G.R. No.

127708 March 25, 1999

CITY GOVERNMENT OF SAN PABLO, LAGUNA, CITY TREASURER OF SAN PABLO, LAGUNA and THE
SANGGUNIANG PANGLUNSOD OF SAN PABLO, LAGUNA, petitioners,
vs.
HONORABLE BIENVENIDO V. REYES, in his capacity as Presiding Judge, Regional Trial Court, Branch 29, San
Pablo City and the MANILA ELECTRIC COMPANY, respondents.

GONZAGA-REYES, J.:

This is a petition under Rule 45 of the Rules of Court to review on a pure question of law the decision of the Regional Trial
Court (RTC) of San Pablo City, Branch 29 in Civil Case No. SP-4359(96), entitled "Manila Electric Company vs. City of
San Pablo, Laguna, City Treasurer of San Pablo Laguna, and the Sangguniang Panglunsod of San Pablo City, Laguna."
The RTC declared the imposition of a franchise tax under Section 2.09 Article D of Ordinance No. 56 otherwise known as
the Revenue Code of the City of San Pablo as ineffective and void insofar as the respondent MERALCO is concerned for
being violative of Act No. 3648, Republic Act No. 2340 and PD 551. The RTC also granted MERALCO'S claim for refund
of franchise taxes paid under protest.

The following antecedent facts are undisputed:

Act No. 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 Act No. 3648 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 earnings 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, on its poles, 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 franchise, rights. privileges, receipts, revenues and profits from which taxes the grantee is hereby
expressly exempted.

Escudero's franchise was transferred to the plaintiff (herein respondent) MERALCO under Republic Act No. 2340.

Presidential Decree No. 551 was enacted on September 11, 1974. Section 1 thereof provides the following:

Sec. 1. Any provision of law or local ordinance to the contrary notwithstanding, the franchise tax payable
by all grantees of franchise to generate, distribute and sell electric current for light, heat and power shall
be two percent (2%) of their gross receipts received from the sale of electric current and from transactions
incident to the generation, distribution and sale of electric current.

Such franchise tax shall be payable to the Commissioner of Internal Revenue of his duly authorized
representative on or before the twentieth day of the month following the end of each calendar quarter or
month as may be provided in the respective franchise or pertinent municipal regulation and shall, any
provision of the Local Tax Code or any other law to the contrary notwithstanding, be in lieu of all taxes
and assessments of whatever nature imposed by any national or local authority on earnings, receipts,
income and privilege of generation, distribution and sale of electric current.

Republic Act No. 7160, otherwise known as the "Local Government Code of 1991" (hereinafter referred to as LGC) took
effect on January 1, 1992. The said Code authorizes the province/city 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
realized within its jurisdiction.

On October 5, 1992, the Sangguniang Panglunsod of San Pablo City enacted Ordinance No. 56, otherwise known as the
Revenue Code of the City of San Pablo. The said Ordinance took effect on October 30, 1992. 1

Sec. 2.09, Article D of said Ordinance provides:

Sec. 2.09. Franchise Tax There is hereby imposed a tax on business enjoying a franchise, at a rate of
fifty percent (50%) of one percent (1%) of the cross annual receipts, which shall include both cash sales
and sales on account realized during the preceding calendar year within the city.

Pursuant to the above-quoted Section 2.09, the petitioner City Treasurer sent to private respondent a letter demanding
payment of the aforesaid franchise tax. From 1994 to 1996, private respondent paid "under protest" a total amount of
P1,857,711.67. 2
The private respondent subsequently filed this action before the Regional Trial Court to declare Ordinance No. 56 null and
void insofar as it imposes the franchise tax upon private respondent MERALCO 3 and to claim for a refund of the taxes
paid.

The Court ruled in favor of MERALCO and upheld its argument that the LGC did not expressly or impliedly repeal the tax
exemption/incentive enjoyed by it under its charter The dispositive portion of the decision reads:

WHEREFORE, the imposition of a franchise tax under Sec. 2.09, Article D of Ordinance No. 56 otherwise
known as the Revenue Code of the City of San Pablo, is declared ineffective and null and void insofar as
the plaintiff MERALCO is concerned for being of Republic Act. No. 2340, PD 551, and Republic Act No.
7160 and defendants are ordered to refund to the plaintiff the amount of ONE MILLION EIGHT
HUNDRED FIFTY SEVEN THOUSAND SEVEN HUNDRED ELEVEN & 67/100 (P1,857,711.67) and
such other amounts as may have been paid by the plaintiff under said Revenue Ordinance No. 56 after
the filling of the complaint. 4

SO ORDERED.

Its motion for records for reconsideration having been denied by the trial court. 5 the petitioners filed the instant petition
with this Court raising pure question of law based on the following grounds:

I. RESPONDENT JUDGE GRAVELY ERRED IN HOLDING THAT ACT NO. 3648,

REPUBLIC ACT NO 2340 AND PRESIDENTIAL DECREE NO. 551, AS AMENDED,
INSOFAR AS THEY GRANT TAX INCENTIVES, PRIVILEGES AND IMMUNITIES TO
PRIVATE RESPONDENT, HAVE NOT BEEN REPEALED BY REPUBLIC ACT NO.
7160.

II. RESPONDENT JUDGE GRAVELY ERRED IN RULING THAT SECTION 193 OF

REPUBLIC ACT NO. 7160 HAS NOT WITHDRAWN THE TAX INCENTIVES,
PRIVILEGES AND IMMUNITIES BEING ENJOYED BY THE PRIVATE RESPONDENT
UNDER ACT NO. 3648 REPUBLIC ACT NO. 2340 AND PRESIDENTIAL DECREE NO.
551 AS AMENDED.

III. RESPONDENT JUDGE GRAVELY ERRED IN HOLDING THAT THE FRANCHISE

TAX IN QUESTION CONSTITUTES AN IMPAIRMENT OF THE CONTRACT BETWEEN
THE GOVERNMENT AND PRIVATE RESPONDENT.

Petitioners' position is that RA 7160 (LGC) expressly repealed Act No. 3648, Republic Act No. 2340 and Presidential
Decree 551 and that pursuant to the provisions of Sections 137 and 193 of the LGC, the province or city now has the
power to impose a franchise tax on a business enjoying a franchise. Petitioners rely on the ruling in the case of Mactan
Cebu International Airport Authority vs. Marcos 6 where the Supreme Court held that the exemption from real property tax
granted to Mactan Cebu International Airport Authority under its charter has been withdrawn upon the effectivity of the
LGC.

In addition, the petitioners cite in their Memorandum dated December 8, 1993 an administrative interpretation made by
the Bureau of Local Government Finance of the Department of Finance in its 3rd indorsement dated February 15, 1994 to
the effect that the earlier ruling of the Department of Finance that holders of franchise which contain the phrase "in lieu of
all taxes" proviso are exempt from the payment of any kind of tax is no longer applicable upon the effectivity of the LGC in
view of the withdrawal of tax exemption privileges as provided in Sections 193 and 234 thereof.

We resolve to reverse the court a quo.

The pivotal issue is whether the City of San Pablo may impose a local franchise tax pursuant to the LGC upon the Manila
Electric Company which pays a tax equal to two percent of its gross receipts in lieu of all taxes and assessments of
whatever nature imposed by any national or local authority on savings or income.

It is necessary to reproduce the pertinent provisions of the LGC.

Sec. 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 receipts, or realized, within its territorial jurisdiction. . . .

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.
 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.

Sec. 534 (f) Repealing Clause All general and special law, acts, city charters, decrees, executive
orders, proclamation and administrative regulations, or part or parts thereof which are inconsistent with
any of the provisions of this code are hereby repealed or modified accordingly.

Sec. 534 (f), the repealing clause of the LGC, provides that all general and special laws, act, city charters, decrees,
executive orders, proclamations and administrative regulations or parts thereof which are inconsistent with any of the
provisions of the Code are hereby repealed or modified accordingly.

This clause partakes of the nature of a general repealing clause. 7 It is certainly not an express repealing clause because
it fails to designate the specific act or acts identified by number or title, that are intended to be repealed. 8

Was there an implied repeal by Republic Act No. 7160 of the MERALCO franchise insofar as the latter imposes a 2% tax
"in lieu of all taxes and assessments of whatever nature"?

We rule affirmatively.

