Digital v.

Pangasinan | ema
February 23, 2007
DIGITAL TELECOMMUNICATIONS PHILIPPINES, INC., petitioner, vs.
PROVINCE OF PANGASINAN represented by RAMON A. CRISOSTOMO, PANGASINAN PROVINCIAL
TREASURER, respondent.
Chico-Nazario, J.:
SUMMARY: Digitel operated telecommunications facilities in Pangasinan under a provincial franchise granted in Nov.
1992. Digitels provincial franchise made it liable for provincial franchise and real property taxes. In Dec. 1992, the
Pangasinan Provincial Board enacted an ordinance imposing real property tax. This affected Digitel such that it
became liable for RPT not only on its lands but on the improvements on these lands as well. In 1993, the Pangasinan
Provincial Board passed a franchise tax ordinance. In 1994, Congress granted Digitel a national franchise, under
which Digitel was made liable for franchise tax and real property tax on its real estate exclusive of its franchise.
Pangasinan conducted an audit and found that Digitel has not paid its franchise tax since 1992, so it ordered Digitel
to pay up or have its provincial franchise cancelled. In 1995, the Public Telecommunications Policy Act (RA 7925 or
the PTPA) took effect. Digitel used this as basis to claim exemption from the Pangasinan franchise and real property
taxes, claiming that 23 of the PTPA extended the tax exemptions granted to telecommunications franchisees to
franchisees who did not have any. Thus the tax exemption granted in the franchises of Smart, Globe, and Bell has
become applicable to Digitel, the argument goes. Digitel thus refused to pay the Pangasinan taxes. Pangasinan thus
sued Digitel for the assessment and collection of the taxes. The trial court ruled for Pangasinan and ordered the
assessment and payment of taxes by Digitel. Digitel appealed to the SC. HELD: On franchise tax SC referred to its
ruling in PLDT v. Davao City, which held that the term exemption in 23 of the PTPA was not intended to mean tax
exemptions but exemptions from registration and reportorial requirements. Digitels argument will lead to absurd
consequences. However, because of the abolition of the franchise tax and its replacement with the VAT, Digitel now
has to pay VAT on its operations. On real property tax SC ruled that Digitel is liable to pay real property tax only with
respect to properties not actually, directly, and exclusively used in its franchise. The Congress can validly grant tax
exemptions to entities notwithstanding the withdrawal of tax exemptions in the Local Government Code. Since the
national franchise of Digitel is a later law, Congress is presumed to have intended to repeal the LGC to the extent of
granting Digitel the tax exemption granted to it in the franchise.
DOCTRINE: The word exemption in RA 792523 pertains to exemption from regulatory or reportorial requirements
of the DOTC or the NTC and not to exemption from tax liability.
The grant of taxing powers to local government units under the Constitution and the LGC does not affect the power of
Congress to grant exemptions to certain persons, pursuant to a declared national policy. The legal effect of the
constitutional grant to local governments simply means that in interpreting statutory provisions on municipal taxing
powers, doubts must be resolved in favor of municipal corporations.
NATURE: Rule 45 petition for review on certiorari. Original case for mandamus, collection, and damages
FACTS:

Jan. 1, 1992 - RA 7160 (LGC of 1991) took effect.

o LGC 137 withdrew all tax exemptions of businesses with franchises and authorized LGUs to
impose a franchise tax; while LGC 232 authorized LGUs to impose a real property tax.

Nov. 13, 1992 Digital Telecommunications Corp. (DIGITEL) was granted a Provincial Franchise by the
Province of PANGASINAN.
o The franchise allowed Digitel to install, maintain and operate a telecommunications system within
the territorial jurisdiction of Pangasinan.
o Under the franchise, Digitel was required to pay franchise and real property taxes.

Dec. 29, 1992 The Sangguniang Panlalawigan (SP) of Pangasinan enacted Provincial Tax Ordinance No.
1, which imposed real property tax on properties located within Pangasinan.
o The ordinance extended the application of 6 of Digitels provincial franchise to include machineries
and other improvements not specifically exempted.

Sep. 10, 1993 The SP ratified the Pangasinan Franchising Ordinance of 1993. 4, 5, and 6 thereof
imposed a franchise tax on all businesses enjoying a franchise within Pangasinan.

Feb. 17, 1994 RA 7678 Digitels national legislative franchise took effect.
o 5 of the law made Digitel liable for the payment of a franchise tax "as may be prescribed by law of
all gross receipts of the telephone or other telecommunications businesses transacted under it by
the grantee," as well as real property tax "on its real estate, and buildings "exclusive of this
franchise."

Pangasinan examined its tax records and found that Digitel had a franchise tax deficiency for the years
1992-1994.

