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VOL. 172, APRIL 24, 1989 629

Progressive Development Corporation vs. Quezon City

*
G.R. No. 36081. April 24, 1989.

PROGRESSIVE DEVELOPMENT CORPORATION, petitioner vs.

QUEZON CITY, respondent.

Taxation; Local Governments; License Fee as Distinguished from Tax;

The imposition is a tax, if its primary purpose is to generate revenue, and
regulation is merely incidental; but if regulation is the primary purpose, the
fact that incidentally revenue is also obtained does not make the imposition
a tax.—–The term “tax” frequently applies to all kinds of exactions of
monies which become public funds. It is often loosely used to include levies
for revenue as well as levies for regulatory purposes such that license fees
are frequently called taxes although license fee is a legal concept
distinguishable from tax: the former is imposed in the exercise of police
power primarily for purposes of regulation, while the latter is imposed under
the taxing power primarily for purposes of raising revenues. Thus, if the
generating of revenue is the primary purpose and regulation is merely
incidental,

________________

* THIRD DIVISION.

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630 SUPREME COURT REPORTS ANNOTATED

Progressive Development Corporation vs. Quezon City

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.
Same; Same; Same; Same; A charge of a fixed sum which bears no
relation at all to the cost of inspection and regulation may be considered a
tax.—–To be considered a license fee, the imposition questioned must relate
to an occupation or activity that so engages the public interest in health,
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morals, safety and development as to require regulation for the protection

and promotion of such public interest; the imposition must also bear a
reasonable relation to the probable expenses of regulation, taking into
account not only the cost of direct regulation but also its incidental
consequences as well. When an activity, occupation or profession is of such
a character that inspection or supervision by public officials is reasonably
necessary for the safeguarding and furtherance of public health, morals and
safety, or the general welfare, the legislature may provide that such
inspection or supervision or other form of regulation shall be carried out at
the expense of the persons engaged in such occupation or performing such
activity, and that no one shall 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. Accordingly, a charge of a fixed sum which bears
no relation at all to the cost of inspection and regulation may be held to be a
tax rather than an exercise of the police power.
Same; Same; Same; Same; Police Power; The 5% tax imposed in
Ordinance No. 9236 constitutes a license tax or fee for the regulation of
petitioner’s business and not a tax on income.—–We believe and so hold
that the five percent (5%) tax imposed in Ordinance No. 9236 constitutes,
not a tax on income, not a city income tax (as distinguished from the
national income tax imposed by the National Internal Revenue Code) within
the meaning of Section 2 (g) of the Local Autonomy Act, but rather a
license tax or fee for the regulation of the business in which the petitioner is
engaged. While it is true that the amount imposed by the 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, it nevertheless will be presumed to be reasonable.
Same; Same; Same; Same; Same; Local Ordinances; The
reasonableness of a local taxing ordinance may be determined from the
particular municipal conditions, and the nature of the business being
subjected to the imposition.—–Local governments are allowed wide discre-

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Progressive Development Corporation vs. Quezon City

tion in determining the rates of imposable license fees even in cases of

purely police power measures, in the absence 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 arbitrariness or
unreasonableness of the questioned rates. Thus: “[A]n ordinance carries
with it the presumption of validity. The question of reasonableness though is
open to judicial inquiry. Much should be left thus to the discretion of
municipal authorities. Courts will go slow in writing off an ordinance as

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unreasonable unless the amount is so excessive as to be prohibitory,

arbitrary, unreasonable, oppressive, or confiscatory. A rule which has gained
acceptance is that factors relevant to such an inquiry are the municipal
conditions as a whole and the nature of the business made subject to
imposition.”
Same; Same; Same; Same; As a general rule, there must be a statutory
grant before a local government unit may lawfully impose a gross receipts
tax.—–Finally, petitioner argues that respondent is without power to impose
a gross receipts tax for revenue purposes absent an express grant from the
national government. As a general rule, there must be a statutory grant for a
local government unit to impose lawfully a gross receipts tax, that unit not
having the inherent power of taxation. The rule, however, finds no
application in the instant case where what is involved is an exercise of,
principally, the regulatory power of the respondent City and where that
regulatory power is expressly accompanied by the taxing power.

PETITION to review the decision of the Court of First Instance of

Rizal, Br. 18, Quezon City.

The facts are stated in the opinion of the Court.

     Jalandoni, Herrera, Del Castillo & Associates for petitioner.

FELICIANO, J.:

On 24 December 1969, the City Council of respondent Quezon City

adopted Ordinance No. 7997, Series of 1969, otherwise known as
the Market Code of Quezon City, Section 3 of which provided:

“Sec. 3. Supervision Fee.—–Privately owned and operated public markets

shall submit monthly to the Treasurer’s Office, a certified list of stallholders
showing the amount of stall fees or rentals paid daily by each stallholder, x
x x and shall pay 10% of the gross receipts from stall

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Progressive Development Corporation vs. Quezon City

rentals to the City, x x x, 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 x x x including
1
revocation of permit to operate. x x x.”

