National Power Corporation v. City of Cabanatuan
REITERATIONFacts
The Antecedents: The National Power Corporation (NPC), a government-owned and controlled corporation (GOCC) created under Commonwealth Act No. 120, as amended, is tasked with developing hydroelectric power and supplying electricity nationwide. For many years, NPC sold electric power to residents of Cabanatuan City, earning a gross income of P107,814,187.96 in 1992. Pursuant to Section 37 of Ordinance No. 165-92, the City of Cabanatuan assessed NPC a franchise tax of P808,606.41. NPC refused to pay, arguing that respondent had no authority to tax government entities and that its exemption under Section 13 of Republic Act No. 6395, as amended, subsisted. Procedural History: The City of Cabanatuan filed a collection suit. The Regional Trial Court (RTC) dismissed the case, ruling that NPC's tax exemption privileges remained valid because Republic Act No. 6395 was a special law, Section 193 of Republic Act No. 7160 (Local Government Code or LGC) was an implied repeal not favored by law, and local governments could not tax national government instrumentalities. On appeal, the Court of Appeals reversed the RTC, holding that Section 193 of the LGC, in relation to Sections 137 and 151 thereof, expressly withdrew NPC's exemptions. The Court of Appeals ordered NPC to pay the assessed franchise tax, future taxes, surcharges, and litigation expenses. NPC's motion for reconsideration was denied. The Petition: NPC filed a petition for review, raising issues on whether it was liable for franchise tax, whether its exemption was repealed by the LGC, and whether its charter's police power exercise should prevail over the LGC.
Issue(s)
Whether the National Power Corporation (NPC), a government-owned and controlled corporation (GOCC), is liable to pay a franchise tax to the City of Cabanatuan. Whether the tax exemption privileges granted to NPC under its charter (Republic Act No. 6395, as amended) were withdrawn by the Local Government Code of 1991 (Republic Act No. 7160). Whether Section 193 of the Local Government Code of 1991, a general law, could repeal the special law that is the NPC Charter. Whether the exercise of police power through the NPC Charter should prevail over the Local Government Code.
Ruling
The petition is denied. The Court of Appeals' Decision and Resolution affirming NPC's liability to pay franchise tax to the City of Cabanatuan are affirmed.
Ratio Decidendi
On the liability of NPC to pay franchise tax: The Court held that the City of Cabanatuan has the authority to impose a franchise tax under Sections 151 and 137 of the Local Government Code (LGC). A franchise tax is levied on the privilege of transacting business and exercising corporate franchises. NPC possesses both a primary and secondary franchise under Commonwealth Act No. 120, as amended, and it exercises these privileges within the territorial jurisdiction of Cabanatuan City, realizing substantial gross receipts. Therefore, NPC fulfills the requisites for being subject to the franchise tax. On the withdrawal of tax exemptions by the LGC: The Court ruled that Section 193 of the LGC expressly withdrew tax exemptions and incentives granted to GOCCs, with specific exceptions not applicable to NPC. The LGC's provision that LGUs may impose franchise taxes "notwithstanding any exemption granted by any law or other special law" (Section 137) unequivocally overrides prior exemptions. The Court emphasized that tax exemptions are construed strictly against the claimant and must be clearly and categorically supported by legal provisions. NPC failed to point to any provision in the LGC that expressly grants it exemption from local taxes. On the repeal of a special law by a general law: The Court clarified that Section 193 of the LGC is an express, albeit general, repeal of all statutes granting tax exemptions from local taxes. While implied repeals are disfavored, Section 193 directly addresses the withdrawal of tax exemptions for GOCCs. Furthermore, Section 137 explicitly allows the imposition of franchise taxes despite any existing exemptions, indicating a clear legislative intent to subject entities like NPC to local franchise taxes. On the precedence of police power over the LGC: The Court stated that while police power is pervasive, the LGC, enacted pursuant to the constitutional mandate for local autonomy and decentralization, specifically addresses the taxing powers of local government units. The LGC's provisions, particularly Sections 137 and 193, demonstrate a clear legislative intent to withdraw tax exemptions and allow local governments to impose franchise taxes, thereby strengthening their fiscal capacity. The Court noted that the original reasons for withdrawing tax exemptions included preventing tax base erosion and distortions in tax treatment, making it imperative for government entities to contribute to development needs.
Main Doctrine
Government-owned and controlled corporations (GOCCs) like the National Power Corporation (NPC), even if performing proprietary functions and enjoying tax exemptions under their special charters, are subject to local franchise taxes under the Local Government Code of 1991 (Republic Act No. 7160), as Section 193 of the LGC expressly withdraws such exemptions, and Section 137 thereof allows the imposition of franchise taxes notwithstanding any prior exemption.