Pangasinan alleged that apart from the P40,000 deposit made by Digitel as part of its acceptance
of the provincial franchise, it never made any other payment of franchise tax since it started
operating in 1992.
Oct. 14, 1994 Pangasinan SP passed Resolution 364. It directed Digitel to pay its franchise taxes within 15
days from receipt thereof, otherwise its franchise shall be declared inoperative and its operations terminated.
Mar. 16, 1995 Congress passed RA 7925 (Public Telecommunications Policy Act).
o 23 of the law provides: 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 x x x
Digitel did not pay the provincial franchise and real property taxes.
Oct. 30, 1998 The Pangasinan Provincial Legal Officer wrote to Digitel to demand compliance with the
Pangasinan Franchising Ordinance. The Provincial Legal Officers letter quoted 4 of the Ordinance but
omitted the phrase "by the Congress of the Philippines, an authorized franchising agency or/and (the
conjunctive word 'and' was a later amendment as contained in Ordinance No. 40-94)," as relating to an
additional source or grantor of the necessary franchise was omitted from the provision quoted in the letter.
Nov. 17, 1998 Digitel replied that it did not own telecommunications facilities in Pangasinan.
o It argues that its operation of telecommunications systems in Pangasinan was under a Facilities
Management Agreement with the DOTC, which remained the owner of the facilities.
o DOTC also provided the budget for the operation of the facilities, thus all revenues generated from
the operation of the facilities inured to the DOTC, and all the fees received by Digitel were for
serives rendered.
o Furthermore, under its national franchise, the payment of national franchise tax was in lieu of all
taxes on said franchise.
Dec. 8, 1998 Pangasinan replied that the provisions of Digitels national franchise was subject not only to
the Constitution but also to applicable laws, rules, and regulations, which include LGC 137 and 6 of the
Pangasinan Franchising Ordinance. No settlement was reached.
Mar. 1, 2000 Pangasinan, represented by its Provincial Treasurer, filed the present complaint for
Mandamus, Collection, and Damages before the Lingayen RTC to compel Digitel to:
o Open its books, records and other pertinent documents so that the provincial government can
make the proper assessment of the franchise tax and real property tax due;
o Pay the sum equivalent to 1/20th of 1% of the total capital investment for the first year of its
operation (1992), and thereafter, fifty percent (50%) of one percent (1%) of the gross receipts
realized during the preceding calendar year 1993, 1994, 1995, 1996, 1997, 1998 and up to the
present, after the determination of Digitel's capital investment and subsequent gross receipts.
o Pay Real Property Tax due after its proper computation, pursuant to Section 4 of the Pangasinan
Real Property Tax Ordinance of 1992, after determination of all of Digitel's real properties
o Pay 1) A surcharge of 25% of the amount of the franchise tax due or a fraction thereof until the
delinquent tax shall have been fully paid; 2) To pay an interest of 2% per month on the unpaid
amount or a fraction thereof, until the delinquent tax shall have been fully paid, but in no case shall
the total interest on the unpaid tax or proportion thereof exceed 36 months;
o Pay the costs of suit.
June 14, 2001 RTC DECISION
o Granted all reliefs sought by Pangasinan.
o RTC held that Digitels national franchise does not exempt it from payment of provincial franchise
and real property taxes.
o The provincial and national franchises are separate and distinct from each other. Digitel was guilty
of benefiting from the use of its national franchise even prior to the granting of such.
o LGC 137 had already withdrawn all exemptions. As such, the provincial LGU may impose a tax on
a business enjoying a franchise.
o Digitels MR was denied; hence this petition with the SC.
DIGITELS ARGUMENTS
o Its legislative franchise being an earlier enactment, by virtue of RA 792523, the tax exemption
found in the franchises of Globe, Smart and Bell, all basically or similarly containing the phrase
"shall pay a franchise tax equivalent to of all gross receipts of the business 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, shall ipso facto, immediately and unconditionally apply
to Digitel.
o In other words, under RA 792523, in relation to the pertinent provisions of the legislative
franchises of Globe, Smart and Bell, "the national franchise tax for which DIGITEL is liable to pay
o

shall be 'in lieu of any and all taxes of any kind, nature or description levied, established or
collected by any authority whatsoever, municipal, provincial, or national, from which the grantee is
hereby expressly granted."
ISSUES (HELD)
1) W/N Digitel is entitled to exemption from provincial franchise tax in view of RA 792523, in relation to the similar
exemptions found in the franchises of Globe, Smart, and Bell (NO, but it is liable for VAT)
2) If not so entitled, W/N Digitels real properties in Pangasinan are exempt from real property tax by virtue of the
phrase exclusive of this franchise found in 5 of its franchise (YES, but only with respect to properties actually,
directly, and exclusively used in its franchise)
RATIO
1) RA 792523 NOT INTENDED AS A BLANKET TAX EXEMPTION TO ALL TELECOMMUNICATIONS ENTITIES

