[G.R. No. 149179.

July 15, 2005]

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, INC., petitioner, vs.
CITY OF BACOLOD, FLORENTINO T. GUANCO, in his capacity as the City
Treasurer of Bacolod City, and ANTONIO G. LACZI, in his capacity as the City Legal
Officer of Bacolod City, respondents.
D E C I S I O N
GARCIA, J.:
In this appeal by way of a petition for review on certiorari under Rule 45 of the Rules of
Court, petitioner Philippine Long Distance Telephone Company (PLDT), seeks the reversal
and setting aside of the July 23, 2001 decision[1] of the Regional Trial Court at Bacolod
City, Branch 42, dismissing its petition in Civil Case No. 99-10786, an action to declare
petitioner as exempt from the payment of franchise and business taxes sought to be imposed
and collected by the respondent City of Bacolod.
The material facts are not at all disputed:
PLDT is a holder of a legislative franchise under Act No. 3436, as amended, to render local
and international telecommunications services. On August 24, 1991, the terms and
conditions of its franchise were consolidated under Republic Act No. 7082,[2] Section 12 of
which embodies the so-called in-lieu-of-all-taxes clause, whereunder PLDT shall pay a
franchise tax equivalent to three percent (3%) of all its gross receipts, which franchise tax
shall be in lieu of all taxes. More specifically, the provision pertinently reads:
SEC. 12. xxx In addition thereto, the grantee, its successors or assigns shall pay a franchise
tax equivalent to three percent (3%) of all gross receipts of the telephone or other
telecommunications businesses transacted under this franchise by the grantee, its successors
or assigns, and the said percentage shall be in lieu of all taxes on this franchise or earnings
thereof. xxx (Italics ours).
Meanwhile, or on January 1, 1992, Republic Act No. 7160, otherwise known as the Local
Government Code, took effect. Section 137 of the Code, in relation to Section 151 thereof,
grants cities and other local government units the power to impose local franchise tax on
businesses enjoying a franchise, thus:
SEC. 137. Franchise Tax. Notwithstanding any exemption granted by any law or other
special law, the province may impose a tax on businesses enjoying a franchise, at a rate not
exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the
preceding calendar year based on the incoming receipt, or realized, within its territorial
jurisdiction.
xxx xxx xxx
SEC. 151. Scope of Taxing Powers. Except as otherwise provided in this Code, the city,
may levy the taxes, fees, and charges which the province or municipality may impose:
Provided, however, That the taxes, fees, and charges levied and collected by highly urbanized
and independent component cities shall accrue to them and distributed in accordance with the
provisions of this Code.
The rates of taxes that the city may levy may exceed the maximum rates allowed for the
province or municipality by not more than fifty percent (50%) except the rates of professional
and amusement taxes.
By Section 193 of the same Code, all tax exemption privileges then enjoyed by all persons,
whether natural or juridical, save those expressly mentioned therein, were withdrawn,
necessarily including those taxes from which PLDT is exempted under the in-lieu-of-all-
taxes clause in its charter. We quote Section 193:
SEC. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this
Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether
natural or juridical, including government-owned or controlled corporations, except local
water districts, cooperatives duly registered under R.A. 6938, non-stock and non-profit
hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.
Aiming to level the playing field among telecommunication companies, Congress enacted
Republic Act No. 7925, otherwise known as the Public Telecommunications Policy Act of the
Philippines, which took effect on March 16, 1995. To achieve the legislative intent, Section
23 thereof, also known as the most-favored- treatment clause, provides for an equality of
treatment in the telecommunications industry, thus:
SEC. 23. Equality of Treatment in the Telecommunications Industry Any advantage, favor,
privilege, exemption, or immunity granted under existing franchises, or may hereafter be
granted shall ipso facto become part of previously granted telecommunications franchises and
shall be accorded immediately and unconditionally to the grantees of such franchises:
Provided, however, That the foregoing shall neither apply to nor affect provisions of
telecommunications franchises concerning territory covered by the franchise, the life span of
the franchise, or the type of the service authorized by the franchise.
In August 1995, the City of Bacolod, invoking its authority under Section 137, in relation to
Section 151 and Section 193, supra, of the Local Government Code, made an assessment on
PLDT for the payment of franchise tax due the City.
Complying therewith, PLDT began paying the City franchise tax from the year 1994 until the
third quarter of 1998, at which time the total franchise tax it had paid the City already
amounted to P2,770,696.37.
On June 2, 1998, the Department of Finance through its Bureau of Local Government
Finance (BLGF), issued a ruling to the effect that as of March 16, 1995, the effectivity date of
the Public Telecommunications Policy Act of the Philippines (Rep. Act. No. 7925), PLDT,
among other telecommunication companies, became exempt from local franchise tax.
Pertinently, the BLGF ruling reads:
It appears that RA 7082 further amending ACT No. 3436 which granted to PLDT a franchise
to install, operate and maintain a telephone system throughout the Philippine Islands was
approved on August 3, 1991. Section 12 of said franchise, likewise, contains the in lieu of
all taxes proviso.
In this connection, Section 23 of RA 7925, quoted hereunder, which was approved on March
1, 1995 provides for the equality of treatment in the telecommunications industry:
xxx xxx xxx
On the basis of the aforequoted Section 23 of RA 7925, PLDT as a telecommunications
franchise holder becomes automatically covered by the tax exemption provisions of RA
7925, which took effect on March 16, 1995.
Accordingly, PLDT shall be exempt from the payment of franchise and business taxes
imposable by LGUs under Sections 137 and 143, respectively, of the LGC [Local
Government Code], upon the effectivity of RA 7925 on March 16, 1995. However, PLDT
shall be liable to pay the franchise and business taxes on its gross receipts realized from
January 1, 1992 up to March 15, 1995, during which period PLDT was not enjoying the
most favored clause proviso of RA 7025 [sic].[3]
Invoking the aforequoted ruling, PLDT then stopped paying local franchise and business
taxes to Bacolod City starting the fourth quarter of 1998.
The controversy came to a head-on when, sometime in 1999, PLDT applied for the issuance
of a Mayors Permit but the City of Bacolod withheld issuance thereof pending PLDTs
payment of its franchise tax liability in the following amounts: (1) P358,258.30 for the fourth
quarter of 1998; and (b) P1,424,578.10 for the year 1999, all in the aggregate amount of
P1,782,836.40, excluding surcharges and interest, about which PLDT was duly informed by
the City Treasurer via a 5
th
Indorsement dated March 16, 1999 for PLDTs appropriate
action.[4]
In time, PLDT filed a protest[5] with the Office of the City Legal Officer, questioning the
assessment and at the same time asking for a refund of the local franchise taxes it paid in
1997 until the third quarter of 1998.
In a reply-letter dated March 26, 1999,[6] City Legal Officer Antonio G. Laczi denied the
protest and ordered PLDT to pay the questioned assessment.
Hence, on May 14, 1999, in the Regional Trial Court at Bacolod City, PLDT filed its
petition[7] in Civil Case No. 99-10786, therein praying for a judgment declaring it as exempt
from the payment of local franchise and business taxes; ordering the respondent City to
henceforth cease and desist from assessing and collecting said taxes; directing the City to
