Manila Electric Company v. Province of Laguna
REITERATIONFacts
The Antecedents: Petitioner Manila Electric Company (MERALCO) was granted franchises by various municipalities in Laguna and by the National Electrification Administration for the supply of electric light, heat, and power. Subsequently, Republic Act No. 7160, the Local Government Code of 1991 (LGC), was enacted, empowering local government units to create their own sources of revenue. Pursuant to the LGC, respondent Province of Laguna enacted Provincial Ordinance No. 01-92, imposing a franchise tax of 0.5% on gross annual receipts of businesses enjoying a franchise within its territorial jurisdiction. Procedural History: Respondent Provincial Treasurer demanded payment of the franchise tax from MERALCO. MERALCO paid P19,520,628.42 under protest and subsequently filed a claim for refund, asserting that the franchise tax paid to the National Government under Presidential Decree No. 551 already included the provincial franchise tax. MERALCO contended that PD 551 stipulated that the franchise tax payable to the Commissioner of Internal Revenue was in lieu of all taxes and assessments of whatever nature imposed by any national or local authority. The claim for refund was denied. MERALCO then filed a complaint with the Regional Trial Court (RTC) for refund, seeking to recover the initial payment and additional payments totaling P27,669,566.91. The RTC dismissed the complaint. The Petition: MERALCO assails the RTC ruling, raising two main issues: (1) whether the imposition of the franchise tax under Laguna Provincial Ordinance No. 01-92 violates the non-impairment clause of the Constitution and Section 1 of PD 551; and (2) whether RA 7160 repealed, amended, or modified PD 551.
Issue(s)
Whether the imposition of a franchise tax under Section 2.09 of Laguna Provincial Ordinance No. 01-92, insofar as petitioner is concerned, is violative of the non-impairment clause of the Constitution and Section 1 of Presidential Decree No. 551. Whether Republic Act No. 7160, otherwise known as the Local Government Code of 1991, has repealed, amended, or modified Presidential Decree No. 551.
Ruling
The petition is dismissed. The imposition of the franchise tax by the Province of Laguna is valid and enforceable.
Ratio Decidendi
On the issue of the non-impairment clause and PD 551: The Court held that the Local Government Code of 1991 (LGC) effectively withdrew tax exemptions previously enjoyed by entities, including those granted under franchises. Section 193 of the LGC explicitly states that unless otherwise provided, tax exemptions granted to or enjoyed by all persons are withdrawn upon the effectivity of the Code. Furthermore, Section 137 of the LGC expressly authorizes provincial governments to impose a tax on businesses enjoying a franchise, notwithstanding any exemption granted by any law or special law. The Court clarified that tax exemptions granted under franchises are not contractual in nature and thus do not fall under the protection of the non-impairment clause of the Constitution. Article XII, Section 11 of the 1987 Constitution mandates that franchises for public utilities shall be subject to amendment, alteration, or repeal by Congress when the common good so requires. Therefore, PD 551, which MERALCO invoked, could not prevail over the subsequent and specific provisions of the LGC. On whether RA 7160 repealed, amended, or modified PD 551: The Court affirmed that RA 7160, the LGC, has indeed superseded PD 551 concerning the imposition of local franchise taxes. The LGC, by its very nature and purpose of decentralization and strengthening local government fiscal autonomy, grants local government units broad powers to generate revenue, including the imposition of franchise taxes. Section 534(f) of the LGC contains a general repealing clause that voids all general and special laws, decrees, executive orders, proclamations, and administrative regulations inconsistent with the Code. The LGC's provisions on local taxation, including the imposition of franchise taxes and the withdrawal of exemptions, are inconsistent with the provisions of PD 551 that MERALCO relied upon to claim exemption. The Court reiterated its stance in City Government of San Pablo vs. Reyes, where it held that the phrase "in lieu of all taxes" in franchises must give way to the peremptory language of the LGC.
Main Doctrine
The Local Government Code of 1991, particularly Section 137 and Section 193 thereof, effectively withdrew tax exemptions previously enjoyed by entities, including those granted under franchises, and empowered local government units to impose franchise taxes, notwithstanding prior laws or decrees to the contrary. The non-impairment clause of the Constitution does not apply to tax exemptions granted under franchises, as these are considered grants subject to amendment, alteration, or repeal by Congress.