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G.R.No.L36081

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RepublicofthePhilippines
SUPREMECOURT
Manila
THIRDDIVISION
G.R.No.L36081April24,1989
PROGRESSIVEDEVELOPMENTCORPORATION,petitioner,
vs.
QUEZONCITY,respondent.
Jalandoni,Herrera,DelCastillo&Associatesforpetitioner.

FELICIANO,J.:
On24December1969,theCityCouncilofrespondentQuezonCityadoptedOrdinanceNo.7997,Seriesof1969,
otherwiseknownastheMarketCodeofQuezonCity,Section3ofwhichprovided:
Sec.3.SupervisionFee.Privatelyownedandoperatedpublicmarketsshall submit monthly to the
Treasurer'sOffice,acertifiedlistofstallholdersshowingtheamountofstallfeesorrentalspaiddaily
byeachstallholder,...andshallpay10%ofthegrossreceiptsfromstallrentals to the City, ... , as
supervision fee. Failure to submit said list and to pay the corresponding amount within the period
herein prescribed shall subject the operator to the penalties provided in this Code ... including
revocationofpermittooperate.....1
The Market Code was thereafter amended by Ordinance No. 9236, Series of 1972, on 23 March 1972, which
reads:
SECTION1.Thereisherebyimposedafivepercent(5%)taxongrossreceiptsonrentalsorlease
ofspaceinprivatelyownedpublicmarketsinQuezonCity.
xxxxxxxxx
SECTION 3. For the effective implementation of this Ordinance, owners of privately owned public
markets shall submit ... a monthly certified list of stallholders of lessees of space in their markets
showing...:
a.nameofstallholderorlessee
b.amountofrental
c.periodoflease,indicatingthereinwhetherthesameisonadaily,monthlyoryearlybasis.
xxxxxxxxx
SECTION4....Incaseofconsistentfailuretopaythepercentagetaxforthe(3)consecutivemonths,
the City shall revoke the permit of the privatelyowned market to operate and/or take any other
appropriate action or remedy allowed by law for the collection of the overdue percentage tax and
surcharge.
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On15July1972,petitionerProgressiveDevelopmentCorporation,ownerandoperatorofapublicmarketknown
as the "Farmers Market & Shopping Center" filed a Petition for Prohibition with Preliminary Injunction against
respondentbeforethethenCourtofFirstInstanceofRizalonthegroundthatthesupervisionfeeorlicensetax
imposedbytheabovementionedordinancesisinrealityataxonincomewhichrespondentmaynotimpose,the
samebeingexpresslyprohibitedbyRepublicActNo.2264,asamended.
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In its Answer, respondent, through the City Fiscal, contended that it had authority to enact the questioned
ordinances, maintaining that the tax on gross receipts imposed therein is not a tax on income. The Solicitor
General also filed an Answer arguing that petitioner, not having paid the ten percent (10%) supervision fee
prescribed by Ordinance No. 7997, had no personality to question, and was estopped from questioning, its
validitythatthetaxongrossreceiptswasnotataxonincomebutoneimposedfortheenjoymentoftheprivilege
toengageinaparticulartradeorbusinesswhichwaswithinthepowerofrespondenttoimpose.
InitsSupplementalPetitionof23September1972,petitionerallegedhavingpaidunderprotestthefivepercent
(5%) tax under Ordinance No. 9236 for the months of June to September 1972. Two (2) days later, on 25
September 1972, petitioner moved for judgment on the pleadings, alleging that the material facts had been
admittedbytheparties.
On21October1972,thelowercourtdismissedthepetition,ruling 3 that the questioned imposition is not a tax on income, but
ratheraprivilegetaxorlicensefeewhichlocalgovernments,likerespondent,areempoweredtoimposeandcollect.

