PEPSI COLA BOTTLING CO. v.

MUNICIPALITY OF TANAUAN
February 27, 1976| Martin, J. | Appeal | Taxing Power of LGUs
PETITIONER: PEPSI COLA BOTTLING CO.
RESPONDENT: MUNICIPALITY OF TANAUAN
SUMMARY: The Pepsi Cola Bottling Company commenced a complaint for the court to declare the Local Autonomy Act
unconstitutional as an undue delegation of taxing authority as well as to declare Ordinances Nos 23 and 27 of municipality of
Tanauan, Leyte. Municipal Ordinance No. 23 (9/25/1962) levies and collects from softdrinks producers and manufacturers a tax of
1/16 of a centavo for every bottle of softdrink corked. Municipal ordinance no. 27 (10/28/1962) levies and collects on softdrinks
produced or manufactured within the territorial jurisdiction of this municipality a tax of 1 centavo on each gallon of volume
capacity. The taxes imposed are denominated as municipal production tax. CFI-Leyte dismissed the complaint. Court held that
Under the New Constitution, local governments are granted the autonomous authority to create their own sources of revenue
and to levy taxes. Thus, legislative powers may be delegated to local governments in respect of matters of local concern. The
intention of the Municipal Council of Tanauan in enacting Ordinance No. 27 is thus clear: it was intended as a plain substitute for
the prior ordinance no. 23 and operates as a repeal of the latter, even without words to that effect. The tax is not a percentage
tax as the volume capacity of the taxpayers production of softdrinks is considered solely for purposes of determining the tax rate
on the products but there is no set ratio between volume of sales and amount of the tax. Nor can the tax levied be treated as a
specific tax. Softdrink is not one of those specified articles.

DOCTRINE: Municipalities may be permitted to tax subjects which for reasons of public policy the State has not deemed wise to
tax for more general purposes. An increase in the tax alone would not support the claim that the tax is oppressive, unjust and
confiscatory. Municipal corporations are allowed much discretion in determining the rates of imposable taxes. This is in line with
the constitutional policy of according the widest possible autonomy to local governments in matters of local taxation. Unless the
amount is so excessive as to be prohibitive, courts will go slow in writing off an ordinance as unreasonable.

FACTS: without being expressly conferred by the

In 1963, Plaintiff-appellant Pepsi-Cola commenced a
complaint with preliminary injunction to declare Section 2 of
Republic Act No. 2264, otherwise known as the Local
Autonomy Act, unconstitutional as an undue delegation of
taxing authority as well as to declare Ordinances Nos. 23 and
27 denominated as "municipal production tax" of the
Municipality of Tanauan, Leyte, null and void.
The Municipal Ordinance 23 levies and collects from
soft drinks producers and manufacturers a tax of one-sixteenth
(1/16) of a centavo for every bottle of soft drink corked, and
Ordinance 27 levies and collects on soft drinks produced or
manufactured within the territorial jurisdiction of this
municipality a tax of ONE CENTAVO (P0.01) on each gallon (128
fluid ounces, U.S.) of volume capacity. Aside from the undue
delegation of authority, appellant contends that it allows
double taxation, and that the subject ordinances are void for
they impose percentage or specific tax.
The tax imposed in both Ordinances Nos. 23 and 27 is
denominated as "municipal production tax.'
ISSUE/S:
1. Is Section 2, Republic Act No. 2264 an undue delegation of
power, confiscatory and oppressive?
2. Do Ordinances Nos. 23 and 27 constitute double taxation
and impose percentage or specific taxes?
3. Are Ordinances Nos. 23 and 27 unjust and unfair?
RATIO:
1. No. The power of taxation is an essential and
inherent attribute of sovereignty, belonging as a
matter of right to every independent government,
people. Under the New Constitution, local
governments are granted the autonomous authority
to create their own sources of
revenue and to levy taxes. Section 5, Article XI
provides: Each local government unit shall have the
power to create its sources of revenue and to levy
taxes, subject to such limitations as may be provided
by law. Thus, legislative powers may be delegated
to local governments in respect of matters of local
concern.
2. No. The intention of the Municipal Council of
Tanauan in enacting Ordinance No. 27 is thus clear:
it was intended as a plain substitute for the prior
ordinance no. 23 and operates as a repeal of the
latter, even without words to that effect. The tax is
not a percentage tax as the volume capacity of the
taxpayers production of softdrinks is considered
solely for purposes of determining the tax rate on
the products but there is no set ratio between
volume of sales and amount of the tax. Nor can the
tax levied be treated as a specific tax. Softdrink is not
one of those specified articles.
3. No. Municipal corporations are allowed much
discretion in determining the rates of imposable
taxes. This is in line with the constitutional policy of
according the widest possible autonomy to local
governments in matters of local taxation, an aspect
that is given expression in the Local Tax Code.