Associate Justices Jean Marie A. Bacorro-Villena and Lanee S. Cui-David, the CTA said:
“As a test to determine if an exaction is a fee or a tax, one must look into the purpose of its collection. If the exaction is made to raise revenue for the government to discharge its principal functions, the exaction is a tax. If the exaction is primarily regulatory, it is a fee, even if it incidentally raises revenue as long as the revenue generated does not exceed the cost of regulation. If the revenue exceeds the regulatory costs, it is a tax.
“Petitioner (SM Prime Holdings) submits that based on the text of the Barangay Revenue Code, the purpose of the Amusement Fee was to raise revenues rather than to regulate the operation of places of recreation.
“Further, it asserts that while imposing taxes on places for recreation is outside respondents' (Barangay 350) authority, the Amusement Fee constituted double taxation and completely replicate the amusement taxes that were being imposed by the City of Manila.
“As previously mentioned, respondents argue that the Barangay Revenue Code was enacted and passed in order to ‘generate the necessary and proper revenues to meet the delivery of basic services and to promote and sustain its development projects.’
“The Amusement Fee subject of this case is based on Section 13 of the Barangay Revenue Code of respondent Barangay, imposing regulatory fees on amusement/recreational establishment and movie house which charge admission per person….
“As can be easily confirmed, the text of Section 13 of the Barangay Revenue Code does not indicate the purpose for the exaction of the regulatory fee nor set any standard for amusement/recreational establishment and movie house owners/operators to establish or agree to attain or maintain.
“Thus, in this case, it is clear that the regulation of amusement/recreational establishments and movie houses is merely incidental.
“In fine, the Court finds that the Amusement Fee under Section 13 of the Barangay Revenue Code is primarily for the purpose of raising revenue. Despite the use of the appellations ‘regulatory fee’ or ‘Amusement Fee,’ the exaction is appropriately deemed a tax.
“Considering the foregoing discussion, the Complaint/Appeal subject of the present controversy is in the nature of a local tax case which falls within the CTA's jurisdiction defined under Section 7(a)(3) of RA No. 1125, as amended.
“On the other hand, Section 152(d)(2) of the LGC authorizes the barangay to levy other fees and charges on places of recreation which charge admission fees, like petitioner as owner/operator of cinema theaters. Article 233 of the LGC-IRR, however, qualifies that such fee or charge may not be based on gross sales or receipts….
“Notwithstanding the above prohibition, the Amusement Fee imposed under Section 13 of the Barangay Revenue Code is computed based on gross sales or receipts, i.e., P2 for every ticket or charge on admission in amusement/recreational places.
“Such imposition is a clear violation of Article 233 of the LGC-IRR.
“Thus, even if the Court considers the Amusement Fee as ‘Other Fees and Charges’ imposed pursuant to Section 152(d)(2) of the LGC, the same must be invalidated for being violative of Article 233 of the LGC-IRR.
“Plainly, under Section 152 of the LGC, respondent Barangay is not authorized to impose a tax on amusement/recreation establishments. It may only impose fees and charges, which should not be based on the capital investment or gross sales or receipts of the taxpayer.
“In sum, since the subject Amusement Fee, which is veritably a tax, is beyond the authority of respondent Barangay to impose, any exaction based thereon is invalid. Section 13 of the Barangay Revenue Code is patently ultra vires (beyond legal power or authority).
“Wherefore, premises considered, the Petition for Review is granted. The Assessment Notice dated Jan. 15, 2018 issued by respondent Barangay Treasurer, Daniela Ritz Aguila, demanding payment of Amusement Fee, inclusive of penalties, surcharges and interest for the year 2018 amounting to P1,051,872 is hereby cancelled.
“Respondent Barangay 350, Zone 35, District Ill, City of Manila, its agents and any person acting on its behalf are enjoined from enforcing the Assessment Notice against petitioner SM Prime Holdings, Inc.”