Havingfailedtoobtainreconsiderationofsaiddecision,petitionercametousonthepresentPetitionforReview.
Theonlyissuetoberesolvedhereiswhetherthetaximposedbyrespondentongrossreceiptsofstallrentalsis
properlycharacterizedaspartakingofthenatureofanincometaxor,alternatively,ofalicensefee.
WebeginwiththefactthatSection12,ArticleIIIofRepublicActNo.537,otherwiseknownastheRevisedCharter
ofQuezonCity,authorizestheCityCouncil:
xxxxxxxxx
(b)Toprovideforthelevyandcollectionoftaxesandothercityrevenuesandapplythesametothe
paymentofcityexpensesinaccordancewithappropriations.
(c)Totax,fixthelicensefee,andregulatethebusinessofthefollowing:
...preparationandsaleofmeat,poultry,fish,game,butter,cheese,lardvegetables,breadandother
provisions.4
ThescopeoflegislativeauthorityconferredupontheQuezonCityCouncilinrespectofbusinesseslikethatofthe
petitioner,iscomprehensive:thegrantofauthorityisnotonly"[to]regulate"and"fixthelicensefee,"butalso"to
tax"5
Moreover, Section 2 of Republic Act No. 2264, as amended, otherwise known as the Local Autonomy Act,
providesthat:
Anyprovisionoflawtothecontrarynotwithstanding,allcharteredcities,municipalitiesandmunicipal
districtsshallhaveauthoritytoimposemunicipallicensetaxesorfeesuponpersonsengagedinany
occupation or business, or exercising privileges in chartered cities, municipalities or municipal
districtsbyrequiringthemtosecurelicensesatratesfixedbythemunicipalboardorcitycouncilof
the city, the municipal council of the municipality, or the municipal district council of the municipal
districttocollectfeesandchargesforservicerenderedbythecity,municipalityormunicipaldistrict
to regulate and impose reasonable fees for services rendered in connection with any business,
profession or occupation being conducted within the city, municipality or municipal district and
otherwisetolevyforpublicpurposesjustanduniformtaxeslicensesorfees:...6
ItisnowsettledthatRepublicActNo.2264confersuponlocalgovernmentsbroadtaxingauthorityextendingto
almost "everything, excepting those which are mentioned therein," provided that the tax levied is "for public
purposes,justanduniform,"doesnottransgressanyconstitutionalprovisionandisnotrepugnanttoacontrolling
statute.7BoththeLocalAutonomyActandtheCharterofrespondentclearlyshowthatrespondentisauthorizedtofixthelicensefeecollectiblefrom
andregulatethebusinessofpetitionerasoperatorofaprivatelyownedpublicmarket.

Petitioner,however,insistthatthe"supervisionfee"collectedfromrentals,beingareturnfromcapitalinvestedin
theconstructionoftheFarmersMarket,practicallyoperatesasataxonincome,oneofthoseexpresslyexcepted
fromrespondent'staxingauthority,andthusbeyondthelatter'scompetence.PetitionercitesthesameSection2
oftheLocalAutonomyActwhichgoesontostate:8
... Provided, however, Thatnocity,municipalityormunicipaldistrict may levy or impose any of the
following:
xxxxxxxxx
(g)Taxesonincomeofanykindwhatsoever
Theterm"tax"frequentlyappliestoallkindsofexactionsofmonieswhichbecomepublicfunds.Itisoftenloosely
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usedtoincludeleviesforrevenueaswellasleviesforregulatorypurposessuchthatlicensefeesarefrequently
calledtaxesalthoughlicensefeeisalegalconceptdistinguishablefromtax:theformerisimposedintheexercise
ofpolicepowerprimarilyforpurposesofregulation,whilethelatterisimposedunderthetaxingpowerprimarily
forpurposesofraisingrevenues.9Thus,ifthegeneratingofrevenueistheprimarypurposeandregulationismerelyincidental,theimposition
isataxbutifregulationistheprimarypurpose,thefactthatincidentallyrevenueisalsoobtaineddoesnotmaketheimpositionatax.10

Tobeconsideredalicensefee,theimpositionquestionedmustrelatetoanoccupationoractivitythatsoengages
the public interest in health, morals, safety and development as to require regulation for the protection and
promotionofsuchpublicinteresttheimpositionmustalsobearareasonablerelationtotheprobableexpensesof
regulation,takingintoaccountnotonlythecostsofdirectregulationbutalsoitsincidentalconsequencesaswell.

11 When an activity, occupation or profession is of such a character that inspection or supervision by public officials is reasonably necessary for the
safeguardingandfurtheranceofpublichealth,moralsandsafety,orthegeneralwelfare,thelegislaturemayprovidethatsuchinspectionorsupervisionor
otherformofregulationshallbecarriedoutattheexpenseofthepersonsengagedinsuchoccupationorperformingsuchactivity,andthatnooneshall
engage in the occupation or carry out the activity until a fee or charge sufficient to cover the cost of the inspection or supervision has been paid. 12
Accordingly,achargeofafixedsumwhichbearsnorelationatalltothecostofinspectionandregulationmaybeheldtobeataxratherthananexercise
ofthepolicepower.13