issue the Mayors Permit for the year 1999; and requiring it to refund the amount of
P2,770,606.37, allegedly representing overpaid franchise taxes for the years 1997 and 1998
with interest until fully paid.
In time, the respondent City filed its Answer/Comment to the petition,[8] basically
maintaining that Section 137 of the Local Government Code remains as the operative law
despite the enactment of the Public Telecommunications Policy Act of the Philippines (Rep.
Act No. 7925), and accordingly prayed for the dismissal of the petition.
In the ensuing pre-trial conference, the parties manifested that they would not present any
testimonial evidence, and merely requested for time to file their respective memoranda, to
which the trial court acceded.
Eventually, in the herein assailed decision dated July 23, 2001,[9] the trial court dismissed
PLDTs petition, thus:
WHEREFORE, premises considered, the petition should be, as it is hereby DISMISSED. No
costs.
SO ORDERED.
Therefrom, PLDT came to this Court via the present recourse, imputing the following errors
on the part of the trial court:
5.01.a. THE LOWER COURT ERRED IN SUSTAINING RESPONDENTS
POSITION THAT SECTION 137 OF THE LOCAL GOVERNMENT CODE, WHICH, IN
RELATION TO SECTION 151 THEREOF, ALLOWS RESPONDENT CITY TO IMPOSE
THE FRANCHISE TAX, IS APPLICABLE IN THIS CASE.
5.01.b. THE LOWER COURT ERRED IN NOT HOLDING THAT UNDER
PETITIONERS FRANCHISE (REPUBLIC ACT NO. 7082), AS AMENDED AND
EXPANDED BY SECTION 23 OF REPUBLIC ACT NO. 7925 (PUBLIC
TELECOMMUNICATIONS POLICY ACT), TAKING INTO ACCOUNT THE
FRANCHISES OF GLOBE TELECOM, INC., (GLOBE) (REPUBLIC ACT NO. 7229)
AND SMART COMMUNICATIONS, INC. (SMART) (REPUBLIC ACT NO. 7294),
WHICH WERE ENACTED SUBSEQUENT TO THE LOCAL GOVERNMENT CODE,
NO FRANCHISE TAXES MAY BE IMPOSED ON PETITIONER BY RESPONDENT
CITY.
5.01.c. THE LOWER COURT ERRED IN NOT GIVING WEIGHT TO THE
RULING OF THE DEPARTMENT OF FINANCE, THROUGH ITS BUREAU OF LOCAL
GOVERNMENT FINANCE, THAT PETITIONER IS EXEMPT FROM THE PAYMENT
OF FRANCHISE AND BUSINESS TAXES IMPOSABLE BY LOCAL GOVERNMENT
UNITS UNDER THE LOCAL GOVERNMENT CODE.
5.01.d. THE LOWER COURT ERRED IN DISMISSING THE PETITION BELOW.
As we see it, the only question which commends itself for our resolution is, whether or not
Section 23 of Rep. Act No. 7925, also called the most-favored-treatment clause, operates to
exempt petitioner PLDT from the payment of franchise tax imposed by the respondent City
of Bacolod.
Contrary to petitioners claim, the issue thus posed is not one of first impression insofar as
this Court is concerned. For sure, this is not the first time for petitioner PLDT to invoke the
jurisdiction of this Court on the same question, albeit involving another city.
In PLDT vs. City of Davao,[10] this Court has had the occasion to interpret Section 23 of
Rep. Act No. 7925. There, we ruled that Section 23 does not operate to exempt PLDT from
the payment of franchise tax imposed upon it by the City of Davao:
In sum, it does not appear that, in approving 23 of R.A. No. 7925, Congress intended it to
operate as a blanket tax exemption to all telecommunications entities. Applying the rule of
strict construction of laws granting tax exemptions and the rule that doubts should be
resolved in favor of municipal corporations in interpreting statutory provisions on municipal
taxing powers, we hold that 23 of R.A. No. 7925 cannot be considered as having amended
petitioner's franchise so as to entitle it to exemption from the imposition of local franchise
taxes. Consequently, we hold that petitioner is liable to pay local franchise taxes in the
amount of P3,681,985.72 for the period covering the first to the fourth quarter of 1999 and
that it is not entitled to a refund of taxes paid by it for the period covering the first to the third
quarter of 1998.[11]
Explains this Court in the same case:
To begin with, tax exemptions are highly disfavored. The reason for this was explained by
this Court in Asiatic Petroleum Co. v. Llanes, in which it was held:
. . . Exemptions from taxation are highly disfavored, so much so that they may almost be said
to be odious to the law. He who claims an exemption must be able to point to some positive
provision of law creating the right. . . As was said by the Supreme Court of Tennessee in
Memphis vs. U. & P. Bank (91 Tenn., 546, 550), The right of taxation is inherent in the
State. It is a prerogative essential to the perpetuity of the government; and he who claims an
exemption from the common burden must justify his claim by the clearest grant of organic or
statute law. Other utterances equally or more emphatic come readily to hand from the
highest authority. In Ohio Life Ins. and Trust Co. vs. Debolt (16 Howard, 416), it was said by
Chief Justice Taney, that the right of taxation will not be held to have been surrendered,
unless the intention to surrender is manifested by words too plain to be mistaken. In the
case of the Delaware Railroad Tax (18 Wallace, 206, 226), the Supreme Court of the United
States said that the surrender, when claimed, must be shown by clear, unambiguous language,
which will admit of no reasonable construction consistent with the reservation of the power.
If a doubt arises as to the intent of the legislature, that doubt must be solved in favor of the
State. In Erie Railway Company vs. Commonwealth of Pennsylvania (21 Wallace, 492, 499),
Mr. Justice Hunt, speaking of exemptions, observed that a State cannot strip itself of the most
essential power of taxation by doubtful words. It cannot, by ambiguous language, be
deprived of this highest attribute of sovereignty. In Tennessee vs. Whitworth (117 U.S., 129,
136), it was said: In all cases of this kind the question is as to the intent of the legislature, the
presumption always being against any surrender of the taxing power. In Farrington vs.
Tennessee and County of Shelby (95 U.S., 379, 686), Mr. Justice Swayne said: . . . When
exemption is claimed, it must be shown indubitably to exist. At the outset, every presumption
is against it. A well-founded doubt is fatal to the claim. It is only when the terms of the
concession are too explicit to admit fairly of any other construction that the proposition can
be supported.
The tax exemption must be expressed in the statute in clear language that leaves no doubt of
the intention of the legislature to grant such exemption. And, even if it is granted, the
exemption must be interpreted in strictissimi juris against the taxpayer and liberally in favor
of the taxing authority.
xxx xxx xxx
The fact is that the term exemption in 23 is too general. A cardinal rule in statutory
construction is that legislative intent must be ascertained from a consideration of the statute
as a whole and not merely of a particular provision. For, taken in the abstract, a word or
phrase might easily convey a meaning which is different from the one actually intended. A
general provision may actually have a limited application if read together with other
provisions. Hence, a consideration of the law itself in its entirety and the proceedings of both
Houses of Congress is in order.
xxx xxx xxx
R.A. No. 7925 is thus a legislative enactment designed to set the national policy on
telecommunications and provide the structures to implement it to keep up with the
technological advances in the industry and the needs of the public. The thrust of the law is to
promote gradually the deregulation of the entry, pricing, and operations of all public
telecommunications entities and thus promote a level playing field in the telecommunications
industry. There is nothing in the language of 23 nor in the proceedings of both the House of
Representatives and the Senate in enacting R.A. No. 7925 which shows that it contemplates
the grant of tax exemptions to all telecommunications entities, including those whose
exemptions had been withdrawn by the LGC.
What this Court said in Asiatic Petroleum Co. v. Llanes applies mutatis mutandis to this case:
When exemption is claimed, it must be shown indubitably to exist. At the outset, every