The Market Code was thereafter amended by Ordinance No. 9236,

Series of 1972, on 23 March 1972, which reads:

SECTION 1. There is hereby imposed a five percent (5%) tax on gross

receipts on rentals or lease of space in privately-owned public markets in
Quezon City.

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x x x     x x x     x x x
SECTION 3. For the effective implementation of this Ordinance, owners
of privately owned public markets shall submit x x x a monthly certified list
of stallholders of lessees of space in their markets showing x x x:

a. name of stallholder or lessee;

b. amount of rental;
c. period of lease, indicating therein whether the same is on a daily,
monthly or yearly basis.

x x x     x x x     x x x
SECTION 4. x x x In case of consistent failure to pay the percentage tax
for three (3) consecutive months, the City shall revoke the permit of the
privately-owned 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.
2
x x x     x x x     x x x.”

On 15 July 1972, petitioner Progressive Development Corporation,

owner and operator of a public market known as the “Farmers
Market & Shopping Center” filed a Petition for Prohibition with
Preliminary Injunction against respondent before the then Court of
First Instance of Rizal on the ground that the supervision fee or
license tax imposed by the above-mentioned ordinances is in reality
a tax on income which respondent may not impose, the same being
expressly prohibited by Republic Act No. 2264, as amended.

_______________

1 Rollo, p. 102; Italics supplied.

2 Records on Appeal, pp. 14-15; Underscoring supplied.

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Progressive Development Corporation vs. Quezon City

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 validity; that the tax on gross receipts
was not a tax on income but one imposed for the enjoyment of the
privilege to engage in a particular trade or business which was
within the power of respondent to impose.

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In its Supplemental Petition of 23 September 1972, petitioner

alleged having paid under protest the five percent (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 admitted
by the parties.
On 21 October 1972, the lower court dismissed the petition,
3
ruling that the questioned imposition is not a tax on income, but
rather a privilege tax or license fee which local governments, like
respondent, are empowered to impose and collect.
Having failed to obtain reconsideration of said decision,
petitioner came to us on the present Petition for Review.
The only issue to be resolved here is whether the tax imposed by
respondent on gross receipts of stall rentals is properly characterized
as partaking of the nature of an income tax or, alternatively, of a
license fee.
We begin with the fact that Section 12, Article III of Republic
Act No. 537, otherwise known as the Revised Charter of Quezon
City, authorizes the City Council:

“x x x     x x x     x x x

(b) To provide for the levy and collection of taxes and other city
revenues and apply the same to the payment of city expenses in
accordance with appropriations.
(c) To tax, fix the license fee, and regulate the business of the
following:

________________

3 Ibid, pp. 58-68.

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x x x preparation and sale of meat, poultry, fish, game, butter, cheese,

4
lard, vegetables, bread and other provisions.”

The scope of legislative authority conferred upon the Quezon City

Council in respect of businesses like that of the petitioner, is
comprehensive: the grant of authority is not only” [to] regulate” and
5
“fix the license fee,” but also “to tax.”
Moreover, Section 2 of Republic Act No. 2264, as amended,
otherwise known as the Local Autonomy Act, provides that:

“Any provision of law to the contrary notwithstanding, all chartered cities,

municipalities and municipal districts shall have authority to impose

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municipal license taxes or fees upon persons engaged in any occupation or

business, or exercising privileges in chartered cities, municipalities or
municipal districts by requiring them to secure licenses at rates fixed by the
municipal board or city council of the city, the municipal council of the
municipality, or the municipal district council of the municipal district; to
collect fees and charges for service rendered by the city, municipality or
municipal district; 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 otherwise
6
to levy for public purposes just and uniform taxes licenses or fees: x x x”

It is now settled that Republic Act No. 2264 confers upon local
governments broad taxing authority extending to almost
“everything, excepting those which are mentioned therein,”
provided that the tax levied is “for public purposes, just and
uniform,” does not transgress any constitutional provision and

_______________

4 46 Official Gazette 4732 (1950); Italics supplied. Certain portions of the Charter
had been amended by R.A. 5541, 65 Official Gazette, p. 7126 (1968). The
amendatory law, however, did not introduce any change to the portion quoted above.
5 See, in this connection, Pacific Commercial Co. v. Romualdez, et al., 49 Phil.
917 (1927).
6 Section 2 of R.A. 2264 has been amended by R.A. 4497, 62 Official Gazette, p.
8616 (1966); Underscoring supplied. R.A 2264 was further amended by P.D. No. 145,
69 Official Gazette, p. 2418 (1973), which however did not affect the abovequoted
portion.

