The Court of Tax Appeals (CTA) has denied the petition filed by Quezon City which sought the reversal of a regional trial court (RTC) decision that ordered the city government to refund to DKT Health, Inc. P5.8 million in local business taxes (LBT) and cancelled the additional P8.8 million assessed deficiency taxes.

The city government, through its Treasurer Edgard T. Villanueva, assailed the RTC Branch 216 Quezon City decision and order promulgated on Sept. 22, 2022 and Aug. 7, 2023, respectively, in favor of DKT Health.

The decision ordered the refund of erroneously paid taxes amounting to P5,891,693.62 and the order cancelled the deficiency LBT assessments against DKT Health worth P8,833,169.47 for the period 2016 to 2017 for being void.

The city government argued that DKT Health's products -- pills, condoms, injectables, lubricants, and medical devices -- are not considered as essential medicines. It also told the tax court that the deficiency LBT for 2016 was barred by prescription.

The CTA found the city government’s petition “unmeritorious.

The RTC's directive for a refund or credit was proper, being a necessary consequence of the cancellation of the assessment, the decision stated.

The CTA agreed with the RTC that DKT Health's products -- pills, condoms, injectables, and medical devices -- are considered essential medicine as these fall under family planning products and services. However, lubricants do not qualify for inclusion, it said.

While our review has led us to conclude that sales of lubricants were properly subjected to the regular rate for purposes of computing DKT Health's local business tax, the RTC was still correct in ordering the complete refund of the alleged deficiency local business tax payments relative to the years 2016-2021 for violation of due process, the CTA said.

The tax court also affirmed that the city’s LBT assessment for the first quarter of 2016 was barred by prescription. Citing Section 194(a) of the Local Government Code, the CTA said that cities are given five years from the date local taxes become due to issue an assessment, the court said.

The CTA said: Quezon City local business taxes shall be computed based on the taxpayer's gross sales or receipts for the preceding calendar year; these shall accrue on the first day of January of each year and shall be payable within the first 20 days of each subsequent quarter. In other words, the five-year period to assess 2016 local business taxes shall be reckoned from the deadline for each quarterly payment.

Since the city government issued an Assessment Report on June 4, 2021, the right to assess local business taxes relative to the first quarter of 2016 had already prescribed.

The 19-page decision was written by Associate Justice Marian Ivy F. Reyes-Fajardo with the concurrence of Associate Justices Catherine T. Manahan and Henry S. Angeles.