presumption is against it. A well-founded doubt is fatal to the claim. It is only when the terms
of the concession are too explicit to admit fairly of any other construction that the proposition
can be supported. In this case, the word exemption in 23 of R.A. No. 7925 could
contemplate exemption from certain regulatory or reporting requirements, bearing in mind
the policy of the law. It is noteworthy that, in holding Smart and Globe exempt from local
taxes, the BLGF did not base its opinion on 23 but on the fact that the franchises granted to
them after the effectivity of the LGC exempted them from the payment of local franchise and
business taxes.
As in City of Davao, supra, petitioner presently argues that because Smart Communications,
Inc. (SMART) and Globe Telecom (GLOBE) under whose respective franchises granted after
the effectivity of the Local Government Code, are exempt from franchise tax, it follows that
petitioner is likewise exempt from the franchise tax sought to be collected by the City of
Bacolod, on the reasoning that the grant of tax exemption to SMART and GLOBE ipso facto
applies to PLDT, consistent with the most-favored-treatment clause found in Section 23 of
the Public Telecommunications Policy Act of the Philippines (Rep. Act No. 7925).
Again, there is nothing novel in petitioners contention. In fact, this Court in City of Davao,
even adverted to PLDTs argument therein, thus:
Finally, it [PLDT] argues that because Smart and Globe are exempt from the franchise tax, it
follows that it must likewise be exempt from the tax being collected by the City of Davao
because the grant of tax exemption to Smart and Globe ipso facto extended the same
exemption to it.
In rejecting PLDTs contention, this Court ruled in City of Davao as follows:
The acceptance of petitioners theory would result in absurd consequences. To illustrate: In
its franchise, Globe is required to pay a franchise tax of only one and one-half percentum
(1/2% [sic] ) of all gross receipts from its transactions while Smart is required to pay a tax of
three percent (3%) on all gross receipts from business transacted. Petitioners theory would
require that, to level the playing field, any advantage, favor, privilege, exemption, or
immunity granted to Globe must be extended to all telecommunications companies,
including Smart. If, later, Congress again grants a franchise to another telecommunications
company imposing, say, one percent (1%) franchise tax, then all other telecommunications
franchises will have to be adjusted to level the playing field so to speak. This could not
have been the intent of Congress in enacting Section 23 of Rep. Act 7925. Petitioners theory
will leave the Government with the burden of having to keep track of all granted
telecommunications franchises, lest some companies be treated unequally. It is different if
Congress enacts a law specifically granting uniform advantages, favor, privilege, exemption
or immunity to all telecommunications entities.
On PLDTs motion for reconsideration in Davao, the Court added in its en banc Resolution
of March 25, 2003,[12] that even as it is a state policy to promote a level playing field in the
communications industry, Section 23 of Rep. Act No. 7925 does not refer to tax exemption
but only to exemption from certain regulations and requirements imposed by the National
Telecommunications Commission:
xxx. The records of Congress are bereft of any discussion or even mention of tax exemption.
To the contrary, what the Chairman of the Committee on Transportation, Rep. Jerome V.
Paras, mentioned in his sponsorship of H.B. No. 14028, which became R.A. No. 7925, were
equal access clauses in interconnection agreements, not tax exemptions. He said:
There is also a need to promote a level playing field in the telecommunications
industry. New entities must be granted protection against dominant carriers through the
encouragement of equitable access charges and equal access clauses in interconnection
agreements and the strict policing of predatory pricing by dominant carriers. Equal access
should be granted to all operators connecting into the interexchange network. There should
be no discrimination against any carrier in terms of priorities and/or quality of services.
Nor does the term exemption in 23 of R.A. No. 7925 mean tax exemption. The term
refers to exemption from certain regulations and requirements imposed by the National
Telecommunications Commission (NTC). For instance, R.A. No. 7925, 17 provides: The
Commission shall exempt any specific telecommunications service from its rate or tariff
regulations if the service has sufficient competition to ensure fair and reasonable rates or
tariffs. Another exemption granted by the law in line with its policy of deregulation is the
exemption from the requirement of securing permits from the NTC every time a
telecommunications company imports equipment.[13]
In the same en banc Resolution, the Court even rejected PLDTs contention that the in-lieu-
of-all-taxes clause does not refer to tax exemption but to tax exclusion and hence, the
strictissimi juris rule does not apply, explaining that these two terms actually mean the same
thing, such that the rule that tax exemption should be applied in strictissimi juris against the
taxpayer and liberally in favor of the government applies equally to tax exclusions. Thus:
Indeed, both in their nature and in their effect there is no difference between tax exemption
and tax exclusion. Exemption is an immunity or privilege; it is freedom from a charge or
burden to which others are subjected. Exclusion, on the other hand, is the removal of
otherwise taxable items from the reach of taxation, e.g., exclusions from gross income and
allowable deductions. Exclusion is thus also an immunity or privilege which frees a taxpayer
from a charge to which others are subjected. Consequently, the rule that tax exemption
should be applied in strictissimi juris against the taxpayer and liberally in favor of the
government applies equally to tax exclusions. To construe otherwise the in lieu of all taxes
provision invoked is to be inconsistent with the theory that R.A. No. 7925, 23 grants tax
exemption because of a similar grant to Globe and Smart.[14]
PLDT likewise argued in said case that the RTC at Davao City erred in not giving weight to
the ruling of the BLGF which, according to petitioner, is an administrative agency with
technical expertise and mastery over the specialized matters assigned to it. But then again,
we held in Davao:
To be sure, the BLGF is not an administrative agency whose findings on questions of fact are
given weight and deference in the courts. The authorities cited by petitioner pertain to the
Court of Tax Appeals, a highly specialized court which performs judicial functions as it was
created for the review of tax cases. In contrast, the BLGF was created merely to provide
consultative services and technical assistance to local governments and the general public on
local taxation, real property assessment, and other related matters, among others. The
question raised by petitioner is a legal question, to wit, the interpretation of 23 of R.A. No.
7925. There is, therefore, no basis for claiming expertise for the BLGF that administrative
agencies are said to possess in their respective fields.[15]
We note, quite interestingly, that apart from the particular local government unit involved in
the earlier case of PLDT vs. Davao, the arguments presently advanced by petitioner on the
issue herein posed are but a mere reiteration if not repetition of the very same arguments it
has already raised in Davao. For sure, the errors presently assigned are substantialy the same
as those in Davao, all of which have been adequately addressed and passed upon by this
Court in its decision therein as well as in its en banc resolution in that case.
WHEREFORE, the instant petition is DENIED and the assailed decision dated July 23,
2001 of the lower court AFFIRMED.
Costs against petitioner.
SO ORDERED.
Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.
Panganiban, (Chairman), no part, former counsel of the party.