We are mindful of the established rule that repeals by implication are not favored as laws are presumed to be passed with
deliberation and full knowledge of all laws existing on the subject. A general law cannot be construed to have repealed a
special law by mere implication unless the intent to repeal or alter is manifest 9 and it must be convincingly demonstrated
that the two laws are so clearly repugnant and patently inconsistent that they cannot co-exist. 10

It is our view that petitions correctly rely on the provisions of Sections 137 and 193 of the LGC to support their position
that MERALCO`s 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.

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 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 untus est exclusio alterius. 11 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 year based
on the incoming receipts realized within its territorial jurisdiction. The legislative purpose to withdraw tax privileges enjoy
under existing law or charter is clearly manifested by the language used in Sections 137 end 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. 12 But these "magic words" contained in the phrase "shall be in lieu of all taxes'' 13 have
to give way to the peremptory language of the LGC specifically providing for the withdrawal of such exemption privileges.

Accordingly in Mactan Cebu International Airport Authority vs.

Marcos. 14 this Court held that Section 193 of the LGC prescribes the general rule, viz., the tax exemption or incentives,
granted to or presently enjoyed by natural or juridical persons are withdrawn upon the effectivity of the LGC except with
respect to those entities expressly enumerated. In the same vein, We must hold that the express withdrawal upon
effectivity of the LGC of all exemptions except only as provided therein, can no longer be invoked by Meralco to disclaim
liability for the local tax.

Private respondents further argue that the "in lieu of" provision contained in PD 551, Act. No. 3648 and RA 2340 does not
partake of the nature of an exemption, but is a "commutative tax". This contention was raised but was not upheld
in Cagayan Electric Power and Light Co. Inc. vs. Commissioner of Internal Revenue 15 wherein the Supreme Court stated:

. . . Congress could impair petitioner's legislative franchise by making it liable for income tax from which
heretofore it was exempted by virtue of the exemption provided for in section 3 of its franchise . . .
 . . . Republic Act No. 5431, in amending section 24 of the Tax Code by subjecting to income tax all
corporate tax payers not expressly exempted therein and in section 27 of the Code, had the effect of
withdrawing petitioner's exemption from income tax . . .

Private respondent's invocation of the non-impairment clause of the Constitution is accordingly unavailing. The LGC was
enacted in pursuance of the constitutional policy to ensure autonomy to local governments 16 and to enable them to attain
fullest development as self-reliant communities. 17 Thus in Mactan Cebu International Airport Authority vs. Marcos, supra,
this Court pointed out, in upholding the withdrawal of the real estate tax exemption previously enjoyed by the Mactan
Cebu International Airport Authority, as follows:

Note that as reproduced in Section 234 (a) the phrase ''and any government-owned or controlled
corporation so exempt by its charter" was excluded. The justification for this restricted exemption in
Section 234(a) seems obvious: to limit further tax exemption privileges, especially in light of the general
provision on withdrawal of tax exemption privileges in Section 193 and the special provision on
withdrawal of exemption from payment of real property taxes in the last paragraph of Section 234. These
policy considerations are consistent with the State policy to ensure autonomy to local governments and
the objective of the LGC that they enjoy genuine and meaningful local autonomy to enable them to attain
their fullest development as self-reliant communities and make them effective partners in the attainment
of national goals. The power to tax is the most effective instrument to raise needed revenues to finance
and support myriad activities of 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.
It may also be relevant to recall that 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, and there was a need for these entities to share in the requirements of development, fiscal or
otherwise, by paying the taxes and other charges due from them. 18

The Court therein concluded that:

nothing can prevent Congress from decreeing that even instrumentalities or agencies of the Government
performing governmental functions may be subject to tax. Where it is done precisely to fulfill a
constitutional mandate and national policy, no one can doubt its wisdom. 19

The power to tax is primarily vested in Congress. However, in our jurisdiction, it may be exercised by local legislative
bodies, no longer merely by virtue of a valid delegation as before, but pursuant to direct authority conferred by Section 5,
Article X of the Constitution. 20 Thus Article X, Section 5 of the Constitution reads:

Sec. 5 Each Local Government unit shall have the power to create its own sources of revenue and to
levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide,
consistent with the basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively
to the Local Governments.

The important legal effect of Section 5 is that henceforth, in interpreting statutory provision on municipal fiscal
powers, doubts will have to resolved in favor of municipal corporations. 21

There is further basis for tire conclusion that the non-impairment of contract clause cannot be invoked to uphold Meralco's
exemption from the local tax. Escudero Electric Co. was originally given the legislative franchise under Act. 3648 to
operate an electric light and power system in the City of San Pablo and nearby municipalities. The term of the franchise
under Act. No. 3648 is a period of fifty years from the Act's approval in 1929. The said law provided that the franchise is
granted upon the condition that it shall be subject to amendment, or repeal by the Congress of the United States. 22 Under
the 1935. 23 the 1973 24 and the 1987 25 Constitutions, no franchise or right shall be granted except under the condition
that it shall be subject to amendment, alteration or repeal by the National Assembly when the public interest so requires.
With or without the reservation clause, franchises are subject to alterations through a reasonable exercise of the police
power; they are also subject to alteration by the power to tax, which like police power cannot be contracted away. 26

Finally, while the matter is not of controlling significance, the Court notes that whereas the original Escudero franchise
exempted the franchise holder from all taxes levied or collected "now or in the future" 27 this phrase is noticeably omitted
in the counterpart provision of P.D. 551; that said omission is intended not to foreclose future taxes may reasonably be
deduced by statutory construction.

WHEREFORE, the instant petition is GRANTED. The decision of the Regional Trial Court of San Pablo City, appealed
from is hereby reversed and set aside and the complaint of MERALCO is hereby DISMISSED.

No pronouncement as to costs.

SO ORDERED.

G.R. No. 143867 March 25, 2003

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, INC., petitioner,
vs.
CITY OF DAVAO and ADELAIDA B. BARCELONA, in her capacity as the City Treasurer of Davao, respondents.

RESOLUTION

MENDOZA, J.:

Petitioner seeks a reconsideration of the decision of the Second Division in this case. Because the decision bears directly
on issues involved in other cases brought by petitioner before other Divisions of the Court, the motion for reconsideration
was referred to the Court en banc for resolution.1 The parties were heard in oral arguments by the Court en banc on
January 21, 2003 and were later granted time to submit their memoranda. Upon the filing of the last memorandum by the
City of Davao on February 10, 2003, the motion was deemed submitted for resolution.

To provide perspective, it will be helpful to restate the basic facts.

Petitioner 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 R.A. No. 7082 amending its charter, Act. No. 3436. The
exemption from "all taxes on this franchise or earnings thereof" was subsequently withdrawn by R.A. No. 7160 (Local
Government Code of 1991), 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 Local Government
Code (LGC) took effect on January 1, 1992.

The pertinent provisions of the LGC state:

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. . . .

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.

Pursuant to these provisions, the City of Davao enacted Ordinance No. 519, Series of 1992, which in pertinent part
provides:

Notwithstanding any exemption granted by any law or other special law, there is hereby imposed a tax on
businesses enjoying a franchise, at 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 or receipts realized within the territorial jurisdiction
of Davao City.

Subsequently, Congress granted in favor of Globe Mackay Cable and Radio Corp. (Globe) 2 and Smart Information
Technologies, Inc. (Smart)3 franchises which contained "in lieu of all taxes" provisos. In 1995, it enacted R.A. No. 7925
(Public Telecommunications Policy of the Philippines), 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 its Davao Metro Exchange, it was required to pay
the local franchise tax for the first to the fourth quarter of 1999 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 it had paid
as local franchise tax for the year 1997 and for the first to the third quarters of 1998. For this reason, it filed a petition in
the Regional Trial Court of Davao. However, its petition was dismissed and its claim for exemption under R.A. No. 7925
was denied. The trial court ruled that the LGC had withdrawn tax exemptions previously enjoyed by persons and entities
and authorized local government units to impose a tax on businesses enjoying franchises within their territorial
jurisdictions, notwithstanding the grant of tax exemption to them. Petitioner, therefore, brought this appeal.

In its decision of August 22, 2001, this Court, through its Second Division, held that R.A. No. 7925, 23 cannot be so
interpreted as granting petitioner exemption from local taxes because the word "exemption," taking into consideration the
context of the law, does not mean "tax exemption." Hence this motion for reconsideration.