Prior to the issuance of its national franchise, Digitel only had a provincial franchise, which expressly
subjected it to franchise and real property taxes. It was only the enactment of RA 7925 and of subsequent
national franchises containing the in lieu of all taxes proviso that enabled Digital to claim exemption from
franchise and real estate tax.
In PLDT v. Davao City, it has already been held that the word exemption in RA 792523 pertains to
exemption from regulatory or reportorial requirements of the DOTC or the NTC and not to exemption from
tax liability.
o The issue in that case was whether or not PLDT was entitled to exemption from local franchise tax
by virtue of 23 in view of a similar tax exemption granted to Globe and Smart even though the in
lieu of all taxes proviso in PLDTs national franchise has already been withdrawn by the Local
Government Code.
o HELD: Congress did not intend RA 792523 to operate as a blanket tax exemption to
telecommunications entities. It thus cannot be said to have amended PLDTs franchise so as to
entitle it to exemption from local franchise tax. Tax exemptions are highly disfavored, and are
strictly construed against the claiming taxpayer.
o The acceptance of PLDT's theory would result in absurd consequences. To illustrate: In its
franchise, Globe is required to pay a franchise tax of only 1 % of all gross receipts from its
transactions while Smart is required to pay a tax of 3% on all gross receipts from business
transacted. PLDT's 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 23. PLDT's 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.
o 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. Hence, a consideration of the law itself in its entirety and the
proceedings of both Houses of Congress is in order.
o Thus the SC in that case found that the Congressional intent was simply to set a policy of
deregulation in the telecommunications industry. Neither the law itself nor the Congressional
deliberations show any intent to grant tax exemptions to telecommunications entities, including
those whose exemptions had been withdrawn by the LGC.

This ruling has been repeatedly upheld by the SC in subsequent cases. Digitels claim for exemption from
provincial franchise tax must therefore be overruled.

Moreover, RA 7716 abolished the franchise tax and imposed value-added tax in its stead. Therefore, the in
lieu of all taxes proviso in the franchises of Globe, Smart, Bell, etc. has become functus officio. From the
effectivity of RA 7716 on Jan. 1, 1996, Digitel and other similar telecommunications entities became liable
for VAT under NIRC 108.
2) DIGITELS REAL PROPERTIES IN PANGASINAN ARE TAX-EXEMPT, WITH QUALIFICATION;
CONGRESSIONAL POWER GRANT TAX EXEMPTIONS PREVAILS OVER LGC

Digitel: 5 of its national franchise provides in part: Tax Provisions. The grantee shall be liable to pay the
same taxes on its real estate, buildings, and personal property exclusive of this franchise as other persons
or corporations are now or hereafter may be required by law to pay x x x.
o The phrase exclusive of this franchise means that it is exempt from real property tax.

o 5 qualifies or delimits the scope of its liability for real property tax.
Pangasinan: The phrase exclusive of this franchise cannot prevail over the provisions of the Local
Government Code.
SC: Digitels real properties in Pangasinan which are actually, directly, and exclusively used in its
franchise are exempt from real property tax.
o The present issue is at heart a dispute between the inherent taxing power of Congress and the
delegated taxing power of LGUs under the 1987 Constitution.
o This conflict has already been resolved in PLDT v. Davao City, where SC sustained the power of
Congress to grant tax exemptions over and above the delegated taxing power of the LGUs,
notwithstanding the source of the delegated power.
o QC v. Bayantel: [T]he grant of taxing powers to local government units under the Constitution and
the LGC does not affect the power of Congress to grant exemptions to certain persons, pursuant to
a declared national policy. The legal effect of the constitutional grant to local governments simply
means that in interpreting statutory provisions on municipal taxing powers, doubts must be
resolved in favor of municipal corporations.
o Had Congress intended to tax all real properties of Digitel regardless of use, it would not have
placed a qualifying phrase in 5 of Digitels national franchise. PLDT and QC have already settled
that Congress can exempt franchise grantees from tax despite the provisions of the LGC.
Furthermore, Digitels national franchise is a later law than the LGC. Congress is presumed to have
passed the law with knowledge of the LGCs withdrawal of tax exemptions.
o The real issue is now the intent of Congress in passing RA 7678 (Digitels national franchise) with
respect to tax exemption.
o Congress, by passing the later law restoring a tax exemption, chose to restore such immunity to a
limited degree, as held in QC: The Court views this subsequent piece of legislation as an express
and real intention on the part of Congress to once again remove from the LGC's delegated taxing
power, all of the franchisee's properties that are actually, directly and exclusively used in the pursuit
of its franchise.
o However, Digitels exemption applies only from the time of the effectivity of its national franchise
(Feb. 17, 1994). It cannot be made to retroact.
Digitel is thus liable for the following:
1) as to provincial franchise tax, from 13 November 1992 until actually paid;
2) as to real property tax

for the period starting from 13 November 1992 until 28 December 1992, it shall be
imposed only on the lands and buildings of DIGITEL located within Pangasinan

for the period commencing from 29 December 1992 until 16 February 1994, in addition to
the lands and buildings aforementioned, it shall similarly be imposed on machineries and
other improvements; and, by virtue of DIGITELs National Franchise, in accordance with
QC v. Bayantel,

from the date of effectivity on 17 February 1994 until the present, it shall be imposed only
on real properties NOT actually, directly and exclusively used in the franchise of DIGITEL.
In addition to the foregoing summary, pertinent provisions of law respecting interests,
penalties and surcharges shall also be made to apply.

DISPOSITION: Petition denied.