G.R. No. 165827 June 16, 2006
NATIONAL POWER CORPORATION, Petitioner,
vs.
PROVINCE OF ISABELA, represented by HON. BENJAMIN G. DY, Provincial
Governor, Respondent.
D E C I S I O N
CALLEJO, SR., J .:
This is a petition for review on certiorari of the Decision
1
of the Court of Appeals (CA) dated
October 21, 2004 affirming the decision of the Regional Trial Court (RTC) of Ilagan, Isabela,
Branch 17, which ordered petitioner National Power Corporation (NPC) to immediately
deposit in escrow with the Land Bank of the Philippines the franchise tax due.
The antecedents are as follows:
Respondent Province of Isabela filed an action for sum of money against petitioner NPC, a
government-owned and controlled corporation engaged in the generation and sale of electric
power.
Respondent alleged in the complaint that petitioners Magat River Hydro-Electric Plant is
located within its territory and that, for this reason, it imposed a franchise tax on petitioner
pursuant to Section 137
2
of Republic Act No. 7160 (Local Government Code of 1991). It
averred that petitioner paid the franchise tax for the years 1992 and 1993 in the amount of
P9,473,275.00 but failed and refused to pay, despite demands, the franchise tax for the year
1994 in the amount of P7,116,949.00. Respondent likewise sought the payment of legal
interest amounting to P854,033.88 plus damages.
3