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7
is not repugnant to a controlling statute. Both the Local Autonomy
Act and the Charter of respondent clearly show that respondent is
authorized to fix the license fee collectible from and regulate the
business of petitioner as operator of a privately-owned public
market.
Petitioner, however, insists that the “supervision fee” collected
from rentals, being a return from capital invested in the construction
of the Farmers Market, practically operates as a tax on income, one
of those expressly excepted from respondent’s taxing authority, and
thus beyond the latter’s competence. Petitioner cites the same
8
Section 2 of the Local Autonomy Act which goes on to state:

“x x x Provided, however, That no city, municipality or municipal district

may levy or impose any of the following:

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x x x     x x x     x x x
‘(g) Taxes on income of any kind whatsoever;’ ”

The term “tax” frequently applies to all kinds of exactions of monies

which become public funds. It is often loosely used to include levies
for revenue as well as levies for regulatory purposes such that
license fees are frequently called taxes although license fee is a legal
concept distinguishable from tax: the former is imposed in the
exercise of police power primarily for purposes of regulation, while
the latter is imposed 9under the taxing power primarily for purposes
of raising revenues. Thus, 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
10
revenue is also obtained does not make the imposition a
tax.

_______________

7 Nin Bay Mining Co. v. Municipality of Roxas, 14 SCRA 660 (1965); See also
C.N. Hodges v. Municipal Board of the City of Iloilo, et. al., 19 SCRA 28 (1967); and
Villanueva v. City of Iloilo, 26 SCRA 578 (1968).
8 supra, note 6; underscoring supplied.
9 Compañia General de Tabacos de Filipinas v. City of Manila, 118 Phil. 383; 8
SCRA 370 (1963); Pacific Commercial Co. v. Romualdez, 49 Phil. 917 (1927).
10 Manila Electric Company v. El Auditor General y La Comision

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To be considered a license fee, the imposition questioned must relate

to an occupation or activity that so engages the public interest in
health, morals, safety and development as to require regulation for
the protection and promotion of such public interest; the imposition
must also bear a reasonable relation to the probable expenses of
regulation, taking into account not only the costs 11
of direct regulation
but also its incidental consequences as well. When an activity,
occupation or profession is of such a character that inspection or
supervision by public officials is reasonably necessary for the
safeguarding and furtherance of public health, morals and safety, or
the general welfare, the legislature may provide that such inspection
or supervision or other form of regulation shall be carried out at the
expense of the persons engaged in such occupation or performing
such activity, and that no one shall engage in the occupation or carry
out the activity until a fee or charge sufficient
12
to cover the cost of the
inspection or supervision has been paid. Accordingly, a charge of a
fixed sum which bears no relation at all to the cost of inspection and

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regulation may 13
be held to be a tax rather than an exercise of the
police power.
In the case at bar, the “Farmers Market & Shopping Center” was
built by virtue of Resolution No. 7350 passed on 30 January 1967 by
respondents’s local legislative body authorizing petitioner to
establish and operate a market14 with a permit to sell fresh meat, fish,
poultry and other foodstuffs. The same resolution imposed upon
petitioner, as a condition for continuous operation, the obligation to
“abide by and comply with the ordinances, rules and regulations
prescribed for the establishment,
15
operation and maintenance of
markets in Quezon City.”

_________________

de Servicios Publicos, 73 Phil. 133 (1941); Republic v. Philippine Rabbit Bus

Lines, 32 SCRA 215 (1970).
11 City of Iloilo v. Villanueva, 105 Phil. 337 (1959).
12 Manila Electric Company vs. El Auditor General y la Comision de Servicios
Publicos, supra, at 134-135.
13 Serafin Saldaña v. City of Iloilo, 104 Phil. 28. (1958).
14 Record on Appeal, p. 10.
15 Ibid.

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Progressive Development Corporation vs. Quezon City

The “Farmers’ Market and Shopping Center” being a public market

in the sense of a market open to and inviting the patronage of the
general public, even though privately owned, petitioner’s operation
thereof required a license issued by the respondent City, the issuance
of which, applying the standards set forth above, was 16 done
principally in the exercise of the respondent’s police power. The
operation of a privately owned market is, as correctly noted by the
Solicitor General, equivalent to or quite the same as the operation of
a government-owned market; both are established for the rendition
of service to the general public, which warrants close supervision
17
and control by the respondent City, 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, for the
prevention of fraud and imposition upon the buying public, and so
forth.
We believe and so hold that the five percent (5%) tax imposed in
Ordinance No. 9236 constitutes, not a tax on income, not a city
income tax (as distinguished from the national income tax imposed
by the National Internal Revenue Code) within the meaning of
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Section 2 (g) of the Local Autonomy Act, but rather a license tax or
fee for the regulation of the business in which the petitioner is
engaged. While it is true that the amount imposed by the questioned
ordinances may be considered in determining whether the exaction
is really one for revenue or

________________

16 In City of Jacksonville, et al. v. Ledwith, 7 So. at 892 [1890]; 26 Fla. 163, it was
held that a permit to establish a market was:

“from the nature of a market, a license. It is a permit to do something which could not be done
before without such permit, and hence is the grant of a license. x x x [T]he power to establish
markets is within the police power, and [thus is] x x x the power to charge, as a police
regulation, a fee for the permit or license for selling meats or vegetables therein, x x x. The fee,
however, is not a tax for revenue, but a charge under the police power, and its amount is to be
controlled by the principles governing in such cases.”