The question is whether, by virtue of R.A. No. 7925, 23, PLDT is again entitled to exemption from the payment of local
franchise tax in view of the grant of tax exemption to Globe and Smart.

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 clear and unequivocal provision of law "expressed in a language
too plain to be mistaken."4 If, as PLDT contends, the word "exemption" in R.A. No. 7925 means "tax exemption" 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.

But the best refutation of PLDTs claim that R.A. No. 7925, 23 grants tax exemption is the fact that after its enactment
on March 16, 1995, Congress granted several franchises containing both an "equality clause" similar to 23 and an "in
lieu of all taxes" clause. If the equality clause automatically extends the tax exemption of franchises with "in lieu of all
taxes" clauses, there would be no need in the same statute for the "in lieu of all taxes" clause in order to extend its tax
exemption to other franchises not containing such clause. For example, the franchise of Island Country
Telecommunications, Inc., granted under R.A. No. 7939 and which took effect on March 22, 1995, contains the following
provisions:

Sec. 8. Equality Clause. If any subsequent franchise for telecommunications service is awarded or granted by
the Congress of the Philippines with terms, privileges and conditions more favorable and beneficial than those
contained in this Act, then the same privileges or advantages shall ipso facto accrue to the herein grantee and be
deemed part of this Act.

Sec. 10. Tax Provisions. The grantee shall be liable to pay the same taxes on their real estate, buildings and
personal property exclusive of this franchise, as other persons or telecommunications entities are now or
hereafter may be required by law to pay. In addition hereto, the grantee, its successors or assigns, shall pay a
franchise tax equivalent to three percent (3%) of all gross receipts transacted under this franchise, and the said
percentage shall be in lieu of all taxes on this franchise or earnings thereof; Provided, That the grantee shall
continue to be liable for income taxes payable under Title II of the National Internal Revenue Code. The grantee
shall file the return with and pay the taxes due thereon to the Commissioner of Internal Revenue or his duly
authorized representatives in accordance with the National Revenue Code and the return shall be subject to audit
by the Bureau of Internal Revenue. (Emphasis added)

Similar provisions ("in lieu of all taxes" and equality clauses) are also found in the franchises of Cruz Telephone
Company, Inc.,5 Isla Cellular Communications, Inc.,6 and Islatel Corporation.7

We shall now turn to the other points raised in the motion for reconsideration of PLDT.

First. Petitioner contends that the legislative intent to promote the development of the telecommunications industry is
evident in the use of words as "development," "growth," and "financial viability," and that the way to achieve this purpose
is to grant tax exemption or exclusion to franchises belonging in this industry. Furthermore, by using the words
"advantage," "favor," "privilege," "exemption," and "immunity" and the terms "ipso facto," "immediately," and
"unconditionally," Congress intended to automatically extend whatever tax exemption or tax exclusion has been granted
to the holder of a franchise enacted after the LGC to the holder of a franchise enacted prior thereto, such as PLDT.

The contention is untenable. The thrust of the law is to promote the gradual deregulation of entry, pricing, and operations
of all public telecommunications entities and thus to level the playing field in the telecommunications industry. An intent to
grant tax exemption cannot even be discerned from the law. 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 service. 8

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.9

Second. PLDT says that the policy of the law is to promote healthy competition in the telecommunications
industry.10 According to PLDT, the LGC did not repeal the "in lieu of all taxes" provision in its franchise but only excluded
from it local taxes, such as the local franchise tax. However, some franchises, like those of Globe and Smart, which
contain "in lieu of all taxes" provisions were subsequently granted by Congress, with the result that the holders of
franchises granted prior to January 1, 1992, when the LGC took effect, had to pay local franchise tax in view of the
withdrawal of their local tax exemption. It is argued that it is this disparate situation which R.A. No. 7925, 23 seeks to
rectify.

One can speak of healthy competition only between equals. For this reason, the law seeks to break up monopoly in the
telecommunications industry by gradually dismantling the barriers to entry and granting to new telecommunications
entities protection against dominant carriers through equitable access charges and equal access clauses in
interconnection agreements and through the strict policing of predatory pricing by dominant carriers. 11 Interconnection
among carriers is made mandatory to prevent a dominant carrier from delaying the establishment of connection with a
new entrant and to deter the former from imposing excessive access charges. 12
That is also the reason there are franchises13 granted by Congress after the effectivity of R.A. No. 7925 which do not
contain the "in lieu of all taxes" clause, just as there are franchises, also granted after March 16, 1995, which contain such
exemption from other taxes.14 If, by virtue of 23, the tax exemption granted under existing franchises or thereafter
granted is deemed applicable to previously granted franchises (i.e., franchises granted before the effectivity of R.A. No.
7925 on March 16, 1995), then those franchises granted after March 16, 1995, which do not contain the "in lieu of all
taxes" clause, are not entitled to tax exemption. The "in lieu of all taxes" provision in the franchises of Globe and Smart,
which are relatively new entrants in the telecommunications industry, cannot thus be deemed applicable to PLDT, which
had virtual monopoly in the telephone service in the country for a long time, 15 without defeating the very policy of leveling
the playing field of which PLDT speaks.

Third. Petitioner argues that the rule of strict construction of tax exemptions does not apply to this case because the "in
lieu of all taxes" provision in its franchise is more a tax exclusion than a tax exemption. Rather, the applicable rule should
be that tax laws are to be construed most strongly against the government and in favor of the taxpayer.

This is contrary to the uniform course of decisions 16 of this Court which consider "in lieu of all taxes" provisions as granting
tax exemptions. As such, it is a privilege to which the rule that tax exemptions must be interpreted strictly against the
taxpayer and in favor of the taxing authority applies. Along with the police power and eminent domain, taxation is one of
the three necessary attributes of sovereignty. Consequently, statutes in derogation of sovereignty, such as those
containing exemption from taxation, should be strictly construed in favor of the state. A state cannot be stripped of this
most essential power by doubtful words and of this highest attribute of sovereignty by ambiguous language. 17

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. 18Exclusion, 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.19 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.

Petitioner cites Cagayan Electric Power & Light Co., Inc. v. Commissioner of Internal Revenue 20 in support of its argument
that a "tax exemption" is restored by a subsequent law re-enacting the "tax exemption." It contends that by virtue of R.A.
No. 7925, its tax exemption or exclusion was restored by the grant of tax exemptions to Globe and Smart. Cagayan
Electric Power & Light Co., Inc., however, is not in point. For there, the re-enactment of the exemption was made in an
amendment to the charter of Cagayan Electric Power and Light Co.

Indeed, petitioners justification for its claim of tax exemption rests on a strained interpretation of R.A. No. 7925, 23. For
petitioners claim for exemption is not based on an amendment to its charter but on a circuitous reasoning involving
inquiry into the grant of tax exemption to other telecommunications companies and the lack of such grant to
others,21 when Congress could more clearly and directly have granted tax exemption to all franchise holders or amend the
charter of PLDT to again exempt it from tax if this had been its purpose.

The fact is that after petitioners tax exemption by R.A. No. 7082 had been withdrawn by the LGC,22 no amendment to re-
enact its previous tax exemption has been made by Congress. Considering that the taxing power of local government
units under R.A. No. 7160 is clear and is ordained by the Constitution, petitioner has the heavy burden of justifying its
claim by a clear grant of exemption.23

Tax exemptions should be granted only by clear and unequivocal provision of law on the basis of language too plain to be
mistaken.24 They cannot be extended by mere implication or inference. Thus, it was held in Home Insurance & Trust Co.
v. Tennessee25 that a law giving a corporation all the "powers, rights reservations, restrictions, and liabilities" of another
company does not give an exemption from taxation which the latter may possess. In Rochester R. Co. v. Rochester,26 the
U.S. Supreme Court, after reviewing cases involving the effect of the transfer to one company of the powers and
privileges of another in conferring a tax exemption possessed by the latter, held that a statute authorizing or directing the
grant or transfer of the "privileges" of a corporation which enjoys immunity from taxation or regulation should not be
interpreted as including that immunity. Thus:

We think it is now the rule, notwithstanding earlier decisions and dicta to the contrary, that a statute authorizing or
directing the grant or transfer of the "privileges" of a corporation which enjoys immunity from taxation or regulation
should not be interpreted as including that immunity. We, therefore, conclude that the words "the estate, property,
rights, privileges, and franchises" did not embrace within their meaning the immunity from the burden of paving
enjoyed by the Brighton Railroad Company. Nor is there anything in this, or any other statute, which tends to
show that the legislature used the words with any larger meaning than they would have standing alone. The
meaning is not enlarged, as faintly suggested, by the expression in the statute that they are to be held by the
successor "fully and entirely, and without change and diminution," words of unnecessary emphasis, without
which all included in "estate, property, rights, privileges, and franchises" would pass, and with which nothing more
could pass. On the contrary, it appears, as clearly as it did in the Phoenix Fire Insurance Company Case, that the
legislature intended to use the words "rights, franchises, and privileges" in the restricted sense. . . . 27

Fourth. It is next contended that, in any event, a special law prevails over a general law and that the franchise of petitioner
giving it tax exemption, being a special law, should prevail over the LGC, giving local governments taxing power, as the
latter is a general law. Petitioner further argues that as between two laws on the same subject matter which are
irreconcilably inconsistent, that which is passed later prevails as it is the latest expression of legislative will.
This proposition flies in the face of settled jurisprudence. In City Government of San Pablo, Laguna v. Reyes,28this Court
held that the phrase "in lieu of all taxes" found in special franchises should give way to the peremptory language of 193
of the LGC specifically providing for the withdrawal of such exemption privileges. Thus, the rule that a special law must
prevail over the provisions of a later general law does not apply as the legislative purpose to withdraw tax privileges
enjoyed under existing laws or charters is apparent from the express provisions of 137 and 193 of the LGC.

As to the alleged inconsistency between the LGC and R.A. No. 7925, this Court has already explained in the decision
under reconsideration that no inconsistency exists and that the rule that the later law is the latest expression of the
legislature does not apply. The matter need not be further discussed.

In any case, it is contended, the ruling of the Bureau of Local Government Finance (BLGF) that petitioners exemption
from local taxes has been restored is a contemporaneous construction of 23 and, as such, it is entitled to great weight.

The ruling of the BLGF has been considered in this case. But unlike the Court of Tax Appeals, which is a special court
created for the purpose of reviewing tax cases, the BLGF was created merely to provide consultative services and
technical assistance to local governments and the general public on local taxation and other related matters.29 Thus, the
rule that the "Court will not set aside conclusions rendered by the CTA, which is, by the very nature of its function,
dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the
subject, unless there has been an abuse or improvident exercise of authority" 30cannot apply in the case of BLGF.

WHEREFORE, the motion for reconsideration is DENIED and this denial is final.

SO ORDERED.

G.R. No. 149110 April 9, 2003

NATIONAL POWER CORPORATION, petitioner,

vs.
CITY OF CABANATUAN, respondent.

PUNO, J.:

This is a petition for review1 of the Decision2 and the Resolution3 of the Court of Appeals dated March 12, 2001 and July
10, 2001, respectively, finding petitioner National Power Corporation (NPC) liable to pay franchise tax to respondent City
of Cabanatuan.

Petitioner is a government-owned and controlled corporation created under Commonwealth Act No. 120, as amended. 4 It
is tasked to undertake the "development of hydroelectric generations 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."5 Concomitant to its mandated duty, petitioner has, among others, the power to construct, operate and maintain
power plants, auxiliary plants, power stations and substations for the purpose of developing hydraulic power and
supplying such power to the inhabitants.6

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 latter's gross receipts for the preceding year. 9

Petitioner, whose capital stock was subscribed and paid wholly by the Philippine Government, 10 refused to pay the tax
assessment. It argued 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
fees11 in accordance with sec. 13 of Rep. Act No. 6395, as amended, viz:

"Sec.13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees, Imposts and Other
Charges by Government and Governmental Instrumentalities.- The Corporation shall be non-profit and shall
devote all its return 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 is hereby exempt:

(a) From the payment of all taxes, duties, fees, imposts, charges, costs and service fees in any court or
administrative proceedings in which it may be a party, restrictions and duties to the Republic of the Philippines, its
provinces, cities, municipalities and other government agencies and instrumentalities;

(b) From all income taxes, franchise taxes and realty taxes to be paid to the National Government, its provinces,
cities, municipalities and other government agencies and instrumentalities;

(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees on import of foreign
goods required for its operations and projects; and
 (d) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of the Philippines, its
provinces, cities, municipalities and other government agencies and instrumentalities, on all petroleum products
used by the Corporation in the generation, transmission, utilization, and sale of electric power." 12

The respondent filed a collection suit in the Regional Trial Court of Cabanatuan City, demanding that petitioner pay the
assessed tax due, plus a surcharge equivalent to 25% of the amount of tax, and 2% monthly interest. 13Respondent
alleged that petitioner's exemption from local taxes has been repealed by section 193 of Rep. Act No. 7160,14 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."

On January 25, 1996, the trial court issued an Order 15 dismissing the case. It ruled that the tax exemption privileges
granted to petitioner subsist despite the passage of Rep. Act No. 7160 for the following reasons: (1) Rep. Act No. 6395 is
a particular law and it may not be repealed by Rep. Act No. 7160 which is a general law; (2) section 193 of Rep. Act No.
7160 is in the nature of an implied repeal which is not favored; and (3) local governments have no power to tax
instrumentalities of the national government. Pertinent portion of the Order reads:

"The question of whether a particular law has been repealed or not by a subsequent law is a matter of legislative
intent. The lawmakers may expressly repeal a law by incorporating therein repealing provisions which expressly
and specifically cite(s) the particular law or laws, and portions thereof, that are intended to be repealed. A
declaration in a statute, usually in its repealing clause, that a particular and specific law, identified by its number
or title is repealed is an express repeal; all others are implied repeal. Sec. 193 of R.A. No. 7160 is an implied
repealing clause because it fails to identify the act or acts that are intended to be repealed. It is a well-settled rule
of statutory construction that repeals of statutes by implication are not favored. The presumption is against
inconsistency and repugnancy for the legislative is presumed to know the existing laws on the subject and not to
have enacted inconsistent or conflicting statutes. It is also a well-settled rule that, generally, general law does not
repeal a special law unless it clearly appears that the legislative has intended by the latter general act to modify or
repeal the earlier special law. Thus, despite the passage of R.A. No. 7160 from which the questioned Ordinance
No. 165-92 was based, the tax exemption privileges of defendant NPC remain.

Another point going against plaintiff in this case is the ruling of the Supreme Court in the case of Basco vs.
Philippine Amusement and Gaming Corporation, 197 SCRA 52, where it was held that:

'Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a
government owned or controlled corporation with an original charter, PD 1869. All of its shares of stocks
are owned by the National Government. xxx Being an instrumentality of the government, PAGCOR
should be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded
or subjected to control by mere local government.'

Like PAGCOR, NPC, being a government owned and controlled corporation with an original charter and its
shares of stocks owned by the National Government, is beyond the taxing power of the Local Government.
Corollary to this, it should be noted here that in the NPC Charter's declaration of Policy, Congress declared that:
'xxx (2) the total electrification of the Philippines through the development of power from all services to meet the
needs of industrial development and dispersal and needs of rural electrification are primary objectives of the
nations which shall be pursued coordinately and supported by all instrumentalities and agencies of the
government, including its financial institutions.' (underscoring supplied). To allow plaintiff to subject defendant to
its tax-ordinance would be to impede the avowed goal of this government instrumentality.

Unlike the State, a city or municipality has no inherent power of taxation. Its taxing power is limited to that which is
provided for in its charter or other statute. Any grant of taxing power is to be construed strictly, with doubts
resolved against its existence.

From the existing law and the rulings of the Supreme Court itself, it is very clear that the plaintiff could not impose
the subject tax on the defendant."16

On appeal, the Court of Appeals reversed the trial court's Order 17 on the ground that section 193, in relation to sections
137 and 151 of the LGC, expressly withdrew the exemptions granted to the petitioner.18 It ordered the petitioner to pay the
respondent city government the following: (a) the sum of P808,606.41 representing the franchise tax due based on gross
receipts for the year 1992, (b) the tax due every year thereafter based in the gross receipts earned by NPC, (c) in all
cases, to pay a surcharge of 25% of the tax due and unpaid, and (d) the sum of P 10,000.00 as litigation expense. 19

On April 4, 2001, the petitioner filed a Motion for Reconsideration on the Court of Appeal's Decision. This was denied by
the appellate court, viz:

"The Court finds no merit in NPC's motion for reconsideration. Its arguments reiterated therein that the taxing
power of the province under Art. 137 (sic) of the Local Government Code refers merely to private persons or
corporations in which category it (NPC) does not belong, and that the LGC (RA 7160) which is a general law may
not impliedly repeal the NPC Charter which is a special lawfinds the answer in Section 193 of the LGC to the
 effect that '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 xxx are hereby
withdrawn.' The repeal is direct and unequivocal, not implied.