In its Answer, petitioner averred that the Magat River Hydro-Electric Plant is constructed on
the land owned by the National Irrigation Administration, which is situated at Susoc, Sto.
Domingo, Potia, Ifugao. It admitted that it paid franchise tax to the respondent for the years
1992 and 1993, but that it did so only upon respondents representation that the Magat
Hydro-Electric Plant is located within its territorial jurisdiction. It alleged that, due to the
boundary dispute between the respondent and the Province of Ifugao, it is in a quandary as to
whom it should pay the franchise tax. Petitioner averred that the lower court had no
jurisdiction over the subject matter of the action by virtue of Presidential Decree No. 242
prescribing the procedure for the administrative settlement or adjudication of disputes,
claims, and controversies between or among government offices, agencies and
instrumentalities, including government-owned and controlled corporations. Moreover,
respondent did not exhaust administrative remedies by first settling its boundary dispute with
the Province of Ifugao.
The controversy on the payment of franchise tax could be settled in an action for interpleader,
which petitioner intended to file against respondent and the Province of Ifugao.
4

With leave of court, the Province of Ifugao filed a Complaint-in-Intervention, later amended,
against both petitioner and respondent, claiming that the Magat Hydro-Electric Power Plant
from which petitioner derives its income subject to franchise tax is situated within its
territory. All the principal structures of the power plant are within its jurisdiction; only those
incidental structures which have nothing to do with the production of hydroelectric power are
located within the respondents territory. It alleged that it is the one actually maintaining the
power plant, as it maintains the watershed that ensures the continuous flow of water to plants
reservoir. It averred that, through misrepresentation, respondent succeeded in claiming and
receiving payment of franchise tax from the petitioner for the years 1992 and 1993. The
intervenor also claimed that it is not precluded from asserting its lawful claim despite the
undue payment of the franchise tax to the respondent. It maintained that respondent has no
legal basis to assert a claim over the franchise tax over the power plant.
5
It prayed that
judgment be rendered
1. Ordering the National Power Corporation to pay unto intervenor the sum of
P7,116,949.00 representing the franchise tax for 1994 and all franchise tax accruing
thereafter;
2. Ordering the Province of Isabela to pay unto intervenor the aggregate amount of
P9,473,275.00 representing the franchise tax for the years 1992 and 1993 plus legal
interest;
3. Ordering defendants to pay jointly and severally attorneys fee and litigation
expenses.
Other reliefs just and equitable under the premises.
6

