TAXATION 1

JD-4B
Ma. Shiela Cheraine Custodio Carrillo
FERRER V. CITY MAYOR BAUTISTA

FACTS:
The LGU of QC enacted two ordinances. One imposes socialized housing tax (SHT) based on the assessed
value of realty, to be paid by landowners. The other imposes a garbage fee (GF) to be paid by landowners
based on the floor area or land area of their property.

Ferrer, a landowner in QC, wants to question the validity of these two (2) ordinances.

Quezon City Council enacted Ordinance No. SP-2095, S-2011, or the Socialized Housing Tax of Quezon
City, Section 3 of which provides:

SECTION 3. IMPOSITION. A special assessment equivalent to one-half percent (0.5%) on the assessed
value of land in excess of One Hundred Thousand Pesos (Php100,000.00) shall be collected by the City
Treasurer which shall accrue to the Socialized Housing Programs of the Quezon City Government.

“Effective for five (5) years, the Socialized Housing Tax (SHT) shall be utilized by the Quezon City
Government for the following projects: (a) land purchase/land banking; (b) improvement of
current/existing socialized housing facilities; (c) land development; (d) construction of core houses,
sanitary cores, medium-rise buildings and other similar structures; and (e) financing of public-private
partnership agreement of the Quezon City Government and National Housing Authority (NHA) with the
private sector. “

On the other hand, Ordinance No. SP-2235, S-20135 was enacted on December 16, 2013 and took effect
ten days after when it was approved by respondent City Mayor.6 The proceeds collected from the
garbage fees on residential properties shall be deposited solely and exclusively in an earmarked special
account under the general fund to be utilized for garbage collections.7 Section 1 of the Ordinance set
forth the schedule and manner for the collection of garbage fees:
The collection of the garbage fee shall accrue on the first day of January and shall be paid simultaneously
with the payment of the real property tax, but not later than the first quarter installment.8 In case a
household owner refuses to pay, a penalty of 25% of the garbage fee due, plus an interest of 2% per
month or a fraction thereof, shall be charged.
Petitioner Ferrer claims that the annual property tax is an ad valorem tax, a percentage of the assessed
value of the property, which is subject to revision every three (3) years in order to reflect an increase in
the market value of the property. The SHT and the garbage fee are actually increases in the property tax
which are not based on the assessed value of the property or its reassessment every three years; hence,
in violation of Sections 232 and 233 of the LGC.
ISSUE: Whether or not the tax ordinances are valid
HELD: Ordinance No. SP-2095, S-2011, the Socialized Housing Tax is valid.
Ordinance No. SP-2235, S-2013, which collects an annual garbage fee on all domestic households in
Quezon City, is hereby declared as UNCONSTITUTIONAL AND ILLEGAL

RATIO:
1. The 1987 Constitution explicitly espouses the view that the use of property bears a social
function and that all economic agents shall contribute to the common good. Property has not only an
individual function, insofar as it has to provide for the needs of the owner, but also a social function
insofar as it has to provide for the needs of the other members of society. The principle is this:
Police power proceeds from the principle that every holder of property, however absolute and
unqualified may be his title, holds it under the implied liability that his use of it shall not be injurious to
the equal enjoyment of others having an equal right to the enjoyment of their property, no r injurious to
the right of the community.
Property rights of individuals may be subjected to restraints and burdens in order to fulfill the objectives
of the government in the exercise of police power.  In this jurisdiction, it is well-entrenched that taxation
may be made the implement of the state’s police power.
The SHT charged by the Quezon City Government is a tax which is within its power to impose. Cities are
allowed to exercise such other powers and discharge such other functions and responsibilities as are
necessary, appropriate, or incidental to efficient and effective provision of the basic services and facilities
which include, among others, programs and projects for low-cost housing and other mass dwellings. The
collections made accrue to its socialized housing programs and projects.
The tax is not a pure exercise of taxing power or merely to raise revenue; it is levied with a regulatory
purpose. The levy is primarily in the exercise of the police power for the general welfare of the entire
city. It is greatly imbued with public interest. Removing slum areas in Quezon City is not only beneficial to
the underprivileged and homeless constituents but advantageous to the real property owners as well.
The situation will improve the value of the their property investments, fully enjoying the same in view of
an orderly, secure, and safe community, and will enhance the quality of life of the poor, making them
law-abiding constituents and better consumers of business products.