IN VIEW WHEREOF, the motion for reconsideration is hereby DENIED.

SO ORDERED."20

In this petition for review, petitioner raises the following issues:

"A. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC, A PUBLIC NON-PROFIT
CORPORATION, IS LIABLE TO PAY A FRANCHISE TAX AS IT FAILED TO CONSIDER THAT SECTION 137
OF THE LOCAL GOVERNMENT CODE IN RELATION TO SECTION 131 APPLIES ONLY TO PRIVATE
PERSONS OR CORPORATIONS ENJOYING A FRANCHISE.

B. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC'S EXEMPTION FROM ALL FORMS
OF TAXES HAS BEEN REPEALED BY THE PROVISION OF THE LOCAL GOVERNMENT CODE AS THE
ENACTMENT OF A LATER LEGISLATION, WHICH IS A GENERAL LAW, CANNOT BE CONSTRUED TO
HAVE REPEALED A SPECIAL LAW.

C. THE COURT OF APPEALS GRAVELY ERRED IN NOT CONSIDERING THAT AN EXERCISE OF POLICE
POWER THROUGH TAX EXEMPTION SHOULD PREVAIL OVER THE LOCAL GOVERNMENT CODE."21

It is beyond dispute that the respondent city government has the authority to issue Ordinance No. 165-92 and impose an
annual tax on "businesses enjoying a franchise," pursuant to section 151 in relation to section 137 of the LGC, viz:

"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.

In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one percent (1%) of the
capital investment. In the succeeding calendar year, regardless of when the business started to operate, the tax
shall be based on the gross receipts for the preceding calendar year, or any fraction thereof, as provided herein."
(emphasis supplied)

x x x

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."

Petitioner, however, submits that it is not liable to pay an annual franchise tax to the respondent city government. It
contends that sections 137 and 151 of the LGC in relation to section 131, limit the taxing power of the respondent city
government to private entities that are engaged in trade or occupation for profit.22

Section 131 (m) of the LGC defines a "franchise" as "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 the public welfare, security and safety." From the phraseology of this provision, the petitioner
claims that the word "private" modifies the terms "persons" and "corporations." Hence, when the LGC uses the term
"franchise," petitioner submits that it should refer specifically to franchises granted to private natural persons and to
private corporations.23 Ergo, its charter should not be considered a "franchise" for the purpose of imposing the franchise
tax in question.

On the other hand, section 131 (d) of the LGC defines "business" as "trade or commercial activity regularly engaged in as
means of livelihood or with a view to profit." Petitioner claims that it is not engaged in an activity for profit, in as much as
its charter specifically provides that it is a "non-profit organization." In any case, petitioner argues that the accumulation of
profit is merely incidental to its operation; all these profits are required by law to be channeled for expansion and
improvement of its facilities and services.24

Petitioner also alleges that it is an instrumentality of the National Government, 25 and as such, may not be taxed by the
respondent city government. It cites the doctrine in Basco vs. Philippine Amusement and Gaming Corporation26 where this
Court held that local governments have no power to tax instrumentalities of the National Government, viz:

"Local governments have no power to tax instrumentalities of the National Government.

 PAGCOR has a dual role, to operate and regulate gambling casinos. The latter role is governmental, which
places it in the category of an agency or instrumentality of the Government. Being an instrumentality of the
Government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might be
burdened, impeded or subjected to control by a mere local government.

'The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control
the operation of constitutional laws enacted by Congress to carry into execution the powers vested in the
federal government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)'

This doctrine emanates from the 'supremacy' of the National Government over local governments.

'Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the
part of the States to touch, in that way (taxation) at least, the instrumentalities of the United States
(Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision can regulate
a federal instrumentality in such a way as to prevent it from consummating its federal responsibilities, or
even seriously burden it from accomplishment of them.' (Antieau, Modern Constitutional Law, Vol. 2, p.
140, italics supplied)

Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities
may perceive to be undesirable activities or enterprise using the power to tax as ' a tool regulation' (U.S. v.
Sanchez, 340 US 42).

The power to tax which was called by Justice Marshall as the 'power to destroy' (Mc Culloch v. Maryland, supra)
cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield
it."27

Petitioner contends that section 193 of Rep. Act No. 7160, withdrawing the tax privileges of government-owned or
controlled corporations, is in the nature of an implied repeal. A special law, its charter cannot be amended or modified
impliedly by the local government code which is a general law. Consequently, petitioner claims that its exemption from all
taxes, fees or charges under its charter subsists despite the passage of the LGC, viz:

"It is a well-settled rule of statutory construction that repeals of statutes by implication are not favored and as
much as possible, effect must be given to all enactments of the legislature. Moreover, it has to be conceded that
the charter of the NPC constitutes a special law. Republic Act No. 7160, is a general law. It is a basic rule in
statutory construction that the enactment of a later legislation which is a general law cannot be construed to have
repealed a special law. Where there is a conflict between a general law and a special statute, the special statute
should prevail since it evinces the legislative intent more clearly than the general statute."28

Finally, petitioner submits that the charter of the NPC, being a valid exercise of police power, should prevail over the LGC.
It alleges that the power of the local government to impose franchise tax is subordinate to petitioner's exemption from
taxation; "police power being the most pervasive, the least limitable and most demanding of all powers, including the
power of taxation."29

The petition is without merit.

Taxes are the lifeblood of the government,30 for without taxes, the government can neither exist nor endure. A principal
attribute of sovereignty,31 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.

In recent years, the increasing social challenges of the times expanded the scope of state activity, and taxation has
become a tool to realize social justice and the equitable distribution of wealth, economic progress and the protection of
local industries as well as public welfare and similar objectives.33 Taxation assumes even greater significance with the
ratification of the 1987 Constitution. Thenceforth, the power to tax is no longer vested exclusively on Congress; local
legislative bodies are now given direct authority to levy taxes, fees and other charges34 pursuant to Article X, section 5 of
the 1987 Constitution, viz:

"Section 5.- Each Local Government unit shall have the power to create its own sources of revenue, to levy taxes,
fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the
basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to the Local Governments."

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local
autonomy and promoting decentralization of governance. For a long time, the country's highly centralized government
structure has bred a culture of dependence among local government leaders upon the national leadership. It has also
"dampened the spirit of initiative, innovation and imaginative resilience in matters of local development on the part of local
government leaders."35 The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery
of basic services, and confer them sufficient powers to generate their own sources for the purpose. To achieve this goal,
section 3 of Article X of the 1987 Constitution mandates Congress to enact a local government code that will, consistent
with the basic policy of local autonomy, set the guidelines and limitations to this grant of taxing powers, viz:
 "Section 3. The Congress shall enact a local government code which shall provide for a more responsive and
accountable local government structure instituted through a system of decentralization with effective mechanisms
of recall, initiative, and referendum, allocate among the different local government units their powers,
responsibilities, and resources, and provide for the qualifications, election, appointment and removal, term,
salaries, powers and functions and duties of local officials, and all other matters relating to the organization and
operation of the local units."