In answer to the amended complaint-in-intervention, respondent asserted that the Magat
Hydro-Electric Power Plant is located within its
territory. It averred that the power plant is an expansion of the Magat River Irrigation System,
constructed in 1957 and located in Ramon, Isabela, and the Siffu River Irrigation System,
located along the boundaries of San Mateo and Ramon, Isabela. All communications received
and sent during the construction of the power plant were addressed to the respondent and not
the intervenor. If the power plant is located within the intervenors territorial boundary, it
should have laid its claim over it during its construction in 1974. Petitioner and the intervenor
are guilty of laches and estoppel because they have known way back in 1976 that the location
of the power plant is within respondents territory. In fact, this has been well publicized all
throughout the Philippines.
7

Petitioner, for its part, asserts in its answer to the complaint-in-intervention that it is a non-
profit corporation pursuant to Section 13 of Rep. Act No. 6395 (its charter); as such, it is not
covered by the Local Government Code, and therefore not obliged to pay franchise tax. The
imposition of the franchise tax on appellant would run counter to Section 13 of its charter.
8

In a Decision dated July 30, 1997, the RTC ruled in favor of respondent and the intervenor,
thus:
WHEREFORE, for and in consideration of all the foregoing, judgment is hereby rendered in
favor of the plaintiffs and against the defendant: declaring the defendant National Power
Corporation liable for payment of Franchise Tax and ordering said defendant, to immediately
deposit, in escrow, in favor of the plaintiffs, with the Land Bank of the Philippines, Ilagan
Branch, the amount of P7,116,949.00, representing Franchise Tax for the year 1994, plus
legal interest amounting to P854,033.00 for the same year 1994; and to pay the costs of this
suit.
SO ORDERED.
9

Petitioner then filed an appeal with the CA. On October 21, 2004, the CA rendered a decision
affirming the RTC Decision. Citing the case of National Power Corporation v. City of
Cabanatuan,
10
the CA ruled that the petitioner is not exempt from paying the franchise tax. It
held that Section 193 of the Local Government Code withdrew the tax exemption provided
under the petitioners charter. Petitioner, however, contended that the court a quo had no
basis in ordering it to pay franchise tax to respondent since the latters territorial dispute with
the intervenor has not yet been resolved; the RTC likewise had no jurisdiction because
respondent failed to exhaust administrative remedies before filing the complaint. In answer to
this argument, the appellate court pointed out that the court a quo did not order petitioner to
pay the franchise tax specifically to respondent, but merely to deposit the amount in escrow
pending final determination in the proper forum of which province is entitled thereto. Thus,
the CA upheld the dismissal of the complaint-in-intervention as against respondent since the
matter refers to a boundary dispute and the legal steps for its resolution should have been
followed.
11

Petitioner, through the Office of the Solicitor General, filed this petition for review with only
the Province of Isabela as respondent. It ascribes the following error to the CA:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE NATIONAL POWER
CORPORATION IS LIABLE FOR THE PAYMENT OF FRANCHISE TAX UNDER THE
LOCAL GOVERNMENT CODE.
12

Petitioner urges this Court to take a second look at its ruling in National Power Corporation
v. City of Cabanatuan,
13
which held it liable for franchise tax by virtue of the LGC. It
contends that Section 193 thereof did not withdraw the tax exemption provided under Section
13 of its charter, Rep. Act No. 6395, which provides:
Section 13. Non-profit Character of the Corporation; Exemption from All Taxes, Duties,
Fees, Imposts and Other Charges by the Government and Government Instrumentalities.
The Corporation shall be non-profit and shall devote all its returns from its capital investment
as well as excess revenues from its operation, for expansion. To enable the Corporation to
pay its indebtedness and obligations and in furtherance and effective implementation of the
policy enunciated in Section One of this Act, the Corporation, including its subsidiaries, is
hereby declared, exempt from the payment of all forms of taxes, duties, fees, imposts as well
as costs and service fees including filing fees, appeal bonds, supersedeas bonds, in any court
or administrative proceedings.
Petitioner stresses that there was no provision in the LGC expressly repealing the said
provision; neither was there an implied repeal thereof. It points out that repeals by
implication are not favored. Moreover, a general law, such as the LGC, cannot repeal a
special law, such as Rep. Act No. 6395, unless it clearly appears that the legislature intended
to do so.
14
Petitioner argues that, in this case, there was clearly no intention to repeal; on the
contrary, the intention to exempt it from local taxes is clearly manifest in said Section 13.
This is bolstered by the Declaration of Policy which provides that "the total electrification of
the Philippines through the development of power from all sources to meet the needs of
industrial development and dispersal, and the needs of rural electrification are primary
objectives of the nation which shall be pursued coordinately and supported by all
instrumentalities of the government, including its financial institutions." In addition,
petitioner cites the case of Maceda v. Macaraig, Jr.
15
to show the intent of lawmakers to
exempt it from all forms of taxes. Petitioner further maintains that it is a government-owned
and controlled corporation with an original charter and its shares of stock are owned by the
National Government; as such, it is exempt from local taxes.
16