2. In the subject ordinance imposing garbage collection fee, the rates of the imposable fee depend
on land or floor area and whether the payee is an occupant of a lot, condominium, social housing project
or apartment. For easy reference, the relevant provision is again quoted below:
The rates being charged by the ordinance are unjust and inequitable: a resident of a 200 sq. m. unit in a
condominium or socialized housing project has to pay twice the amount than a resident of a lot similar in
size; unlike unit occupants, all occupants of a lot with an area of 200 sq. m. and less have to pay a fixed
rate of Php100.00; and the same amount of garbage fee is imposed regardless of whether the resident is
from a condominium or from a socialized housing project.
Indeed, the classifications under Ordinance No. S-2235 are not germane to its declared purpose of
"promoting shared responsibility with the residents to attack their common mindless attitude in
over-consuming the present resources and in generating waste." Instead of simplistically categorizing the
payee into land or floor occupant of a lot or unit of a condominium, socialized housing project or
apartment, respondent City Council should have considered factors that could truly measure the amount
of wastes generated and the appropriate fee for its collection. Factors include, among others, household
age and size, accessibility to waste collection, population density of the barangay or district, capacity to
pay, and actual occupancy of the property. R.A. No. 9003 may also be looked into for guidance. Under
said law, WM service fees may be computed based on minimum factors such as types of solid waste to
include special waste, amount/volume of waste, distance of the transfer station to the waste
management facility, capacity or type of LGU constituency, cost of construction, cost of management,
and type of technology. With respect to utility rates set by municipalities, a municipality has the right to
classify consumers under reasonable classifications based upon factors such as the cost of service, the
purpose for which the service or the product is received, the quantity or the amount received, the
different character of the service furnished, the time of its use or any other matter which presents a
substantial difference as a ground of distinction.

—-----------------------------------------------------------------------------
ISSUE: Is the SHT tantamount to penalty on realty owners?

HELD: No, it does not. Property ownership bears a social function. Also, the SHT will improve the status
of property owners by increasing investment, raising land value, etc., after the relocation of informal
settlers. The foundation is police power.
—---------------------------------------------------------------

ISSUE: Does the SHT violate equal protection, considering that those who occupy land illegally or
informally do not pay while legitimate owners of land are made to pay?

HELD: No, equal protection admits of exception. As long as there is real and substantial distinction, which
is germane to the purpose of the law, it does not violate. The difference between informal settlers and
property owners is very clear and unmistakable. Again, the foundation is police power, that power which
allows the State to regulate life, liberty and property in order to promote the welfare of the people.

—---------------------------------------------------------------
ISSUE: Does the LGC allow the imposition of SHT, considering there is already property tax?

HELD: Yes, the LGC allows this. The LGC, under the general welfare clause, provides local governments
the power to enact measures that will benefit the people. Moreover, SHT has another basis in law: RA
7279 or the Urban Development and Housing Act. Again, the foundation is police power.

—----------------------------------------------------------

ISSUE: Is GF a tax or a fee?

—------------------------------------------------------------

ISSUE: Is GF valid, considering that it imposes a fee based on land or floor area?

HELD: No, GF in not valid. Substantive due process requires reasonable means and reasonable purpose.
Although the purpose of the GF is reasonable and admirable, the means employed is unreasonable and
oppressive. Rather than basis on actual waste output or estimate garbage use, the ordinance uses as a
yardstick the people’s land or floor area which has nothing to do with how much waste they produce.