Taxation Case Digest: PLDT vs City of Davao, et.al.

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, INC. (PLDT)

vs.
CITY OF DAVAO and ADELAIDA B. BARCELONA, in her capacity as City Treasurer
of Davao

GR. No. 143867

____________________________
TAX EXEMPTIONS vs. TAX EXCLUSION; IN LIEU OF ALL TAXES PROVISION
____________________________

Facts:

PLDT paid a franchise tax equal to three percent (3%) of its gross receipts. The franchise
tax was paid in lieu of all taxes on this franchise or earnings thereof pursuant to RA
7082. The exemption from all taxes on this franchise or earnings thereof was
subsequently withdrawn by RA 7160 (LGC), which at the same time gave local government
units the power to tax businesses enjoying a franchise on the basis of income received or
earned by them within their territorial jurisdiction. The LGC took effect on January 1,
1992.
The City of Davao enacted Ordinance No. 519, Series of 1992, which in pertinent part
provides: Notwithstanding any exemption granted by law or other special laws, there is
hereby imposed a tax on businesses enjoying a franchise, a rate of seventy-five percent
(75%) of one percent (1%) of the gross annual receipts for the preceding calendar year
based on the income receipts realized within the territorial jurisdiction of Davao City.
Subsequently, Congress granted in favor of Globe Mackay Cable and Radio Corporation
(Globe) and Smart Information Technologies, Inc. (Smart) franchises which contained in
leiu of all taxes provisos.
In 1995, it enacted RA 7925, or the Public Telecommunication Policy of the Philippines,
Sec. 23 of which provides that 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. The law took effect on
March 16, 1995.
In January 1999, when PLDT applied for a mayors permit to operate itsDavao Metro
exchange, it was required to pay the local franchise tax which then had amounted to
P3,681,985.72. PLDT challenged the power of the city government to collect the local
franchise tax and demanded a refund of what had been paid as a local franchise tax for the
year 1997 and for the first to the third quarters of 1998.

Issue:

Whether or not by virtue of RA 7925, Sec. 23, PLDT is again entitled to the exemption
from payment of the local franchise tax in view of the grant of tax exemption to Globe and
Smart.

Held:

Petitioner contends that because their existing franchises contain in lieu of all taxes
clauses, the same grant of tax exemption must be deemed to have become ipso facto part of
its previously granted telecommunications franchise. But the rule is that tax exemptions
should be granted only by a clear and unequivocal provision of law expressed in a
language too plain to be mistaken and assuming for the nonce that the charters of Globe
and of Smart grant tax exemptions, then this runabout way of granting tax exemption to
PLDT is not a direct, clear and unequivocal way of communicating the legislative intent.
Nor does the term exemption in Sec. 23 of RA 7925 mean tax exemption. The term refers
to exemption from regulations and requirements imposed by the National
Telecommunications Commission (NTC). For instance, RA 7925, Sec. 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 of
tariffs. Another exemption granted by the law in line with its policy of deregulationis the
exemption from the requirement of securing permits from the NTC every time a
telecommunications company imports equipment.
Tax exemptions should be granted only by clear and unequivocal provision of law on the
basis of language too plain to be mistaken.
National Power Corporation vs City
of Cabanatuan
G.R. No. 149110 April 9, 2003
NATIONAL POWER CORPORATION, petitioner,
vs.
CITY OF CABANATUAN, respondent.
FACTS: Petitioner is a government-owned and controlled corporation created under Commonwealth
Act No. 120, as amended.
For many years now, petitioner sells electric power to the residents of Cabanatuan City, posting a
gross income of P107,814,187.96 in 1992.7 Pursuant to section 37 of Ordinance No. 165-92,8 the
respondent assessed the petitioner a franchise tax amounting to P808,606.41, representing 75% of
1% of the latters gross receipts for the preceding year.

Petitioner refused to pay the tax assessment arguing that the respondent has no authority to impose
tax on government entities. Petitioner also contended that as a non-profit organization, it is
exempted from the payment of all forms of taxes, charges, duties or fees in accordance with sec. 13
of Rep. Act No. 6395, as amended.