In any case, petitioner argues that, assuming that Section 13 of its charter has been repealed
by Section 193 of the LGC, it will still not be liable for franchise tax for the following
reasons:
First. Section 137 of the LGC is not applicable to it, as the said provision empowers local
government units to impose franchise tax only with respect to private individuals and
corporations. Thus, Section 137 of the Code provides:
SECTION 137. Franchise Tax. Notwithstanding any exemption granted by any law or
other special law, the province may impose a tax on business enjoying a franchise, at a rate
not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the
preceding calendar year based on the incoming receipt, or realized, within its territorial
jurisdiction.
Petitioner stresses that, under the LGC, "business" means a trade or commercial activity
regularly engaged in as a means of livelihood or with a view to a profit.
17
On the other hand,
"franchise" means a right or privilege, affected with public interest which is conferred upon
private persons or corporations, under such terms and conditions as the government and its
political subdivisions may impose in the interest of public welfare, security and safety.
18

Petitioner thus asserts that it cannot be held liable to pay franchise tax because it is neither a
private corporation nor a business created for profit.
Second. Petitioner contends that the authority of respondent to tax does not extend to it.
Section 133 (o) of the LGC states that
Section 133. Common Limitations on the Taxing Powers of the Local Government Units.
Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities and barangays shall not extend to the levy of the following:
x x x x
(o) Taxes, fees, or charges of any kind on the National Government, its agencies and
instrumentalities, and local government units.
Petitioner claims that it is an instrumentality of the National Government, which is beyond
the authority of local government units to tax. It points out that it remits the profits derived
from its operations to the National Government; Congress approves its yearly budget, which
forms part of the General Appropriations Act; and all of its indebtedness, foreign or domestic,
is guaranteed by the National Government.
19

Finally, petitioner posits that to require it to pay franchise tax could have deleterious effects
on its operations. It would compel petitioner to borrow from domestic and foreign financial
institutions to meet both its operational expenses and the franchise tax. Ultimately, it is the
national government that will pay the tax, and the burden shouldered by the Filipino people.
Respondent, for its part, maintains that petitioner has failed to overcome the presumption that
it is taxable. It stresses that tax exemptions are highly disfavored and construed strictissimi
juris against the taxpayer and liberally in favor of the taxing power. Petitioner, as the
taxpayer, had the burden of proving that it is exempt from paying the franchise tax.
Respondent avers that petitioner cannot find solace in the tax exemption privilege provided in
its charter because this has already been withdrawn by the LGC. Contrary to petitioners
assertion, respondent contends that such tax exemption privilege has been expressly repealed
by the LGC, and cites the City Government of San Pablo, Laguna v. Reyes
20
where the Court
declared that the legislative purpose to withdraw tax privileges enjoyed under existing law is
clearly manifested by the language used in Sections 137 and 193 which categorically
withdrew such exemptions subject only to the exceptions enumerated.
Respondent avers that petitioners status as a non-profit government corporation does not
exempt it from liability to pay franchise tax to local government units. Petitioner, as a
corporation created to undertake ministrant or proprietary function, has long been treated in
this jurisdiction as akin to a private commercial corporation. Its dealings are considered to be
purely private and commercial undertakings although imbued with public interest.
21

The fundamental issue to be resolved in this case is whether or not petitioner is subject to
franchise tax under the LGC.
The petition has no merit. The case is on all fours with the case of National Power
Corporation v. City of Cabanatuan,
22
where this very same issue was settled by the Court. In
the Cabanatuan case, petitioner likewise refused to pay franchise tax to the City of
Cabanatuan by invoking the tax exemption provided under its charter. It argued that Section
137 of the LGC does not apply to it because its stocks are wholly owned by the National
Government, and its charter characterizes it as a "non-profit" organization. The Court,
however, declared that petitioner is not exempt from paying franchise tax.
Indeed, taxation is the rule and exemption is the exception. The burden of proof rests upon
the party claiming exemption to prove that it is, in fact, covered by the exemption so
claimed.
23
Tax exemptions should be granted only by clear and unequivocal provision of law
on the basis of language too plain to be mistaken. They cannot be extended by mere
implication or inference.
24
In this case, petitioner relies solely on the exemption granted to it
by its charter, arguing that its exemption from franchise tax remained despite the enactment
of the LGC.
The Court also addressed this issue in the Cabanatuan case where it held that the LGC has
expressly withdrawn such exemption, thus:
x x x [S]ection 193 of the LGC withdrew, subject to limited exceptions, the sweeping tax
privileges previously enjoyed by private and public corporations. Contrary to the contention
of petitioner, Section 193 of the LGC is an express, albeit general, repeal of all statutes
granting tax exemptions from local taxes. It reads:
Sec. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this
Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether
natural or juridical, including government-owned or controlled corporations, except local
water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit
hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.
(italics supplied)
It is a basic precept of statutory construction that the express mention of one person, thing,
act, or consequence excludes all others as expressed in the familiar maxim expressio unius est
exclusio alterius. Not being a local water district, a cooperative registered under R.A. No.
6938, or a non-stock and non-profit hospital or educational institution, petitioner clearly does
not belong to the exception. It is therefore incumbent upon the petitioner to point to some
provisions of the LGC that expressly grant it exemption from local taxes.
But this would be an exercise in futility. Section 137 of the LGC clearly states that the LGUs
can impose franchise tax "notwithstanding any exemption granted by any law or other special
law." This particular provision of the LGC does not admit any exception. x x x
25