Inthecaseatbar,the"FarmersMarket&ShoppingCenter"wasbuiltbyvirtueofResolutionNo.7350passedon
30January1967byrespondents'slocallegislativebodyauthorizingpetitionertoestablishandoperateamarket
withapermittosellfreshmeat,fish,poultryandotherfoodstuffs. 14Thesameresolutionimposeduponpetitioner,asacondition
forcontinuousoperation,theobligationto"abidebyandcomplywiththeordinances,rulesandregulationsprescribedfortheestablishment,operationand
maintenanceofmarketsinQuezonCity."15

The"Farmers'MarketandShoppingCenter"beingapublicmarketinthe'senseofamarketopentoandinviting
thepatronageofthegeneralpublic,eventhoughprivatelyowned,petitioner'soperationthereofrequiredalicense
issuedbytherespondentCity,theissuanceofwhich,applyingthestandardssetforthabove,wasdoneprincipally
in the exercise of the respondent's police power. 16 The operation of a privately owned market is, as correctly noted by the Solicitor
General,equivalenttoorquitethesameastheoperationofagovernmentownedmarketbothareestablishedfortherenditionofservicetothegeneral
public, which warrants close supervision and control by the respondent City, 17 for the protection of the health of the public by insuring, e.g., the
maintenance of sanitary and hygienic conditions in the market, compliance of all food stuffs sold therein with applicable food and drug and related
standards,forthepreventionoffraudandimpositionuponthebuyingpublic,andsoforth.

Webelieveandsoholdthatthefivepercent(5%)taximposedinOrdinanceNo.9236constitutes,notatax on
income, not a city income tax (as distinguished from the national income tax imposed by the National Internal
RevenueCode)withinthemeaningofSection2(g)oftheLocalAutonomyAct,butratheralicensetaxorfeefor
theregulationofthebusinessinwhichthepetitionerisengaged.Whileitistruethattheamountimposedbythe
questioned ordinances may be considered in determining whether the exaction is really one for revenue or
prohibition, instead of one of regulation under the police power, 18 it nevertheless will be presumed to be reasonable. Local'
governmentsareallowedwidediscretionindeterminingtheratesofimposablelicensefeesevenincasesofpurelypolicepowermeasures,intheabsence
of proof as to particular municipal conditions and the nature of the business being taxed as well as other detailed factors relevant to the issue of
arbitrarinessorunreasonablenessofthequestionedrates.19Thus:

[A]nordinancecarrieswithitthepresumptionofvalidity.Thequestionofreasonablenessthoughis
opentojudicialinquiry.Muchshouldbeleftthustothediscretionofmunicipalauthorities.Courtswill
go slow in writing off an ordinance as unreasonable unless the amount is so excessive as to be
prohibitory,arbitrary,unreasonable,oppressive,orconfiscatory.Arulewhichhasgainedacceptance
isthatfactorsrelevanttosuchaninquiryarethemunicipalconditionsasawholeandthenatureof
thebusinessmadesubjecttoimposition.20
Petitioner has not shown that the rate of the gross receipts tax is so unreasonably large and excessive and so
grossly disproportionate to the costs of the regulatory service being performed by the respondent as to compel
theCourttocharacterizetheimpositionasarevenuemeasureexclusively.Thelowercourtcorrectlyheldthatthe
grossreceiptsfromstallrentalshavebeenusedonlyasabasisforcomputingthefeesortaxesduerespondent
to cover the latter's administrative expenses, i.e., for regulation and supervision of the sale of foodstuffs to the
public.Theuseofthegrossamountofstallrentalsasbasisfordeterminingthecollectibleamountoflicensetax,
doesnotbyitself,upontheonehand,convertorrenderthelicensetaxintoaprohibitedcitytaxonincome.Upon
theotherhand,ithasnotbeensuggestedthatsuchbasishasnoreasonablerelationshiptotheprobablecostsof
regulation and supervision of the petitioner's kind of business. For, ordinarily, the higher the amount of stall
rentals, the higher the aggregate volume of foodstuffs and related items sold in petitioner's privately owned
marketandthehigherthevolumeofgoodssoldinsuchprivatemarket,thegreatertheextentandfrequencyof
inspectionandsupervisionthatmaybereasonablyrequiredintheinterestofthebuyingpublic.Moreover,what
westartedwithshouldberecalledhere:theauthorityconferredupontherespondent'sCityCouncilisnotmerely
"toregulate"butalsoembracesthepower"totax"thepetitioner'sbusiness.
Finally,petitionerarguesthatrespondentiswithoutpowertoimposeagrossreceiptstaxforrevenuepurposes
absentanexpressgrantfromthenationalgovernment.Asageneralrule,theremustbeastatutorygrantfora
localgovernmentunittoimposelawfullyagrossreceiptstax,thatunitnothavingtheinherentpoweroftaxation.
21Therule,however,findsnoapplicationintheinstantcasewherewhatisinvolvedisanexerciseof,principally,theregulatorypoweroftherespondent
Cityandwherethatregulatorypowerisexpresslyaccompaniedbythetaxingpower.