The respondent filed a collection suit in the RTC, demanding that petitioner pay the assessed tax
due, plus surcharge. Respondent alleged that petitioners exemption from local taxes has been
repealed by section 193 of the LGC, which reads as follows:

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.
RTC upheld NPCs tax exemption. On appeal the CA reversed the trial courts Order on the ground
that section 193, in relation to sections 137 and 151 of the LGC, expressly withdrew the exemptions
granted to the petitioner.

ISSUE: W/N the respondent city government has the authority to issue Ordinance No. 165-92 and
impose an annual tax on businesses enjoying a franchise
HELD: YES. Taxes are the lifeblood of the government, for without taxes, the government can
neither exist nor endure. A principal attribute of sovereignty, the exercise of taxing power derives its
source from the very existence of the state whose social contract with its citizens obliges it to
promote public interest and common good. The theory behind the exercise of the power to tax
emanates from necessity;32 without taxes, government cannot fulfill its mandate of promoting the
general welfare and well-being of the people.
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. In City Government of San Pablo, Laguna v. Reyes,74 MERALCOs exemption
from the payment of franchise taxes was brought as an issue before this Court. The same issue was
involved in the subsequent case of Manila Electric Company v. Province of Laguna.75 Ruling in favor
of the local government in both instances, we ruled that the franchise tax in question is imposable
despite any exemption enjoyed by MERALCO under special laws, viz:
It is our view that petitioners correctly rely on provisions of Sections 137 and 193 of the LGC to
support their position that MERALCOs tax exemption has been withdrawn. The explicit language of
section 137 which authorizes the province to impose franchise tax notwithstanding any exemption
granted by any law or other special law is all-encompassing and clear. The franchise tax is
imposable despite any exemption enjoyed under special laws.
Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating that 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
(1) local water districts, (2) cooperatives duly registered under R.A. 6938, (3) non-stock and non-
profit hospitals and educational institutions, are withdrawn upon the effectivity of this code, the
obvious import is to limit the exemptions to the three enumerated entities. 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. In the absence of
any provision of the Code to the contrary, and we find no other provision in point, any existing tax
exemption or incentive enjoyed by MERALCO under existing law was clearly intended to be
withdrawn.
Reading together sections 137 and 193 of the LGC, we conclude that under the LGC the local
government unit may now impose a local tax at a rate not exceeding 50% of 1% of the gross annual
receipts for the preceding calendar based on the incoming receipts realized within its territorial
jurisdiction. The legislative purpose to withdraw tax privileges enjoyed under existing law or charter
is clearly manifested by the language used on (sic) 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 special tax exemptions or
privileges, the LGC provided for an express, albeit general, withdrawal of such exemptions or
privileges. No more unequivocal language could have been used.76 (emphases supplied)
Doubtless, the power to tax is the most effective instrument to raise needed revenues to finance and
support myriad activities of the local government units for the delivery of basic services essential to
the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the
people. As this Court observed in the Mactan case, the original reasons for the withdrawal of tax
exemption privileges granted to government-owned or controlled corporations and all other units of
government were that such privilege resulted in serious tax base erosion and distortions in the tax
treatment of similarly situated enterprises. With the added burden of devolution, it is even more
imperative for government entities to share in the requirements of development, fiscal or otherwise,
by paying taxes or other charges due from them.
REYES VS SAN PABLO CITY (305 SCRA 353)
City Government of San Pablo, Laguna vs Reyes
305 SCRA 353 [GR No. 127708 March 25, 1999]

Facts: Act 3648 granted the Escudero Electric Service Company a legislative franchise to maintain and operate an
electric light and power system in the city of San Pablo and nearby municipalities. Section 10 of said act provides:

In consideration of the franchise and rights hereby granted, the grantee shall pay unto the municipal treasury of
each municipality in which it is supplying electric current to the public under this franchise, a tax equal to two
percentum of the gross earning from electric current sold or supplied under this franchise in each said municipality.
Said tax shall be due and payable quarterly and 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 insular, now or in
the future, or its pole wires, insulator, switches, transformers, and structures, installations, conductors and
accessories placed in and over and under all public property, including public streets and highways, provincial
roads, bridges and public squares, and on its franchises, rights, privileges, receipts, revenues and profits from
which taxes the grantee is hereby expressly exempted.