17 Brief for the Respondent, pp. 6-7; Rollo, p. 172.

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18
prohibition, instead of one of regulation under the police power, it
nevertheless will be presumed to be reasonable. Local governments
are allowed wide discretion in determining the rates of imposable
license fees even in cases of purely police power measures, in the
absence 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 arbitrariness or unreasonableness of the questioned
19
rates. Thus:

“[A]n ordinance carries with it the presumption of validity. The question of

reasonableness though is open to judicial inquiry. Much should be left thus
to the discretion of municipal authorities. Courts will go slow in writing off
an ordinance as unreasonable unless the amount is so excessive as to be
prohibitory, arbitrary, unreasonable, oppressive, or confiscatory. A rule
which has gained acceptance is that factors relevant to such an inquiry are
the municipal conditions as a whole and the nature of the business made
20
subject to imposition.”

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 the Court to characterize

_________________

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18 E.g., Calalang v. Lorenzo and Villar, 97 Phil. 212 (1955).
19 Procter & Gamble PMC v. Municipality of Jagna, 94 SCRA 894 (1979);
Northern Phil. Tobacco Co. v. Municipality of Agoo, 31 SCRA 304 (1970); and San
Miguel Brewery, Inc. v. City of Cebu, 43 SCRA 275 (1972).
20 Victorias Milling Co., Inc. v. Municipality of Victorias, Negros Occidental, 25
SCRA 192 at 205 (1968), citing 9 McQuillin Municipal Corporations, 3rd ed., at 65.
In Atkins v. Philips, 8 So. at 431 (1890); 26 Fla. 281, the Supreme Court of
Florida held:

“The amount of the fee might in some cases be so large as to suggest x x x, considering the
character or the business to which it was applied, that it was in fact a tax for revenue; but [not
in this case] considering the nature of the subject before us,—–the sale of fresh meats, dressed
poultry, and fish, x x x, [which] require[s], for the protection of the health of the community,
daily inspection and supervision, x x x.”

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Progressive Development Corporation vs. Quezon City

the imposition as a revenue measure exclusively. The lower court

correctly held that the gross receipts from stall rentals have been
used only as a basis for computing the fees or taxes due respondent
to cover the latter’s administrative expenses, i.e., for regulation and
supervision of the sale of foodstuffs to the public. The use of the
gross amount of stall rentals as basis for determining the collectible
amount of license tax, does not by itself, upon the one hand, convert
or render the license tax into a prohibited city tax on income. Upon
the other hand, it has not been suggested that such basis has no
reasonable relationship to the probable costs of 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
market; and the higher the volume of goods sold in such private
market, the greater the extent and frequency of inspection and
supervision that may be reasonably required in the interest of the
buying public. Moreover, what we started with should be recalled
here: the authority conferred upon the respondent’s City Council is
not merely “to regulate” but also embraces the power “to tax” the
petitioner’s business.
Finally, petitioner argues that respondent is without power to
impose a gross receipts tax for revenue purposes absent an express
grant from the national government. As a general rule, there must be
a statutory grant for a local government unit to impose lawfully a
gross receipts
21
tax, that unit not having the inherent power of
taxation. The rule, however, finds no application in the instant case
where what is involved is an exercise of, principally, the regulatory

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power of the respondent City and where that regulatory power is

expressly accompanied by the taxing power.
ACCORDINGLY, the Decision of the then Court of First
Instance of Rizal, Quezon City, Branch 18, is hereby AFFIRMED
and the Court Resolved to DENY the Petition for lack of merit.
SO ORDERED.

_________________

21 City of Ozamis v. Lumapas, 65 SCRA 33 (1975).

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People vs. Siat

     Fernan (C.J.), Gutierrez, Jr., Bidin and Cortés, JJ., concur.

Petition denied; decision affirmed.

Note.—–RA 2244 confers upon local governments broad taxing

authority extending to almost “everything excepting those which are
mentioned therein” provided the tax levied is for public purposes,
just and uniform, does not transgress any constitutional provision,
and not repugnant to a controlling statute. (Nin Bay Mining Co., vs.
Mun. of Roxas, 14 SCRA 660.)

——–o0o——–

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