By: Ma. Ricca Pearl S. Sulit

In Smart Communications Inc. v. Municipality of Malvar, Batangas (G.R. No. 204429, February 18, 2014), the Supreme Court explained that if the purpose of a local government imposition is to regulate an activity, the same shall not be considered a tax.

Smart Communications, Inc. (Smart) is a domestic corporation engaged in the business of providing telecommunications services to the general public. In the course of its business, Smart constructed a telecommunications tower within the territorial jurisdiction of the Municipality of Malvar, Batangas (Malvar).

Malvar passed Ordinance No. 18 entitled “An Ordinance Regulating the Establishment of Special Projects.” Thereafter, Smart received from the Permit and Licensing Division of Malvar an assessment letter for the construction of its telecommunications tower.

Smart challenged the validity of said ordinance upon which the assessment was based, arguing that the “fees” imposed under the ordinance are actually taxes since they are not regulatory, but revenue-raising.

In affirming the validity of the ordinance, the Supreme Court explained that consistent with the constitutional mandate, the Local Government Code(LGC) grants municipalities the power to levy taxes, fees and charges not otherwise levied by provinces. Section 147 of the same law, allows municipalities to impose and collect such reasonable fees and charges on business and occupation and on the practice of any profession or calling, commensurate with the cost of regulation, inspection and licensing before any person may engage in such business or occupation, or practice such profession or calling.

Under the LGC, the term “charges” refer to pecuniary liability, as rents or fees against persons or property, while the term “fee” means “a charge fixed by law or ordinance for the regulation or inspection of a business or activity.”

The High Tribunal pointed out that in the whereas clauses of the assailed ordinance, the primary purpose is to regulate the “placing, stringing, attaching, installing, repair and construction of all gas mains, electric, telegraph and telephone wires, conduits, meters and other apparatus” listed therein, which included telecommunications tower.

Evidently, the purpose of the ordinance is to regulate the enumerated activities particularly related to the construction and maintenance of various structures. Thus, the fees in the ordinance are not impositions on the building or structure itself but on the activity subject of government regulation, such as the installation and construction of the structures.

The Court ruled that since the main purpose of the ordinance is to regulate certain construction activities of the identified special projects, which included “cell sites” or telecommunications towers, the fees imposed in the Ordinance are primarily regulatory in nature, and not primarily revenue-raising. While the fees may contribute to the revenues of the Municipality, this effect is merely incidental.

The Supreme Court reiterated its ruling in Victorias Milling Co., Inc. v. Municipality of Victorias (134 Phil. 180 [1968]) that the purpose and effect of the imposition determine whether it is a tax or a fee, and that the lack of any standards for such imposition gives the presumption that the same is a tax.

Further, the High Court said that, as in the case of Progressive Development Corporation v. Quezon City (254 Phil. 635, 643 [1989]), “if the generating of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that incidentally revenue is also obtained does not make the imposition a tax.” LF©.


(April 4, 2014)

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