Escuderos franchise was transferred to the plaintiff MERALCO under RA 2340.

On October 5, 1992, the sangguniang panlungsod of San Pablo City enacted ordinance no. 56 otherwise known as
the Revenue Code of the City of San Pablo. Pursuant to sec 2.09 article D of the said ordinance, the petitioner city
treasurer sent to private respondent a letter demanding payment of the aforesaid franchise tax.

Issue: Whether or not the city of San Pablo may impose a local franchise tax to MERALCO.

Held: Yes. A general law cannot be construed to have repealed a special law by mere implication unless the intent
to repeal or alter is manifest and it must be convincingly demonstrated that the two laws are so clearly repugnant and
patently inconsistent that they cannot co-exist.

It is our view that petitions correctly rely on the provisions of sections 137 and 193 of the LGC to support their
position that MERALCOs tax exemption has been withdrawn. The explicit language of section 137 which
authorizes the province to impose franchise tax not withstanding any exemption granted by law or other special law
is all encompassing and clear. The franchise is imposable despite any exemption enjoyed under special law.

Sec 193 buttresses the withdrawal of extant tax exemption privileges. By stating that unless otherwise provided in
this code, tax exemptions or incentives granted to or presently enjoyed all persons whether natural or juridical,
including GOCCs except: 1.) local water districts; 2.) Cooperatives duly registered under RA 6938; 3.) Non-stock
and non-profit hospitals and education institutions, are withdrawn upon the effectivity of this code, the obvious
import is to limit the exemptions to the 3 enumerated entities. It is a basic precept of statutory construction that the
express mention of one person, thing, act or consequences excludes all others as expressed in the familiar
maxim expressio unius est exclusio alterus. In the absence of any provision of the code to the contrary, and we find
no other provision in point, any existing tax exemption or incentive enjoyed by the MERALCO under the existing
law was clearly intended to be withdrawn.

Reading together section 193 and 137 of the LGC conclude that under the LGC, the local government unit may now
impose a local tax at a rate not excluding 50% of 1% of the gross annual receipts for the preceding calendar year
based on the incoming receipts realized within its territorial jurisdiction. The legislative purpose to withdraw tax
privilege only enjoy and an 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 special tax exemptions or
privileges, the LGC provided for an express, albeit general withdrawal of such exemptions or privileges. No more
unequivocal language could have been used.
It is true that the phrase in lieu of all taxes found in special franchises has been held in several cases to exempt the
franchise holder from payment of tax on its corporate franchise imposed of the internal revenue code, as the charter
is in the nature of a private contract and the exemption is part of the inducement for the acceptance of the franchise,
and that the imposition of another franchise tax by the local authority would constitute an impairment of contract
between the government and the corporation. But these magic words contained in the phrase shall be in lieu of all
taxes have to give way to the premptory language of the LGC specifically providing for the withdrawal of such
exemption privileges.

Taxation Local Taxation Taxes Levied By a Province Sand and Gravel Fee
In 1968, the Municipality of San Fernando, La Union undertook road constructions. It sent
its trucks to the nearby Municipality of Luna, La Union to gather sand and gravel. But then
the agents of the Luna, La Union imposed fees on each truck. Mayor Lorenzo Dacanay of
San Fernando then filed for injunction against the mayor of Luna (Timoteo Sta. Romana), its
treasurer and their agents to enjoin them from collecting said fees. Sta. Romana, in their
defense, averred that the collection of said fees is pursuant to an ordinance duly approved
by the Municipal Council of Luna in consonance with its power to tax, and that the fees
collected are reasonable, fair and legal.
ISSUE: Whether or not the Municipality of Luna is validly exacting the assailed fees on the
hauling of gravel and sand.
HELD: No. Pursuant to the then Local Tax Code, a municipality like Luna is not authorized
to exact fees for the hauling of gravel and sand within it. Such power is lodged only in the
province, in this case, the province of La Union. Only La Union has the authority to exact
taxes for sand and gravel extracted within its jurisdiction. The tax ordinance of Luna
providing for such power to the municipality is therefore void. Corollarily, San Fernando
cannot extract sand and gravel from the Municipality of Luna without paying the
corresponding taxes or fees that may be imposed by the province of La Union.