Pepsi Cola Bottling Company vs Municipality of Tanauan

69 SCRA 460 Taxation Delegation to Local Governments Double Taxation

Pepsi Cola has a bottling plant in the Municipality of Tanauan, Leyte. In September 1962, the
Municipality approved Ordinance No. 23 which levies and collects from soft drinks producers and
manufacturers a tai of one-sixteenth (1/16) of a centavo for every bottle of soft drink corked.
In December 1962, the Municipality also approved Ordinance No. 27 which 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 of volume capacity.
Pepsi Cola assailed the validity of the ordinances as it alleged that they constitute double taxation in two
instances: a) double taxation because Ordinance No. 27 covers the same subject matter and impose
practically the same tax rate as with Ordinance No. 23, b) double taxation because the two ordinances
impose percentage or specific taxes.
Pepsi Cola also questions the constitutionality of Republic Act 2264 which allows for the delegation of
taxing powers to local government units; that allowing local governments to tax companies like Pepsi
Cola is confiscatory and oppressive.
The Municipality assailed the arguments presented by Pepsi Cola. It argued, among others, that only
Ordinance No. 27 is being enforced and that the latter law is an amendment of Ordinance No. 23, hence
there is no double taxation.
ISSUE: Whether or not there is undue delegation of taxing powers. Whether or not there is double
taxation.
HELD: No. There is no undue delegation. The Constitution even allows such delegation. Legislative
powers may be delegated to local governments in respect of matters of local concern. By necessary
implication, the legislative power to create political corporations for purposes of local self-government
carries with it the power to confer on such local governmental agencies the power to tax. 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. Withal, it cannot be said that Section 2 of Republic Act No. 2264 emanated from beyond the sphere
of the legislative power to enact and vest in local governments the power of local taxation.
There is no double taxation. The argument of the Municipality is well taken. Further, Pepsi Colas
assertion that the delegation of taxing power in itself constitutes double taxation cannot be merited. It
must be observed that the delegating authority specifies the limitations and enumerates the taxes over
which local taxation may not be exercised. The reason is that the State has exclusively reserved the same
for its own prerogative. Moreover, double taxation, in general, is not forbidden by our fundamental law
unlike in other jurisdictions. Double taxation becomes obnoxious only where the taxpayer is taxed twice
for the benefit of the same governmental entity or by the same jurisdiction for the same purpose, but not
in a case where one tax is imposed by the State and the other by the city or municipality.