ACCORDINGLY, the Decision of the then Court of First Instance of Rizal, Quezon City, Branch 18, is hereby
AFFIRMEDandtheCourtResolvedtoDENYthePetitionforlackofmerit.
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SOORDERED.
Fernan,C.J.,Gutierrez,Jr.,BidinandCortes,JJ.,concur.

Footnotes
1Rollo,p.102Italicssupplied.
2RecordsonAppeal,pp.1415Underscoringsupplied.
3Ibid,pp.5868.
446OfficialGazette4732(1950)Italicssupplied.CertainportionsoftheCharterhadbeen
amendedbyR.A.5541,65OfficialGazette,p.7126(1968).Theamendatorylaw,however,didnot
introduceanychangetotheportionquotedabove.
5See,inthisconnection,PacificCommercialCo.v.Romualdez,etal.,49Phil.917(1927).
6Section2ofR.A.2264hasbeenamendedbyR.A.4497,62OfficialGazette,p.8616(1966)
Underscoringsupplied.R.A.2264wasfurtheramendedbyP.D.No.145,69OfficialGazette,p2418
(1973),whichhoweverdidnotaffecttheabovequotedportion.
7NinBayMiningCo.v.MunicipalityofRoxas,14SCRA660(1965)SeealsoC.N.Hodgesv.
MunicipalBoardoftheCityofIloilo,et.al.,19SCRA28(1967)andVillanuevav.CityofIloilo,26
SCRA578(1968).
8supra,note6underscoringsupplied.
9CompaniaGeneraldeTabacosdeFilipinasv.CityofManila,118Phil.3838SCRA370(1963)
PacificCommercialCo.v.Romualdez,49Phil,917(1927).
10ManilaElectricCompanyv.ElAuditorGeneralyLaComision
deServiciosPublicos,73Phil.133(1941)Republicv.PhilippineRabbitBusLines,32
SCRA215(1970).
11CityofIloilov.Villanueva,105Phil.337(1959).
12ManilaElectricCompanyvs.ElAuditorGeneralylaComisiondeServiciosPublicos,supra,at
134135.
13SerafinSaldanav.CityofIloilo,104Phil,28.(1958).
14RecordonAppeal,p.10.
15Ibid.
16InCityofJacksonville,etal.v.Ledwith7So.at892[1890]26Fla.163,itwasheldthatapermit
toestablishamarketwas:
"fromthenatureofamarket,alicense.Itisapermittodosomethingwhichcouldnotbe
donebeforewithoutsuchpermit,andhenceisthegrantofalicense.xxx[T]hepower
toestablishmarketsiswithinthepolicepower,and[thusis]xxxthepowertocharge,
asapoliceregulation,afeeforthepermitorlicenseforsellingmeatsorvegetables
therein,xxx.Thefee,however,isnotataxforrevenue,butachargeunderthepolice
power,anditsamountistobecontrolledbytheprinciplesgoverninginsuchcases."
17BrieffortheRespondent,pp.67Rollo,p.172.
18E.g.,Calalangv.LorenzoandVillar,97Phil.212(1955).
19Procter&GamblePMCv.MunicipalityofJagna94SCRA894(1979)NorthernPhil.TobaccoCo.
v.MunicipalityofAgoo,31SCRA304(1970)andSanMiguelBrewery,Inc.v.CityofCebu,43SCRA
275(1972).
20VictoriasMillingCo.,Inc.v.MunicipalityofVictorias,NegrosOccidental,25SCRA192at205
(1968),citing9McQuillinMunicipalCorporations,3rded.,at65.
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InAtkinsv.Philips,8So.at431(1890)26Fla.281,theSupremeCourtofFloridaheld:
21CityofOzamisv.Lumapas,65SCRA33(1975).
TheLawphilProjectArellanoLawFoundation

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