To recall, prior to the enactment of the Rep. Act No. 7160,36 also known as the Local Government Code of 1991 (LGC),
various measures have been enacted to promote local autonomy. These include the Barrio Charter of 1959, 37 the Local
Autonomy Act of 1959,38 the Decentralization Act of 196739 and the Local Government Code of 1983.40 Despite these
initiatives, however, the shackles of dependence on the national government remained. Local government units were
faced with the same problems that hamper their capabilities to participate effectively in the national development efforts,
among which are: (a) inadequate tax base, (b) lack of fiscal control over external sources of income, (c) limited authority
to prioritize and approve development projects, (d) heavy dependence on external sources of income, and (e) limited
supervisory control over personnel of national line agencies.41

Considered as the most revolutionary piece of legislation on local autonomy, 42 the LGC effectively deals with the fiscal
constraints faced by LGUs. It widens the tax base of LGUs to include taxes which were prohibited by previous laws such
as the imposition of taxes on forest products, forest concessionaires, mineral products, mining operations, and the like.
The LGC likewise provides enough flexibility to impose tax rates in accordance with their needs and capabilities. It does
not prescribe graduated fixed rates but merely specifies the minimum and maximum tax rates and leaves the
determination of the actual rates to the respective sanggunian.43

One of the most significant provisions of the LGC is the removal of the blanket exclusion of instrumentalities and agencies
of the national government from the coverage of local taxation. 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 now admits an
exception, i.e., when specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges on the
aforementioned entities, viz:

"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

(o) Taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities, and local
government units." (emphasis supplied)

In view of the afore-quoted provision of the LGC, the doctrine in Basco vs. Philippine Amusement and Gaming
Corporation44 relied upon by the petitioner to support its claim no longer applies. To emphasize, 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. However, as this Court ruled in the case of Mactan Cebu International Airport
Authority (MCIAA) vs. Marcos,45 nothing prevents Congress from decreeing that even instrumentalities or agencies of the
government performing governmental functions may be subject to tax.46 In enacting the LGC, Congress exercised its
prerogative to tax instrumentalities and agencies of government as it sees fit. Thus, after reviewing the specific provisions
of the LGC, this Court held that MCIAA, although an instrumentality of the national government, was subject to real
property tax, viz:

"Thus, reading together sections 133, 232, and 234 of the LGC, we conclude that as a general rule, as laid down
in section 133, the taxing power of local governments cannot extend to the levy of inter alia, 'taxes, fees and
charges of any kind on the national government, its agencies and instrumentalities, and local government units';
however, pursuant to section 232, provinces, cities and municipalities in the Metropolitan Manila Area may
impose the real property tax except on, inter alia, 'real property owned by the Republic of the Philippines or any of
its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise,
to a taxable person as provided in the item (a) of the first paragraph of section 12.'"47

In the case at bar, section 151 in relation to section 137 of the LGC clearly authorizes the respondent city government to
impose on the petitioner the franchise tax in question.

In its general signification, a franchise is a privilege conferred by government authority, which does not belong to citizens
of the country generally as a matter of common right.48 In its specific sense, a franchise may refer to a general or primary
franchise, or to a special or secondary franchise. The former relates to the right to exist as a corporation, by virtue of duly
approved articles of incorporation, or a charter pursuant to a special law creating the corporation. 49 The right under a
primary or general franchise is vested in the individuals who compose the corporation and not in the corporation
itself.50 On the other hand, the latter refers to the right or privileges conferred upon an existing corporation such as the
right to use the streets of a municipality to lay pipes of tracks, erect poles or string wires. 51 The rights under a secondary
or special franchise are vested in the corporation and may ordinarily be conveyed or mortgaged under a general power
granted to a corporation to dispose of its property, except such special or secondary franchises as are charged with a
public use.52

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 context 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."53 It is not levied on the corporation simply for existing as a corporation, upon its property54 or its
income,55 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. 56 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. 7395, constitutes petitioner's
primary and secondary franchises. It serves as the petitioner's charter, defining its composition, capitalization, the
appointment and the specific duties of its corporate officers, and its corporate life span. 57 As its secondary franchise,
Commonwealth Act No. 120, as amended, vests the petitioner the following powers which are not available to ordinary
corporations, viz:

"x x x

(e) To conduct investigations and surveys for the development of water power in any part of the Philippines;

(f) To take water from any public stream, river, creek, lake, spring or waterfall in the Philippines, for the purposes
specified in this Act; to intercept and divert the flow of waters from lands of riparian owners and from persons
owning or interested in waters which are or may be necessary for said purposes, upon payment of just
compensation therefor; to alter, straighten, obstruct or increase the flow of water in streams or water channels
intersecting or connecting therewith or contiguous to its works or any part thereof: Provided, That just
compensation shall be paid to any person or persons whose property is, directly or indirectly, adversely affected
or damaged thereby;

(g) To construct, operate and maintain power plants, auxiliary plants, dams, reservoirs, pipes, mains, transmission
lines, power stations and substations, and other works for the purpose of developing hydraulic power from any
river, creek, lake, spring and waterfall in the Philippines and supplying such power to the inhabitants thereof; to
acquire, construct, install, maintain, operate, and improve gas, oil, or steam engines, and/or other prime movers,
generators and machinery in plants and/or auxiliary plants for the production of electric power; to establish,
develop, operate, maintain and administer power and lighting systems for the transmission and utilization of its
power generation; to sell electric power in bulk to (1) industrial enterprises, (2) city, municipal or provincial
systems and other government institutions, (3) electric cooperatives, (4) franchise holders, and (5) real estate
subdivisions x x x;

(h) To acquire, promote, hold, transfer, sell, lease, rent, mortgage, encumber and otherwise dispose of property
incident to, or necessary, convenient or proper to carry out the purposes for which the Corporation was created:
Provided, That in case a right of way is necessary for its transmission lines, easement of right of way shall only be
sought: Provided, however, That in case the property itself shall be acquired by purchase, the cost thereof shall
be the fair market value at the time of the taking of such property;

(i) To construct works across, or otherwise, any stream, watercourse, canal, ditch, flume, street, avenue, highway
or railway of private and public ownership, as the location of said works may require xxx;

(j) To exercise the right of eminent domain for the purpose of this Act in the manner provided by law for instituting
condemnation proceedings by the national, provincial and municipal governments;

x x x

(m) To cooperate with, and to coordinate its operations with those of the National Electrification Administration
and public service entities;

(n) To exercise complete jurisdiction and control over watersheds surrounding the reservoirs of plants and/or
projects constructed or proposed to be constructed by the Corporation. Upon determination by the Corporation of
the areas required for watersheds for a specific project, the Bureau of Forestry, the Reforestation Administration
and the Bureau of Lands shall, upon written advice by the Corporation, forthwith surrender jurisdiction to the
Corporation of all areas embraced within the watersheds, subject to existing private rights, the needs of
waterworks systems, and the requirements of domestic water supply;

(o) In the prosecution and maintenance of its projects, the Corporation shall adopt measures to prevent
environmental pollution and promote the conservation, development and maximum utilization of natural resources
xxx "58

With these powers, petitioner eventually had the monopoly in the generation and distribution of electricity. This monopoly
was strengthened with the issuance of Pres. Decree No. 40,59 nationalizing the electric power industry. Although Exec.
Order No. 21560 thereafter allowed private sector participation in the generation of electricity, the transmission of electricity
remains the monopoly of the petitioner.

Petitioner also fulfills the second requisite. It is operating within the respondent city government's territorial jurisdiction
pursuant to the powers granted to it by Commonwealth Act No. 120, as amended. From its operations in the City of
Cabanatuan, petitioner realized a gross income of P107,814,187.96 in 1992. Fulfilling both requisites, petitioner is, and
ought to be, subject of the franchise tax in question.

Petitioner, however, insists that it is excluded from the coverage of the franchise tax simply because its stocks are wholly
owned by the National Government, and its charter characterized it as a "non-profit" organization.

These contentions must necessarily fail.

To stress, a franchise tax is imposed based not on the ownership but on the exercise by the corporation of a privilege to
do business. The taxable entity is the corporation which exercises the franchise, and not the individual stockholders. By
virtue of its charter, petitioner was created as a separate and distinct entity from the National Government. It can sue and
be sued under its own name,61 and can exercise all the powers of a corporation under the Corporation Code.62

To be sure, the ownership by the National Government of its entire capital stock does not necessarily imply that petitioner
is not engaged in business. Section 2 of Pres. Decree No. 202963 classifies government-owned or controlled corporations
(GOCCs) into those performing governmental functions and those performing proprietary functions, viz:

"A government-owned or controlled corporation is a stock or a non-stock corporation, whether performing

governmental or proprietary functions, which is directly chartered by special law or if organized under the general
corporation law is owned or controlled by the government directly, or indirectly through a parent corporation or
subsidiary corporation, to the extent of at least a majority of its outstanding voting capital stock x x x." (emphases
supplied)

Governmental functions are those pertaining to the administration of government, and as such, are treated as absolute
obligation on the part of the state to perform while proprietary functions are those that are undertaken only by way of
advancing the general interest of society, and are merely optional on the government. 64 Included in the class of GOCCs
performing proprietary functions are "business-like" entities such as the National Steel Corporation (NSC), the National
Development Corporation (NDC), the Social Security System (SSS), the Government Service Insurance System (GSIS),
and the National Water Sewerage Authority (NAWASA),65 among others.