Even prior to the Cabanatuan case, the Court already declared in City Government of San
Pablo, Laguna v. Reyes
26
that the franchise tax may still be imposed despite any exemption
enjoyed under special laws, explaining thus:
x x x The legislative purpose to withdraw tax privileges enjoyed under existing law or charter
is clearly manifested by the language used in Sections 137 and 193 categorically withdrawing
such exemption subject only to the exceptions enumerated. Since it would be not only tedious
and impractical to attempt to enumerate all the existing statutes providing for an express,
albeit general, withdrawal of such exemptions or privileges. No more unequivocal language
could have been used.
27

Nonetheless, petitioner seeks to avoid paying the franchise tax by arguing further that it is not
liable therefor under Section 137 of the LGC because said tax applies only to a "business
enjoying a franchise." It contends that it is not a private corporation or a business for profit.
Again, we do not agree. The Court also declared in the Cabanatuan case that petitioner
qualifies as a "business enjoying a franchise":
In section 131 (m) of the LGC, Congress unmistakably defined a franchise in the sense of a
secondary or special franchise. This is to avoid any confusion when the word franchise is
used in the concept of taxation. As commonly used, a franchise tax is "a tax on the privilege
of transacting business in the state and exercising corporate franchises granted by the state."
It is not levied on the corporation simply for existing as a corporation, upon its property or its
income, but on its exercise of the rights or privileges granted to it by the government. Hence,
a corporation need not pay franchise tax from the time it ceased to do business and exercise
its franchise. It is within this context that the phrase "tax on businesses enjoying a franchise"
in Section 137 of the LGC should be interpreted and understood. Verily, to determine
whether the petitioner is covered by the franchise tax in question, the following requisites
should concur: (1) that petitioner has a "franchise" in the sense of a secondary or special
franchise; and (2) that it is exercising its rights or privileges under this franchise within the
territory of the respondent city government.
Petitioner fulfills the first requisite. Commonwealth Act No. 120, as amended by Rep. Act
No. 6395, constitutes petitioners primary and secondary franchises. It serves as the
petitioners charter, defining its composition, capitalization, the appointment and the specific
duties of its corporate officers, and its corporate life span. As its secondary franchise,
Commonwealth Act No. 120, as amended, vests the petitioner [with x x x certain] powers
which are not available to ordinary corporations x x x
x x x x
Petitioner also fulfills the second requisite. It is operating within the respondent city
governments territorial jurisdiction pursuant to the powers granted to it by Commonwealth
Act No. 120, as amended. x x x
28

Petitioner was likewise characterized therein as a private enterprise for profit, on the
following ratiocination:
Petitioner was created to "undertake the development of hydroelectric generation of power
and the production of electricity from nuclear, geothermal and other sources, as well as the
transmission of electric power on a nationwide basis. Pursuant to this mandate, petitioner
generates power and sells electricity in bulk. Certainly, these activities do not partake of the
sovereign functions of the government. They are purely private and commercial
undertakings, albeit imbued with public interest. The public interest involved in its activities,
however, does not distract from the true nature of the petitioner as a commercial enterprise, in
the same league with similar public utilities like telephone and telegraph companies, railroad
companies, water supply and irrigation companies, gas, coal or light companies, power
plants, ice plant among others; all of which are declared by this Court as ministrant or
proprietary functions of government aimed at advancing the general interest of society.
29

Petitioner nevertheless contends that respondent cannot impose a franchise tax on it because
it is an instrumentality of the National Government. It also cites the case of Basco v.
Philippine Amusements and Gaming Corporation
30
which held that a government-owned and
controlled corporation whose shares of stock are owned by the national government is
exempt from local taxes.
This contention, however, is without merit. Although as a general rule, LGUs cannot impose
taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities, this rule admits of an exception, i.e., when specific provisions of the LGC
authorize the LGUs to impose taxes, fees or charges on the aforementioned entities.
31
Section
137 of the LGC is one of those exceptions. It authorizes the province to impose a tax on
business enjoying a franchise, at a rate not exceeding fifty percent (50%) of one percent (1%)
of the gross annual receipts for the preceding calendar year based on the incoming receipt, or
realized, within its territorial jurisdiction.
Thus, the doctrine laid down in the Basco case is no longer true. In the Cabanatuan case, the
Court noted primarily that the Basco case was decided prior to the effectivity of the LGC,
when no law empowering the local government units to tax instrumentalities of the National
Government was in effect.
32
It further explained that in enacting the LGC, Congress
empowered the LGUs to impose certain taxes even on instrumentalities of the National
Government.
WHEREFORE, premises considered, the petition is DENIED. The Decision of the Court of
Appeals dated October 21, 2004, is AFFIRMED.
SO ORDERED.