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."66 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. 67

A closer reading of its charter reveals that even the legislature treats the character of the petitioner's enterprise as a
"business," although it limits petitioner's profits to twelve percent (12%), viz:68

"(n) When essential to the proper administration of its corporate affairs or necessary for the proper transaction of
its business or to carry out the purposes for which it was organized, to contract indebtedness and issue bonds
subject to approval of the President upon recommendation of the Secretary of Finance;

(o) To exercise such powers and do such things as may be reasonably necessary to carry out the business and
purposes for which it was organized, or which, from time to time, may be declared by the Board to be necessary,
useful, incidental or auxiliary to accomplish the said purpose xxx."(emphases supplied)

It is worthy to note that all other private franchise holders receiving at least sixty percent (60%) of its electricity
requirement from the petitioner are likewise imposed the cap of twelve percent (12%) on profits. 69 The main difference is
that the petitioner is mandated to devote "all its returns from its capital investment, as well as excess revenues from its
operation, for expansion"70 while other franchise holders have the option to distribute their profits to its stockholders by
declaring dividends. We do not see why this fact can be a source of difference in tax treatment. In both instances, the
taxable entity is the corporation, which exercises the franchise, and not the individual stockholders.

We also do not find merit in the petitioner's contention that its tax exemptions under its charter subsist despite the
passage of the LGC.

As a rule, tax exemptions are construed strongly against the claimant. Exemptions must be shown to exist clearly and
categorically, and supported by clear legal provisions.71 In the case at bar, the petitioner's sole refuge is section 13 of
Rep. Act No. 6395 exempting from, among others, "all income taxes, franchise taxes and realty taxes to be paid to the
National Government, its provinces, cities, municipalities and other government agencies and instrumentalities." However,
section 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. 72 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." (emphases 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.73 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. In City Government of San Pablo, Laguna v. Reyes,74 MERALCO's 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 MERALCO's 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).

It is worth mentioning that section 192 of the LGC empowers the LGUs, through ordinances duly approved, to grant tax
exemptions, initiatives or reliefs.77 But in enacting section 37 of Ordinance No. 165-92 which imposes an annual franchise
tax "notwithstanding any exemption granted by law or other special law," the respondent city government clearly did not
intend to exempt the petitioner from the coverage thereof.

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."78 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.

IN VIEW WHEREOF, the instant petition is DENIED and the assailed Decision and Resolution of the Court of Appeals
dated March 12, 2001 and July 10, 2001, respectively, are hereby AFFIRMED.

SO ORDERED.

G.R. No. 155491 July 21, 2009

SMART COMMUNICATIONS, INC., Petitioner,

vs.
THE CITY OF DAVAO, represented herein by its Mayor Hon. RODRIGO DUTERTE, and the SANGGUNIANG
PANLUNSOD OF DAVAO CITY, Respondents.

RESOLUTION

NACHURA, J.:
Before the Court is a Motion for Reconsideration1 filed by Smart Communications, Inc. (Smart) of the Decision2 of
the Court dated September 16, 2008, denying its appeal of the Decision and Order of the Regional Trial Court
(RTC) of Davao City, dated July 19, 2002 and September 26, 2002, respectively.

Briefly, the factual antecedents are as follows:

On February 18, 2002, Smart filed a special civil action for declaratory relief3 for the ascertainment of its rights and
obligations under the Tax Code of the City of Davao, which imposes a franchise tax on businesses enjoying a
franchise within the territorial jurisdiction of Davao. Smart avers that its telecenter in Davao City is exempt from
payment of franchise tax to the City.

On July 19, 2002, the RTC rendered a Decision denying the petition. Smart filed a motion for reconsideration, which
was denied by the trial court in an Order dated September 26, 2002. Smart filed an appeal before this Court, but the
same was denied in a decision dated September 16, 2008. Hence, the instant motion for reconsideration raising the
following grounds: (1) the "in lieu of all taxes" clause in Smarts franchise, Republic Act No. 7294 (RA 7294), covers
local taxes; the rule of strict construction against tax exemptions is not applicable; (2) the "in lieu of all taxes" clause
is not rendered ineffective by the Expanded VAT Law; (3) Section 23 of Republic Act No. 79254 (RA 7925) includes
a tax exemption; and (4) the imposition of a local franchise tax on Smart would violate the constitutional prohibition
against impairment of the obligation of contracts.

Section 9 of RA 7294 and Section 23 of RA 7925 are once again put in issue. Section 9 of Smarts legislative
franchise contains the contentious "in lieu of all taxes" clause. The Section reads:

Section 9. Tax provisions. The grantee, its successors or assigns shall be liable to pay the same taxes on their
real estate buildings and personal property, exclusive of this franchise, as other persons or corporations which are
now or hereafter may be required by law to pay. 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 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: Provided, That the grantee, its successors or assigns shall continue to be liable for income taxes
payable under Title II of the National Internal Revenue Code pursuant to Section 2 of Executive Order No. 72 unless
the latter enactment is amended or repealed, in which case the amendment or repeal shall be applicable thereto.

xxx5

Section 23 of RA 7925, otherwise known as the most favored treatment clause or equality clause, contains the word
"exemption," viz.:

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.6

A review of the recent decisions of the Court on the matter of exemptions from local franchise tax and the
interpretation of the word "exemption" found in Section 23 of RA 7925 is imperative in order to resolve this issue
once and for all.

In Digital Telecommunications Philippines, Inc. (Digitel) v. Province of Pangasinan,7 Digitel used as an argument the
"in lieu of all taxes" clauses/provisos found in the legislative franchises of Globe,8 Smart and Bell,9 vis--vis Section
23 of RA 7925, in order to claim exemption from the payment of local franchise tax. Digitel claimed, just like the
petitioner in this case, that it was exempt from the payment of any other taxes except the national franchise and
income taxes. Digitel alleged that Smart was exempted from the payment of local franchise tax.

However, it failed to substantiate its allegation, and, thus, the Court denied Digitels claim for exemption from
provincial franchise tax. Cited was the ruling of the Court in PLDT v. City of Davao,10 wherein the Court, speaking
through Mr. Justice Vicente V. Mendoza, held that in approving Section 23 of RA No. 7925, Congress did not intend
it to operate as a blanket tax exemption to all telecommunications entities. Section 23 cannot be considered as
having amended PLDTs franchise so as to entitle it to exemption from the imposition of local franchise taxes. The
Court further held that tax exemptions are highly disfavored and that a 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
in the instances when it is granted, the exemption must be interpreted in strictissimi juris against the taxpayer and
liberally in favor of the taxing authority.

The Court also clarified the meaning of the word "exemption" in Section 23 of RA 7925: that the word "exemption"
as used in the statute refers or pertains merely to an exemption from regulatory or reporting requirements of the
Department of Transportation and Communication or the National Transmission Corporation and not to an
exemption from the grantees tax liability.
In Philippine Long Distance Telephone Company (PLDT) v. Province of Laguna,11 PLDT was a holder of a
legislative franchise under Act No. 3436, as amended. On August 24, 1991, the terms and conditions of its franchise
were consolidated under Republic Act No. 7082, Section 12 of which embodies the so-called "in-lieu-of-all taxes"
clause. Under the said Section, 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." The issue that the Court had to resolve was whether
PLDT was liable to pay franchise tax to the Province of Laguna in view of the "in lieu of all taxes" clause in its
franchise and Section 23 of RA 7925. lawph!l

Applying the rule of strict construction of laws granting tax exemptions and the rule that doubts are resolved in favor
of municipal corporations in interpreting statutory provisions on municipal taxing powers, the Court held that Section
23 of RA 7925 could not be considered as having amended petitioner's franchise so as to entitle it to exemption
from the imposition of local franchise taxes.

In ruling against the claim of PLDT, the Court cited the previous decisions in PLDT v. City of Davao12 and PLDT v.
City of Bacolod,13 in denying the claim for exemption from the payment of local franchise tax.

In sum, the aforecited jurisprudence suggests that aside from the national franchise tax, the franchisee is still liable
to pay the local franchise tax, unless it is expressly and unequivocally exempted from the payment thereof under its
legislative franchise. The "in lieu of all taxes" clause in a legislative franchise should categorically state that the
exemption applies to both local and national taxes; otherwise, the exemption claimed should be strictly construed
against the taxpayer and liberally in favor of the taxing authority.

Republic Act No. 7716, otherwise known as the "Expanded VAT Law," did not remove or abolish the payment of
local franchise tax. It merely replaced the national franchise tax that was previously paid by telecommunications
franchise holders and in its stead imposed a ten percent (10%) VAT in accordance with Section 108 of the Tax
Code. VAT replaced the national franchise tax, but it did not prohibit nor abolish the imposition of local franchise tax
by cities or municipaties.

The power to tax by local government units emanates from Section 5, Article X of the Constitution which empowers
them to create their own sources of revenues and to levy taxes, fees and charges subject to such guidelines and
limitations as the Congress may provide. The imposition of local franchise tax is not inconsistent with the advent of
the VAT, which renders functus officio the franchise tax paid to the national government. VAT inures to the benefit of
the national government, while a local franchise tax is a revenue of the local government unit.

WHEREFORE, the motion for reconsideration is DENIED, and this denial is final.

SO ORDERED.

G.R. No. L-30159 March 31, 1987

MUNICIPALITY OF SAN FERNANDO, LA UNION represented by Mayor LORENZO L. DACANAY, plaintiff-

appellee, (respondent)
vs.
MAYOR TIMOTEO STA. ROMANA, MUNICIPAL TREASURER and their authorized Agents of Luna, La Union
and the MUNICIPALITY OF LUNA, LA UNION, defendants-appellants (petitioners).

PARAS, J.:

This is a petition for review on certiorari of the November 11, 1968 Order of the Court of First Instance of La Union,
the dispositive portion of which reads:

IN VIEW OF THE FOREGOING CONSIDERATIONS, the preliminary injunction already issued is

made permanent and the defendants are enjoined not to prevent the plaintiff from getting sand and
gravel from barrio Nalvo Norte.

The undisputed facts of this case are as follows:

The Municipality of San Fernando, La Union which was undertaking a cement road construction around its
Supermarket and other municipal projects, needed sufficient gravel and sand from their source, the Municipality of
Luna but its trucks sent to the latter municipality to haul said road construction materials were allegedly charged
unreasonable fees per truck load.

On March 18, 1968, the Municipality of San Fernando represented by its incumbent Municipal Mayor Lorenzo L.
Dacanay filed a complaint for Injunction with Writ of Preliminary Injunction at the Court of First Instance of La Union
against the Municipality of Luna and its officials and authorized agents, praying that the defendants be immediately
enjoined from preventing plaintiff's truck obtaining road construction materials from Luna, La Union and from levying
unreasonable fees, and after trial to make the injunction permanent (Complaint "Annex A, "Rollo, p. 13).

On the same day the complaint was filed, the Court of First Instance of La Union (Branch 11) issued an Order
granting the Writ of Preliminary Injunction ex parte (Petition, Rollo, p. 7, "Annex B," Rollo, p. 18). On March 26,
1968, the defendants filed their Answer wherein they averred that the license fees collected from the hauling of sand
and gravel excavated from the municipality of Luna, La Union are by virtue of an ordinance duly approved by the
Municipal Council of defendant municipality in consonance with its power to tax, and that the fees collected are
reasonable, fair and legal. The Answer further pointed out that the remedy of Injunction availed of is not the proper
remedy. On May 21, 1968, after the issues were joined, the lower court issued an Order requiring the parties to
submit their respective memoranda since the issue raised was purely a question of law. On November 11, 1968, the
lower court issued an Order making permanent the writ of preliminary injunction issued and further ordered the
defendants not to prevent the plaintiff from getting sand and gravel from Barrio Nalvo Norte, a barrio of Luna, La
Union.

Hence, this petition.

The main issue in this case is whether or not the Municipality of Luna has the authority to pass Ordinance No. 1 and
impose the license fees in question.

Aforesaid Ordinance reads:

ORDINANCE NO. 1

Section 1. There shall be collected from any person, partnership or corporation engaged in any
business, occupation or calling or enjoying any privilege hereunder enumerated the following
municipal license and/or fees at the rate set opposite each:

xxx xxx xxx

14. Dealer and/or hauler of sand, gravel and/or stones for every truck load or fraction thereof:

Sand.......................................................P1. 50

Gravel........................................................8.00

Course sand...........................................10.00

Selected stones or pea size..................15.00

The Municipality of Luna insists on the validity of its Ordinance No. 1 imposing the license fees in question on the
basis of its authority to exercise police power under Section 2238 of the Revised Administrative Code, otherwise
known as the General Welfare Clause and its power to levy licenses and fees for public purposes under Republic
Act 2264 (Petition, Rollo, p. 10) and justifies the inclusion of the Municipality of San Fernando thereunder, among
the persons, partnership or corporation engaged in any business, occupation or calling to be charged for hauling
sand and gravel from its seashore, claiming that respondent municipality in hauling sand and gravel for the
improvement of its roads is engaged in a proprietary function as it can later exact higher license fees from those in
the business center. Thus, for eventually obtaining profit by the improvement of its roads, the Municipality of San
Fernando should allegedly pay license fees to the Municipality of Luna (Brief for Petitioner, pp. 5 and 6).

On the other hand, respondent Municipality alleges that the license fee embodied in Ordinance No. I is beyond the
authority of the Municipality of Luna, La Union to impose, as the sand and gravel deposits in the seashore of Nalvo
Norte are classified as minerals under the Mining Laws of the Philippines and as such belong to the State, and fall
under the administration and control of the Bureau of Mines and not of the Municipality of Luna. For this purpose,
respondent Municipality obtained on March 18, 1968, a gratuitous Revocable Permit from the Bureau of Mines
(Answer, Rollo, pp. 55-56; Brief for Respondent, pp. 3 and 4). Even granting arguendo that the disposition of sand
and gravel belongs to petitioner, nevertheless, the Municipality of San Fernando does not fall under Ordinance No. 1
because the gravel and sand extracted by said municipality are used for the improvement of its streets which
function is governmental.

This issue in the case at bar is now governed by Presidential Decree No. 231, enacting a Local Tax Code (for
Provinces, Cities, Municipalities and Barrios which took effect on July 1, 1973. The Code provides:

SEC. 10. Sand and gravel fee. The province may levy and collect a fee of not exceeding seventy-
five centavos per cubic meter of ordinary stones, sand, gravel earth and other materials extracted
from lakes, rivers, streams, creeks, and other public waters within the jurisdiction of the province.
 SEC. 22. Specific limitations on power. Except as otherwise provided in this Code, the
municipality shall not levy the following:

(a) Taxes, fees, and charges that the province or city is authorized to levy in this Code;

(b) Taxes on articles, subject to specific tax under the provisions of the National Internal Revenue
Code; and

(c) Taxes and other impositions enumerated in Section 5, Chapter I of this Code.

Section 10 of aforesaid decree was later amended by Presidential Decree No. 426, dated March 30, 1974, and now
reads:

Sec. 10. Sand and gravel tax. The province may levy and collect a tax of not exceeding seventy-
five centavos per cubic meter of ordinary stones, sand, gravel earth and other materials extracted
from public and private lands of the government or from the beds of seas, lakes, rivers, streams,
creeks and other public waters within the jurisdiction of the province. The municipality where the
materials are extracted shall share in the proceeds of the tax herein authorized at a rate of not less
than thirty per cent thereof as may be determined by the Provincial Board.

The permit to extract the materials shall be issued by the Director of Mines or his duly authorized
representative and the extraction thereof shag be governed by regulations issued by the Director of
Mines. (As amended by Presidential Decree No. 426).

Under the above-quoted provisions of the Local Tax Code, there is no question that the authority to impose the
license fees in dispute, properly belongs to the province concerned and not to the Municipality of Luna which is
specifically prohibited under Section 22 of the same Code "from levying taxes, fees and charges that the province or
city is authorized to levy in this Code. " On the other hand, the Municipality of 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.

PREMISES CONSIDERED, the Court RESOLVED to DISMISS this petition and to AFFIRM assailed Order of the
trial court.